slides of strategic management ch-2

1. 2–1
SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT
LLeeccttuurree-- 22
CHARTING A COMPANY’S DIRECTION:
♦ DDeevveellooppiinngg aa SSttrraatteeggiicc VViissiioonn,, SSeettttiinngg OObbjjeeccttiivveess,,
aanndd CCrraaffttiinngg aa SSttrraatteeggyy
♦ Without a strategy the organization is like a ship without a rudder,
going around in circles.” Joel Ross and Michael Kami
Created by: Md. Motaharul Islam

2. 2–2
WHAT DOES THE STRATEGY-MAKING,
STRATEGY-EXECUTING PROCESS ENTAIL?
1. Developing a strategic vision, a mission, and a set
of values.
2. Setting objectives for measuring performance and
progress.
3. Crafting a strategy to achieve those objectives.
4. Executing the chosen strategy efficiently and
effectively.
5. Monitoring strategic developments, evaluating
execution, and making adjustments in the vision
and mission, objectives, strategy, or execution as
necessary.

3. 2–3
2.1 The Strategy-Making, Strategy-Executing Process

4. STAGE 1: DEVELOPING A STRATEGIC VISION,
A MISSION, AND A SET OF CORE VALUES
2–4
♦ A strategic vision concerns a firm’s future business path --
“where we are going”
♦ It is a description of what the organisation is capable of
becoming or would like to become ……
Strategic vision is dynamic process.
♦ Developing a Strategic Vision:
● Delineates management’s future aspirations for the business to
its stakeholders.
● Provides direction—“where we are going.”
● Sets out the compelling rationale (strategic soundness) for the
firm’s direction.
● Uses distinctive and specific language to set the firm apart from
its rivals.

5. 2–5
Communicating the Strategic Vision
♦Why Communicate the Vision:
● Fosters employee commitment to the firm’s
chosen strategic direction.
● Ensures understanding of its importance.
● Motivates, informs, and inspires internal and
external stakeholders.
● Demonstrates top management support for the
firm’s future strategic direction and competitive
efforts.

6. 2–6
Crafting a Mission Statement
♦ A mission statement focuses on current business
activities -- “who we are and what we do”
♦ Mission is a purpose or reason for the organisation’s existence
(what the organisation is now).
♦ It tells what the organization is providing to the society.
♦ It promotes a sense of shared expectations in employees.
♦ Communicates a public image to important stakeholder groups.
♦ The Mission Statement:
● Uses specific language to give the firm its own unique identity.
● Describes the firm’s current business and purpose—“who we
are, what we do, and why we are here.”
● Should focus on describing the company’s business, not on
“making a profit”—earning a profit is an objective not a
mission.

7. 2–7
Characteristics of a Strategic Vision
♦ A roadmap of a company’s future
● Future technology-product-customer focus
● Geographic and product markets to pursue
● Capabilities to be developed
● Kind of company management is trying to
create
● Specific questions tthhaatt hheellpp ffoorrmm
ssttrraatteeggiicc vviissiioonnss::
♦ What business are we in now?
♦ What business do we want to be in?
♦ What will our customers want in future?
♦ What are expectations of our stakeholders?
♦ Who will be our future competitors?
♦ What should our competitive scope be?
♦ How will technology impact our industry
♦ What environmental scenarios are possible?

8. 2–8
Why is a Strategic Vision Important?
♦ A managerial imperative exists to look beyond
today and think strategically about
♦ Impact of new technologies
♦ How customer needs and expectations
are changing
♦ What it will take to outrun competitors
♦ Which promising market opportunities
ought to be aggressively pursued
♦ External and internal factors driving what
a company needs to do to prepare for the
future
?

9. 2–9
The Ideal Mission Statement
♦ Identifies the firm’s product or services.
♦ Specifies the buyer needs it seeks to satisfy.
♦ Identifies the customer groups or markets it is
endeavoring to serve.
♦ Specifies its approach to pleasing customers.
♦ Sets the firm apart from its rivals.
♦ Clarifies the firm’s business to stakeholders.

