Strategic Mgt

Part 2 Planning Challenges in the 21st Century

Strategic Management

PowerPoint Presentation by Charlie Cook The University of West Alabama

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What is Strategy? • An integrated and coordinated set of commitments & actions designed to exploit core competencies and gains and gain a competitive advantage.

© 2006 by Nelson, a division of Thomson Canada Limited.

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What is Strategy? • How to attract and please customers, how to respond to changing market conditions, how to compete successfully, how to grow the business, how to achieve performance targets.

© 2006 by Nelson, a division of Thomson Canada Limited.

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What is Strategy?

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“A unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” (Glueck, 1980:9) “The pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn, 1980) “A pattern of resource allocation that enables firms to maintain or improve their performance. “A good strategy… neutralizes threats and exploits opportunities while capitalizing on strengths and avoiding or fixing weaknesses.” (Barney, 1997:17) © 2006 by Nelson, a division of Thomson Canada Limited.

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Identifying a company’s strategy 1. Diversify the org’s revenues and earnings by entering new businesses. Eg. TATA 2. Gain sales and market share via lower prices, better quality, customer service, wider product selection. Eg. HUL 3. Respond to changing market conditions. 4–5

5. To merge or acquire rival companies. Eg. CISCO, TATA-Corus, KingfisherDeccan 6. To form strategic alliances and collaborative partnerships Eg. Jet-Kingfisher 8. Managing R&D and other functional departments. 9. To strengthen competitive

© 2007 Thomson/South-Western. All rights reserved.

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A company’s strategy 1. Proactive actions: New initiatives plus continued from prior periods 2. Reactive actions: Adaptive reactions to changing circumstances

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The relationship between strategy & Business Model BM is more narrowly focused than the concept of the company’s strategy BM deals with only revenues

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What makes a strategy a winner 1. How well does the strategy fit the company’s situation? 2. Is the strategy helping the company achieve a sustainable competitive advantage? 3. Is the strategy resulting in better company performance? © 2007 Thomson/South-Western. All rights reserved.

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Good strategy + Good strategy execution =

Good management

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Strategic Planning • Strategic Planning  The process by which an organization makes

decisions and takes actions that affect its long-run performance.  Strategic plan: the output of the strategic planning process that provides direction by defining its strategic approach to business.

• Competitive Advantage  Is a central concept of strategic planning.  Can only be sustained if an organization continues to

out innovate competitors. © 2007 Thomson/South-Western. All rights reserved.

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Figure 4.1

The Strategic Management Process

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Key Terms • Strategic Management  Overall, long-run management.

• Strategic Planning  The process of making plans and decisions that are

focused on long-run performance.

• Strategic Plan  A comprehensive plan that provides overall direction

for the organization.

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Key Terms (cont’d) • Strategic Analysis  An assessment of the external and internal

environments of an organization.

• Strategy Formulation  Establishing strategy and tactics necessary to

achieve the mission of the organization.

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Benefits of Strategic Planning • Economic  Organizations that plan strategically outperform those

that do not.

• Behavioral  Identification of organizational and environmental

conditions that may create problems in the long run.  Better decisions as a result of the group decisionmaking process.  Participation in the planning process increases participants understanding of how the plan is to be implemented and their willingness to change. © 2007 Thomson/South-Western. All rights reserved.

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Strategic Analysis: Assessment in a Global Environment • The purpose of strategic analysis is to evaluate the present situation of the organization.  Analysis requires three primary activities: 

Assessing the mission of the organization



Internal environmental analysis



External environmental analysis

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Figure 4.2

The Components of Strategic Analysis

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SWOT Analysis • The combined internal and external strategic analysis is referred to as a SWOT analysis.  Strengths  Weaknesses  Opportunities  Threats

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Assessing the Mission of an Organization •

The mission of an organization reflects its fundamental reasons for existence.

• Though mission statements vary greatly, every mission statement should describe three primary aspects of an organization: 1. The organization’s primary products or services. 2. The organization’s primary target markets. 3. The organization’s overall strategy for ensuring long-

term success.

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Key Terms • Strategic Direction  Direction of the organization toward success in the

long run.

