THE
STRATEGIC MANAGEMENT PROCESS
“Without a strategy the organization is like a ship
without a rudder, going around in circles.”
Joel Ross and Michael Kami
Chapter Outline
uFive Tasks of Strategic
Management
èDeveloping a Strategic Vision
and
èSetting Objectives
èCrafting a Strategy
èImplementing and Executing the
Strategy
èEvaluating Performance and
Initiating Corrective Adjustments
uWhy Strategic Management Is a
Process
uWho Performs the Tasks of
Strategy?
uBenefits of “Thinking and
Managing Strategically”
Thinking Strategically:
The Three Big
Strategic Questions
1. Where are we now?
2. Where do we want to go?
èBusiness(es)
to be in and market positions to stake out?
èBuyer needs and groups to serve?
èOutcomes to achieve?
3. How do we get there?
What
is Strategy?
uA company’s
strategy consists of the set of competitive moves and business approaches that
management is employing to run the company
uStrategy is
management’s “game plan” to
èAttract and
please customers
èStake out a
market position
èConduct
operations
èCompete
successfully
èAchieve
organizational objectives
What
is a Business
Model?
uA company’s business model
addresses “How do we make money in this business?”
èIs the strategy that
management is pursuing capable of delivering good bottom-line results?
uDo the revenue-cost-profit
economics of the company’s strategy make good business sense?
èLook at the revenue streams
the
strategy is expected to produce
èLook at the associated cost
structure
and potential profit margins
èDo the resulting earnings
streams and
ROI indicate the strategy makes sense and that the company has a viable business
model?
Strategy vs. Business Model :
What is
the Difference?
Strategy -- Deals with a company’s competitive
initiatives and business approaches
Business Model -- Concerns whether the
revenues and costs flowing from the strategy demonstrate
that the business can be amply
profitable and viable
Microsoft’s Business Model
Redhat Linux’s Business
Model
Why
Are
Strategies Needed?
To proactively shape how a company’s business
will be conducted
To mold the independent actions and decisions of managers
and employees into a coordinated, company-wide game plan
Strategic Management Concept
Figure 1-1: The
Five Tasks
of Strategic Management
Developing a Strategic
Vision
uInvolves thinking
strategically about
èFirm’s future business plans
èWhere to “go”
uTasks include
èCreating a roadmap
of the future
èDeciding future business
position to stake out
èProviding long-term
direction
èGiving
firm a strong identity
Characteristics of a
Strategic Vision
uA roadmap of
a company’s future
èFuture
technology-product-customer focus
èGeographic and product markets
to pursue
èCapabilities to be developed
èKind of company management is trying to create
Missions vs. Strategic Visions
uA mission
statement focuses on current business activities -- “who we
are and what we do”
èCurrent product and service
offerings
èCustomer needs being served
èTechnological and business
capabilities
uA strategic
vision concerns a firm’s future business path -- “where
we are going”
èMarkets to be pursued
èFuture
technology-product-customer focus
èKind of company that
management is
trying to create
Why
is a Strategic
Vision Important?
uA managerial
imperative exists to look beyond today and think
strategically about
èImpact of new
technologies
èHow customer
needs and expectations are
changing
èWhat it will
take to outrun competitors
èWhich
promising market opportunities ought to be aggressively pursued
èExternal and
internal factors driving what a company needs to do to prepare for the future
Examples:
Examples:
Examples:
Examples:
Examples:
Examples:
Examples:
Examples:
Examples:
Setting Objectives
uConverts strategic vision and
mission into specific performance
targets
uCreates yardsticks to track
performance
uPushes firm to be inventive
and focused on results
uHelps prevent complacency and
coasting
Types of Objectives
Required
Outcomes focused on improving financial
performance
Outcomes focused on improving long-term, competitive business
position
Examples of Financial
Objectives
uGrow earnings
per share 15% annually
uBoost annual
return on investment (or EVA) from 15% to 20% within three years
uIncrease
annual dividends per share
to stockholders by 5% each year
uStrive for
stock price appreciation
equal to or above the S&P 500 average
uMaintain a
positive cash flow every year
uAchieve and
maintain a AA bond rating
Examples of Strategic
Objectives
uIncrease firm’s market share
uOvertake key rivals on quality
or customer service or product
performance
uAttain lower overall costs
than rivals
uBoost firm’s reputation with
customers
uAttain stronger foothold in
international markets
uAchieve technological
superiority
uBecome leader in new product
introductions
uCapture attractive growth
opportunities
Examples: Strategic Objectives
Example: Strategic Objectives
Examples: Strategic and
Financial Objectives
Example: Strategic Objective
Example: Financial and
Strategic Objectives
Crafting a Strategy
uStrategy involves determining whether
to
èConcentrate on a single
business or several businesses (diversification)
èCater to a broad range of
customers or focus on a particular niche
èDevelop a wide or narrow
product line
èPursue a competitive advantage
based on
lLow cost or
lProduct superiority or
lUnique organizational
capabilities
Crafting a Strategy
uInvolves
deciding how to
èRespond to
changing buyer preferences
èRespond to
new market conditions
èGrow the
business over the long-term
èAchieve
performance targets
èOutcompete
rivals
Figure
1-2: A Company’s
Strategy is Partly
Planned and Partly
Reactive
