chapter 2

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© The McGraw-Hill Companies, Inc., 1998

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CHAPTER - 2

THE THREE THE THREE STRATEGY- MAKING STRATEGY- MAKING

TASKSTASKSMohammad Mizenur Rahaman

Ph.D ResearcherAssistant Professor

Shahjalal University of Science & Technology, Sylhet

Published by Lecturesheet.iiuc28a9.com

http://www.lecturesheet.iiuc28a9.com/

“Management’s job is not to see

the company as it is….but as it

can become.”

“A strategy is a commitment to

undertake one set of actions

rather than another.”

“Quote”

John W. Teets

Sharon M. Oster


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Chapter Outline

Developing a Strategic Vision / Mission

Establishing Financial and Strategic Objectives

Crafting a Strategy

Factors Shaping a Company's Strategy

Linking Strategy With Ethics

Approaches to Performing the Strategy-Making Task

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Developing a Vision or Mission

Indicates the long-term course management has charted for the organization --

Business activities to be pursued

Future market position

Future customer focus

Kind of company to become

First Direction-Setting Task

Our future direction will be . . .

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Why Have a Mission orStrategic Vision?

Power of a well-conceived strategic vision

Guides managerial decision-making

Arouses employee buy-in and commitment

Prepares a company for the future

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Characteristics of a Strategic Vision

Charts a company’s future strategic course Defines the business makeup

in 5 to 10 years Company specific, not generic

Provides a company with its own special identity and path to follow

The vision is not to make a profit The real mission/vision is

“what will we do to make a profit?” Requires the exercise of management foresight

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Elements of a Strategic Vision

Defines presentpresent and futurefuture business make-up of company

Charts a long-term long-term path to follow

Communicated in an inspiringinspiring and excitingexciting manner

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Example: Strategic Vision

. . . . . . we want Delta to be the

WORLDWIDE AIRLINE OF CHOICE.WORLDWIDE AIRLINE OF CHOICE.

DELTA AIRLINES

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WORLDWIDE,WORLDWIDE, because we are and intend to remain an innovative, aggressive, ethical,

and successful competitor that offers access to the world at the highest standards of customer

service. We will continue to look for opportunities to extend our reach through new

routes and creative global alliances.

DELTA AIRLINES

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AIRLINE,AIRLINE, because we intend to stay in the business we know best -- air transportation and related services. We won’t stray from our roots.

We believe in the long-term prospects for profitable growth in the airline industry, and we will continue to focus time, attention, and investment

on enhancing our place in that business environment.

DELTA AIRLINES

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OF CHOICE,OF CHOICE, because we value the loyalty of our customers, employees, and investors. For passengers and shippers, we will continue to provide the best service and value. For our

personnel, we will continue to offer an ever more challenging, rewarding, and result-oriented

workplace that recognizes and appreciates their contributions. For our shareholders, we will earn a

consistent, superior financial return.

DELTA AIRLINES

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Defining a Company’s Business

A good business definition incorporates three factors

Customer needs -- WHAT is being satisfied

Customer groups -- WHO is being satisfied

Technologies used and functions performed -- HOW customer needs are satisfied

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Business Mission: Russell Corp.

Russell Corporation is a vertically integrated international designer, manufacturer, and marketer of athletic uniforms, . . . , and a comprehensive line of lightweight, yarn-dyed woven fabrics.

The Company’s manufacturing operations include the entire process of converting raw fibers into finished apparel and fabrics.

Products are marketed to sporting goods dealers, department and specialty stores, mass merchandisers, . . . , and other apparel manufacturers.

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Business Mission:McDonald’s

Serving a limited menu of hot, tasty food quickly in a clean, friendly restaurant for a good value to a broad base of fast-food customers worldwide.

McDonald’s serves approximately 30 million customers daily at 20,000-plus restaurants in over 90 countries.

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Broad - Narrow Mission Statements?

Narrow enough to specify real arena of interest

Serve as

Boundary for what to do and not do

Beacon of where top management intends to take firm

Diversified companies employ broader business definitions

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Definitions: Broad - Narrow Scope

Broad Definition

Beverages

Children’s products

Furniture

Global mail delivery

Travel & tourism

Narrow Definition Soft drinks

Toys

Wrought iron lawn furniture

Overnight package delivery

Ship cruises in the Caribbean

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Mission Statementof a Diversified Firm

TIMES MIRROR CORPORATION

Times Mirror is a media and information company principally engaged in

newspaper publishing; book, magazine and other publishing; and cable and

broadcast television.