• Vision  The ability to predict opportunities and threats in the

future. A vision statement is intended to guide the organization in the future, what the organization wants to become or where it wants to be.  Vision is derived from a careful analysis of the external and internal environments 

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Table 4.1

Ford Motor Company’s Mission Statement

Ford Motor Company Our Vision To become the world’s leading consumer company for automotive products and services. Our Mission We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve people’s lives. Our Values Our business is driven by our consumer focus, creativity, resourcefulness, and entrepreneurial spirit. We are an inspired, diverse team. We respect and value everyone’s contribution. The health and safety of our people are paramount. We are a leader in environmental responsibility. Our integrity is never compromised and we make a positive contribution to society. We constantly strive to improve in everything we do. Guided by these values, we provide superior returns to our shareholders.

Source: Ford Motor Co. website (http://www.ford.com), 30 June 2005. © 2007 Thomson/South-Western. All rights reserved.

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External Analysis • Purpose of External Analysis  To identify aspects of the external environment that

represent either an opportunity for or a threat to the organization.  Opportunities: 

Those environmental trends on which the organization can capitalize and improve its competitive position.

 Threats 

Conditions that jeopardize the organization’s ability to prosper and its competitive position in the long term.

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External Analysis Factors • General Environment  Includes environmental forces that are beyond the

influence of the organization and over which it has no (or little) control.

• Task Environment  Includes environmental forces that are within the

organization’s operating environment and may be influenced to some degree.

• Economic Environment  The economic components of the general

environment. © 2007 Thomson/South-Western. All rights reserved.

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Figure 4.3

Dimensions of the Global External Environment

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Table 4.2

Sample Issues in the General Environment

Economic

Sociocultural

• Inflation rates

• Norms and values

• Unemployment rates

• Demographic trends

• Wage rates

• Age groups

• Exchange rates

• Regional shifts in population

• Stock market fluctuations

• Household composition

• Per capita income

• Diversity

• GDP trends

• Ecological awareness

• Economic development

• Life expectancy

Technological

Political–Legal

• Spending on research and development

• Tax laws

• Internet availability

• Environmental protection

• Availability of information technology

• International trade regulation

• Production technology trends

• Antitrust regulation

• Productivity improvements

• Federal Reserve policy

• Telecommunications infrastructure

• Intellectual property and patent laws

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External Environment • General Environment

• Task Environment

 Economic factors

 Customer Profiles

 Technological factors

 Competitive Structure

 Socio-cultural factors

 Resource Availability

 Political-legal factors

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Figure 4.4

Five Forces Model of Industry Analysis

Source: Adapted from Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 57, no. 2 (March/April 1979): 137–145. © 2007 Thomson/South-Western. All rights reserved.

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Internal Analysis • Purpose of Internal Analysis  To identify the assets, resources, skills, and

processes that represent either strengths or weaknesses for the organization.  Strengths 

Aspects of the organization’s operations that represent potential competitive advantages or distinctive competencies.

 Weaknesses 

Areas that are in need of improvement.

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Table 4.3

Internal Factors for Analysis

Marketing

Operations

Finance

Product, service Brand equity Market research Sales force Market share Size of market Distribution channels Price Promotion

Productivity Quality Facilities Supply chain Technology Purchasing Safety Ecological issues

Profitability Revenue Asset utilization Debt/leverage Equity Per unit costs Profit margins Cash flow

Human Resources

Other Factors

Skills Selection Training and development Leadership Motivation Communication Rewards

Organization culture Overall control Information system Information technology Organizational structure

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Strategy Formulation • Answers the question:  “Where does the organization want to be?”

• Steps in strategy formulation include:  Casting the vision for the organization.  Setting strategic goals.  Identifying strategic alternatives.  Evaluating and choosing strategies that provide a

competitive advantage and optimize the performance of the organization in the long term. © 2007 Thomson/South-Western. All rights reserved.

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Casting the Vision for the Organization •

The development of a vision for the organization is central to any strategic plan.

• Vision versus Mission  A vision statement describes what the organization

aspires to be in the long run.  A mission statement describes the products, services,

and target markets for an organization.