The
Hows That
Define a
Firm's Strategy
uHow
to grow the business
uHow to please
customers
uHow to
outcompete rivals
uHow to respond
to changing
market conditions
uHow to manage
each functional piece of the business and develop needed organizational
capabilities
uHow to achieve
strategic and financial objectives
Figure 1-3: Understanding
a Company’s Strategy -- What to
Look For
Strategic Priorities of
McDonald’s
uContinued growth
uProviding exceptional customer
care
uRemaining an efficient and
quality producer
uDeveloping people at every
organizational level
uSharing best practices among
all units
uReinventing the fast food
concept by fostering innovation in
the menu, facilities, marketing, operation, and technology
Core
Elements of
McDonald’s Strategy
uAdd 1750 restaurants annually
uPromote frequent customer
visits via attractive menu items, low-price specials, and Extra Value Meals
uBe highly selective in
granting franchises
uLocate on sites offering
convenience to customers and profitable growth potential
uFocus on limited menu and
consistent quality
uCareful attention to store
efficiency
uExtensive advertising and use
of Mc prefix
uHire courteous personnel; pay
an equitable wage; provide good training
Crafting Strategy is an
Exercise in Entrepreneurship
uStrategy-making is a market-driven
and customer-driven activity that involves
èKeen eye for spotting emerging
market opportunities
èKeen observation of customer
needs
èInnovation and creativity
èPrudent risk-taking
èStrong sense of how to
grow and strengthen business
Characteristics of Managers
with
Good Entrepreneurial Skills
uBoldly pursue new strategic
opportunities
uEmphasize out-innovating the
competition
uLead the way to improve firm
performance
uWilling to be a first-mover
and take risks
uRespond quickly and
opportunistically to new
developments
uDevise trail blazing
strategies
Why
Do
Strategies Evolve?
uThere is always
an ongoing need to react to
èShifting market conditions
èFresh moves of competitors
èNew technologies
èEvolving customer preferences
èPolitical and regulatory
changes
èNew windows of opportunity
èCrisis situations
Figure 1-4: Strategic
Approaches to Preparing for
Future Market Conditions
What
is a Strategic
Plan?
Implementing and Executing
Strategy
uTaking
actions to put a freshly-chosen strategy into place
uSupervising
the ongoing
pursuit of strategy
uImproving the
competence
and efficiency with which the strategy is being executed
uShowing measurable progress in
achieving the targeted results and objectives
Strategy Implementation and
Execution
What
Does
Strategy Implementation
and Execution Include?
uBuilding a capable
organization
uAllocating resources to
strategy-critical activities
uEstablishing
strategy-supportive policies
uMotivating people to pursue
the target objectives
uTying rewards to achievement
of results
uCreating a strategy-supportive
corporate culture
uInstalling needed information,
communication, and operating systems
uInstituting best practices and
programs for continuous improvement
uExerting the leadership
necessary to drive the process forward and keep improving
Monitoring, Evaluating, and Taking
Corrective Actions as
Needed
uThe tasks
of crafting, implementing, and executing a strategy are not a one-time
exercise
èCustomer needs
and competitive
conditions change
èNew
opportunities appear; technology
advances; any number of other
outside developments occur
èOne or more
aspects of executing the
strategy may not be going well
èNew managers
with different
ideas take over
èOrganizational
learning occurs
uAll these trigger the need
for corrective actions and adjustments
Characteristics of the
Strategic Management
Process
uNeed to do the five tasks never
goes away
uBoundaries among the five
tasks are blurry
uStrategizing is not isolated
from other managerial activities
uTime required comes in lumps
and spurts
uThe big challenge: To get the best strategy-supportive
performance from employees, perfect current strategy, and improve strategy
execution
Who
Performs
the Five
Strategic Management Tasks?
uSenior
Corporate Executives
uManagers of
Subsidiary
Business Units
uFunctional
Area Managers
uOperating
Managers
Approaches to Performing
the Strategy-Making Task
Chief Architect
Manager personally functions as chief strategist
Delegate-It-to-Down-the-Line Managers
Manager delegates some strategy-making responsibility to
subordinates in charge of key organizational units
Collaborative/Team
Manager enlists assistance and advice of key subordinates in
hammering out a consensus strategy
Corporate Intrapreneur
Manager encourages subordinates to develop and champion proposals for new
ventures
Strategic Role of
a Board of
Directors
uCritically appraise and
ultimately approve strategic action plans
uEvaluate strategic leadership
skills of the CEO and candidates to succeed the CEO
Strategic Management Principle
A board of director’s role in the strategic management
process is to critically appraise and ultimately approve strategic action plans
and to evaluate the strategic leadership skills of the CEO and others in line
to succeed the incumbent CEO.
Benefits of “Strategic Thinking” and a “Strategic
Approach” to Managing
uGuides entire firm regarding
“what it is we are trying to do and to achieve”
uMakes managers more alert to
“winds of change, new opportunities,
and threatening developments
uUnifies numerous
strategy-related
decisions and organizational efforts
uCreates a proactive atmosphere
uPromotes development of an
evolving business model focused on bottom-line success
uProvides basis for evaluating
competing
budget requests
HELPS A COMPANY PREPARE FOR THE FUTURE!