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Mission Statements forFunctional Departments

Spotlights department’s

Contribution to firm’s mission/vision/objectives

Role and scope of activities

Direction which department needs to pursue

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Mission Statements ofFunctional Departments

HUMAN RESOURCES To contribute to organizational success by developing effective leaders, creating high performance teams,

and maximizing the potential of individuals.

CORPORATE SECURITY

To provide services for the protection of corporate personnel and assets through preventive

measures and investigations.

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Decision Time: What Will the Vision Be?

Entrepreneurial challenge -- Creatively preparing a

company for the future Astute strategists focus on

Shifting customer needs New technologies Attractive foreign markets Growing or shrinking

opportunities

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Intel’s “Strategic Inflection Points”

Pre - mid 1980s Business focus was memory chips

Post - mid 1980s Abandon memory chip business Adopt new strategic vision

Become preeminent supplier of microprocessors to PC industry

Make PC central appliance in workplace and home

Be undisputed leader in driving PC technology forward

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Communicating the Vision

An exciting, inspirational vision Inspires, challenges, and motivates

workforce Arouses strong sense of

organizational purpose and induces employee buy-in

Brings workforce together and galvanizes people to live the business

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Managerial Value: Strategic Vision and Mission

Crystallizes long-term direction

Reduces risk of rudderless decision-making

Conveys organizational purpose and identity

Keeps direction-related actions of lower-level managers on common path

Helps organization prepare for the future

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Establishing Objectives

Represent commitment to achieve specific performance targets by a certain time

Must be stated in quantifiable terms and contain a deadline for achievement

Spell-out how much of what kind of performance by when

Second Direction-Setting Task

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Purpose of Objectives

Substitutes results-oriented decision-making for aimlessness over what to accomplish

Provides benchmarks for judging organizational performance

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Strategic Management Principle

Companies whose managers set objectives for each key result area

and then press forward with actions aimed directly at achieving these performance outcomes typically outperform companies whose

managers exhibit good intentions, try hard, and hope for the best!

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Types of Objectives Required

Outcomes that improve a firm’s financial

performance

Outcomes that strengthen a firm’s

competitiveness and long-term market

position

Financial Objectives Strategic Objectives

$

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Every company needs

both strategic and

financial objectives!

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Examples: Financial Objectives

Achieve revenue growth of 10% per year Increase earnings by 15% annually Increase dividends per share by 5% per year Increase net profit margins from 2% to 4% Attractive EVA performance Stronger bond and credit ratings A rising stock price (outperform the S&P 500) Attractive increases in MVA Recognition as a “blue chip” company A more diversified revenue base

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Examples: Strategic Objectives

A bigger market share Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader product line than rivals A stronger reputation with customers than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals More innovative products than rivals

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Corporate Objectives: McDonald’s

To achieve 100 percent total customer satisfaction . . . everyday

. . . in every restaurant . . . for every customer.

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Corporate Objectives: 3M Corporation

30 percent of the company’s annual sales must come from

products fewer than four years old.

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Corporate Objectives: Anheuser-Busch

To make all our companies leaders in their industries in quality while exceeding customer expectations.

To achieve a 50% share of the U.S. beer market. To establish and maintain a dominant leadership

position in the international beer market. To provide all our employees with challenging and

rewarding work, . . . , and opportunities for personal development, advancement, and competitive compensation.

To provide our shareholders with superior returns by achieving double-digit annual earnings per share growth, . . .

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Corporate Objectives: McCormick & Co.

To achieve a 20 percent return on equity. To achieve a net sales growth rate of 10

percent per year. To maintain an average earnings per

share growth rate of 15 percent per year. To maintain total debt-to-total capital at 40

percent or less. To pay out 25% to 35% of net income in

dividends.

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Strategic or Financial Objectives --Which Take Precedence?

Pressures for better short-term financial performance become pronounced when

Firm is struggling financially Resource commitments for new strategic

initiatives may hurt bottom-line for several years Proposed strategic moves are risky

A firm that consistently passes up opportunities to strengthen its long-term competitive position

Risks diluting its competitiveness Risks losing momentum in its markets Can hurt its ability to fend off rivals’ challenges

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Building a stronger long-term

competitive position benefits

shareholders more lastingly

than improving short-term

profitability!

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The Concept of Strategic Intent

A company exhibits STRATEGIC INTENT when it relentlessly pursues an ambitious strategic

objective and concentrates its competitive actions and energies on achieving that

objective!