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Setting Strategic Goals • Goals  Are very broad statements of the results that an

organization wishes to achieve in the long run.  Relate to the mission and vision of the organization

and specify the level of performance that the organization wants to achieve.

• SMART goals are:  Specific…Measurable…Achievable…Results-

oriented…Timeline

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Identifying Strategic Alternatives • Strategic Alternatives  Are developed in light of the organizational mission

considering its strengths, weaknesses, opportunities, and threats, and its vision and strategic goals.

• Grand Strategies  Stability strategies: intended to ensure continuity in

the operations and performance of the organization.  Growth strategies: designed to increase the sales and profits of the organization.  Retrenchment strategies: designed to reverse negative sales and profitability trends. © 2007 Thomson/South-Western. All rights reserved.

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Identifying Strategic Alternatives

(cont’d) • Generic Strategies

 The primary ways in which an organization can

compete in its chosen market(s). 

Cost leadership: competing on the basis of price.



Differentiation: offering products or services that are differentiated from those of competitors in some way.



Focus: avoiding competing in broad markets by targeting a narrow market segment.



Best-Cost provider: competing on the basis of both low-cost and differentiation.

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Figure 4.5

Generic Strategies Matrix

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Evaluating and Choosing Strategy • Portfolio Assessment  Provides a mechanism for evaluating an

organization’s portfolio of business, products and services. Boston Consulting Group (BCG) Growth-Share matrix  General Electric Industry Attractiveness–Business Strength matrix 

• Decision Matrices  A decision matrix provides a method for evaluating

alternative strategies according to the criteria that the organization’s leaders consider more important.

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Strategy Implementation: Focusing on Results • The best-formulated strategy is virtually worthless if it cannot be implemented effectively.  A direct, specific, clear strategy must be developed.  Strategies must be established at all levels of the

organization to align each part of the organization with the organization’s overall mission and goals.  The organization’s system must be designed to

ensure that strategies can be institutionalized in its culture.

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Evaluation and Control: Achieving Effectiveness and Efficiency • Strategic Control  Involves monitoring the implementation of the

strategic plan to ensure quality and effectiveness in terms of organizational performance.  Feedforward controls 

Are designed to identify changes in the external environment or internal operations that affect organization’s ability to fulfill its mission and meet its strategic goals.

 Feedback Controls 

Compare the actual performance of the organization to its planned performance.

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Information Technology and Strategic Planning • Positive  The increasing availability of information technology

has had a tremendous impact on the ability of organizations to develop effective strategic plans.

• Negative  Many organizations fail to use the information made

available by management information systems to ensure effective strategic planning.

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Institutionalizing Strategy • Every member, work group, department, and division of the organization must subscribe to and support the organization’s strategy with its plans and actions.  There must be a good fit between the chosen strategy

and: 

the organizational structure



the organizational culture



the organizational leadership

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The Importance of Organizational Culture • Organizational Culture

 Refers to the shared, emotionally charged beliefs,

values, and norms that bind people together. 

Helps people make sense of the systems within an organization.



Guides the behavior of and gives meaning to the members of the organization.

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Organizational Leadership • The Importance of Leadership  If an organization is to implement its strategy

effectively, it must have the appropriate leadership.  Without effective leadership, an organization is

unlikely to realize the benefits of its selected strategy.

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Implications for Leaders • Understand the realities of the external environment in which you operate. • Understand the importance of a thorough and accurate assessment of the current situation of the organization. • A plan will be only as good as the analysis upon which it is based. • Strategic vision is critical for ensuring a common strategic direction for the organization. • Make sure that the mission statement is a working document that provides direction for the members of the organization. © 2007 Thomson/South-Western. All rights reserved.

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Implications for Leaders (cont’d) • Strategic goals serve as targets for achievement. Make sure that they are specific, measurable, results oriented, and have a established time for their achievement. • Strategy should be designed to provide the organization with a distinctive competitive advantage in the long run. • A strategic plan is meaningless if it is not implemented well. • Provide for evaluation and control to be sure that operations are on track for accomplishment of the organization’s mission.

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