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The Concept of Strategic Intent

Indicates firm’s intent to stake out a particular position over the long-term

Serves as a rallying cry for employees to do their very best

Signals deep-seated commitment to winning

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Short-Range andLong-Range Objectives

Short-Range objectives

Targets to be achieved soon

Serve as stair steps for reaching long-range performance

Long-Range objectives

Targets to be achieved within 3 to 5 years

Prompt actions now that will permit reaching targeted long-range performance later

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Objectives Are Needed at All Levels

Process is top-down, not bottom-up!

1. First, establish organization-wide objectives

2. Next, set business and product line objectives

3. Then, establish functional and departmental objectives

4. individual objectives come last

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Objective-setting needs to be more of a top-down than a bottom-up process in order to guide lower-level managers

and organizational units toward outcomes that support the

achievement of overall business and company objectives.

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Crafting a Strategy

An organization’s strategy deals with

How to make management’s strategic vision a reality

The game plan for

Moving the company into an attractive business position

Building a sustainable competitive advantage

Third Direction-Setting Task

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Strategizing Is HOW To . . .

Achieve performance targets

Out-compete rivals

Achieve sustainable competitive advantage

Strengthen firm’s long-term competitive position

Make the strategic vision a reality

Our game plan for running the company will be . . .

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Characteristics of Strategy-Making

Action-Oriented

Evolves Over Time

A Never-ending, Ongoing Task

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Fig. 2-1(a): Levels of Strategy-Making:A Diversified Company

Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Business-Level Managers

OperatingManagers

Functional Managers

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Levels of Strategy-Making:A Single-Business Company

Business Strategy

Two-Way Influence

Two-Way Influence



Executive-Level Managers

OperatingManagers

Functional Managers

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Corporate Strategy fora Diversified Company

CorporateStrategy

How MuchDiversification

Kind of Diversification

Responses toChanging Conditions

Efforts to Build CompetitiveAdvantage ViaDiversification

Moves to StrengthenPositions and Profitsin Present BusinessesMoves to

Add New Businesses

Approach toCapital Allocation

Moves to DivestWeak Units

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Tasks of Corporate Strategy

Moves to achieve diversification

Actions to boost performance of individual businesses

Capturing synergy among business units

2 + 2 = 5 effects! Establishing investment

priorities and steering corporate resources into the most attractive business units

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Strategy Components ofa Single-Business Company

BusinessStrategy

Strategic Alliances and CollaborativePartnerships

Responses to Changing Conditions

Basic CompetitiveApproach

Moves toSecureCompetitiveAdvantage

Geographic coverage;approach to verticalintegration

ManufacturingStrategy

Marketing Strategy

R & DStrategy

Human Resources Strategy Finance Strategy

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What Business Strategy Involves

Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc.

Crafting competitive moves leading to sustainable competitive advantage

Building competitively valuable competencies and capabilities

Uniting strategic initiatives of functional areas

Addressing strategic issues facing the company

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Game plan for a strategically-relevant function, activity, or business process

Details how key activities will be managed

Provide support for business strategy

Specify how functional objectives are to be achieved

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Concern narrower strategies for managing grassroots activities and strategically-relevant operating units

Add detail to business and functional strategies but of lesser scope

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Example: Operating Strategy

To boost productivity by 10%, managers of firm with low-price, high-volume strategy take following actions:

Recruitment manager develops selection process designed to weed out all but best-qualified candidates

Information systems manager devises way to use technology to boost productivity of office workers

Compensation manager devises improved incentive compensation plan

Purchasing manager obtains new efficiency-increasing tools and equipment

Boosting Worker Productivity

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Example: Operating Strategy

Manufacturer of plumbing equipment emphasizes quick delivery and accurate order-filling as keystones of its customer service approach. Warehouse manager took following approaches:

Inventory stocking strategy allowing 99% of all orders to be completely filled without backordering any item

Staffing strategy of maintaining workforce capability to ship any order within 24 hours

Improving Delivery & Order-Filling

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Uniting the Company’s Strategy-Making Effort

A company’s strategy is a collection of strategies and initiatives

Separate levels of strategy must be unified into a cohesive, company-wide action plan

Pieces of strategy should fit together like puzzle pieces

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Networking of Missions,Objectives, and Strategies

Level 1

Level 2

Level 3

Level 4

CorporateLevel

Objectives

Overall Scopeand Strategic

Vision

CorporateLevel

Strategy

BusinessLevel

Objectives

BusinessLevel

Strategic Vision

BusinessLevel

Strategies

FunctionalObjectives

Functional Missions

FunctionalStrategies

OperatingObjectives

OperatingMissions

OperatingStrategies

Two-Way Influence Two-Way Influence Two-Way Influence

Two-Way Influence Two-Way Influence Two-Way Influence

Two-Way Influence

Corporate-LevelManagers

Business-LevelManagers

Functional Managers

Plant Managers,Lower-Level Supervisors

Two-Way Influence Two-Way Influence

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Objectives and strategies that are

unified from top to bottom of the

strategy-making managerial

hierarchy require a team effort.

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Factors Shaping theChoice of Company Strategy

CompetitiveConditions &

IndustryAttractiveness

Societal, Political,

RegulatoryFactors

CompanyOpportunities

&Threats

Company’s Strategic Situation

Influencesof Key

Executives

ResourceStrengths

&Weaknesses

Shared Values&

Culture

DetermineRelevanceof Internal

& External Factors

Identify &

Evaluate Alterna-

tives

Craftthe

Strategy

External Factors

Internal Factors

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Social, Political, Regulatory,and Citizenship Factors

Pressures from special interest groups Glare of investigative reporting Health and nutrition concerns Concerns about alcohol and drug abuse Sexual harassment Corporate downsizing Impact of plant closings on communities Rising/falling interest rates Recessionary economic conditions Trade restrictions, tariffs, and import quotas

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Corporate Social Responsibility

Conduct company activities within bounds of what is considered ethical and in public interest

Respond positively to emerging societal priorities and expectations

Demonstrate willingness to take needed action ahead of regulatory confrontation

Balance stockholder interests against larger interest of society as a whole

Be a “good citizen” in community

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Competitive Conditions andIndustry Attractiveness

A company’s strategy has to be responsive to

Fresh moves of rival competitors

Changes in industry’s price-cost-profit economics

Shifting buyer needs and expectations

New technological developments

Pace of market growth

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A company’s strategy can’t

produce real market success

unless it is well-matched to

industry and competitive

conditions!

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Company Opportunities and Threats

For strategy to be successful, it has to be well matched to

A company’s best opportunities

Threats to the company’s well-being

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Company Strengths, Competencies, and Competitive Capabilities

A company must have or be able to acquire the resources, competencies, and competitive capabilities needed to execute the chosen strategy

Resource deficiencies, gaps in skills, and weaknesses in competitive position make pursuit of certain strategies risky or altogether unwise

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A company’s strategy ought to be

grounded in its resource strengths and in

what it is good at doing (its competencies

and competitive capabilities); it is perilous

to craft a strategy whose success is

dependent on resources and capabilities

that a company lacks!

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Ambitions, Philosophies, and Ethics of Key Executives

Managers generally stamp strategies they craft with their own personal

Ambitions

Values

Business philosophies

Attitudes toward risk

Ethical beliefs

I believe we should be

#1!

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Shared Values and Company Culture

Values and culture can dominate strategic moves a company will Consider Reject

A company should not undertake strategic moves which conflict with Its culture Values widely shared by managers

and employees

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Hewlett-Packard’sBasic Values: “The HP Way”

Sharing firm’s success with employees Showing trust and respect for employees Providing customers with products/services of the

greatest value Being genuinely interested in providing customers

with effective solutions to their problems Making profit a high stockholder priority Avoiding use of long-term debt to finance growth Individual initiative, creativity, & teamwork Being a good corporate citizen

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Linking Strategy With Ethics

Ethical and moral standards go beyond

Prohibitions of law and

Language of “thou shalt not” to

Issues of duty and

Language of “should and should not do”

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Ethical Responsibilitiesof Firm to Stakeholders

Owners/shareholders - Expect some form of return on their investment

Employees - Expect respect for their worth and devoting their energies to firm

Customers - Expect reliable, safe product or service

Suppliers - Expect equitable relationship with firm

Community - Expect businesses to be good citizens in their community

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Tests of a Winning Strategy

GOODNESS OF FIT TEST

How well is strategy matched to firm’s situation?

COMPETITIVE ADVANTAGE TEST

Does strategy lead to sustainable competitive advantage?

PERFORMANCE TEST

Does strategy boost firm performance?

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To be a real winner, a strategy must

(1) Fit the enterprise’s situation

(2) Build sustainable competitive advantage

(3) Improve company performance

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Approaches to Performing the Strategy-Making Task

MASTER STRATEGIST

Manager personally functions as chief strategist

DELEGATE IT TO OTHERS

Manager delegates strategy-making to others

COLLABORATIVE

Manager enlists help of key subordinates in hammering out consensus strategy

CHAMPION

Manager encourages subordinates to develop and implement strong strategies

chapter 2

Business

delta airlines

companys strategy

information company

good business definition

future direction

strategy factors

business makeupin

business environment