10. 2–10
Examples: Mission and Vision Statements
Intel
Our vision: Getting to a billion connected computers
worldwide, millions of servers, and trillions of dollars of e-commerce.
Intel’s core mission is being the building block
supplier to the Internet economy and spurring efforts to
make the Internet more useful. Being connected is now at
the center of people’s computing experience. We are
helping to expand the capabilities of the PC platform and
the Internet.

11. 2–11
Examples: Mission and Vision Statements
3Com
Our mission is to connect more people and
organizations to information in more
innovative, simple, and reliable ways than any
other networking company in the world. Our
vision of pervasive networking is of a world
where connections are simpler, more
powerful, more affordable, more global, and
more available to all.

12. 2–12
Vision vs. Mission
VISION
Future-oriented
♦ Inspirational
Markets to be pursued
Future technology-product-customer focus
Kind of company that management
is trying to create
MISSION
♦ Present-oriented
♦ Informational
● Current product and service offerings
● Customer needs being served
● Technological and business capabilities

13. 2–13
STAGE 2: SETTING OBJECTIVES
♦ Objectives are an organization’s performance targets, i.e. results and outcomes
it wants to achieve.
♦ Objectives function as yardsticks for tracking an organization’s performance
and progress.
♦ Purpose of setting OBJECTIVES is to
● Convert mission into performance targets
● Create yardsticks to track performance
● Establish performance goals requiring stretch
● Push firm to be inventive, intentional, focused
♦ Setting CHALLENGING but ACHIEVABLE objectives guards against
● Complacency
● Internal confusion
● Status quo performance
♦ The Purposes of Setting Objectives:
● To convert the vision and mission into specific, measurable, timely performance
targets.
● To focus efforts and align actions throughout the organization.
● To serve as yardsticks for tracking a firm’s performance and progress.
● To provide motivation and inspire employees to greater levels of effort.

14. 2–14
THE TWO ESSENTIAL KINDS OF
OBJECTIVES TO SET
♦ Financial Objectives
● Communicate top management’s
targets for financial performance.
● Are focused internally on the firm’s
operations and activities.
● Outcomes focused on improving
financial performance
♦ Strategic Objectives
● Are related to a firm’s
marketing standing and
competitive vitality.
● Are focused externally on
competition vis-à-vis the firm’s
rivals.
Outcomes focused on improving
long-term, competitive business
position
$

15. 2–15
SETTING FINANCIAL OBJECTIVES
Examples of FFiinnaanncciiaall OObbjjeeccttiivveess
♦ An x percent increase in annual revenues
♦ Annual increases in after-tax profits of x percent
♦ Annual increases in earnings per share of x percent
♦ Annual dividend increases of x percent
♦ Profit margins of x percent
♦ An x percent return on capital employed (ROCE) or return on shareholders’
equity investment (ROE)
♦ Increased shareholder value—in the form of an upward-trending stock price
♦ Bond and credit ratings of x
♦ Internal cash flows of x dollars to fund new capital investment

16. 2–16
SETTING STRATEGIC OBJECTIVES
Examples of SSttrraatteeggiicc OObbjjeeccttiivveess
♦ Winning an x percent market share
♦ Achieving lower overall costs than rivals
♦ Overtaking key competitors on product performance or quality
or customer service
♦ Deriving x percent of revenues from the sale of new products introduced within
the next five years
♦ Having broader or deeper technological capabilities than rivals
♦ Having a wider product line than rivals
♦ Having a better-known or more powerful brand name than rivals
♦ Having stronger national or global sales and distribution capabilities than rivals
♦ Consistently getting new or improved products and services to market ahead
of rivals

17. 2–17
Example: Strategic Objectives
 To satisfy our customers by providing
 Quality cars and trucks,
 Developing new products,
 Reducing the time it takes to bring new
vehicles to market,
 Improving the efficiency of all our plants &
processes, and
 Building on our teamwork with employees,
unions, dealers, and suppliers.

18. 2–18
Example: Financial and Strategic Objectives
3M Corporation
 Annual growth in earnings per share of 10% or
better, on average;
 A return on stockholders’ equity of 20-25%;
 A return on capital employed of 27% or better;
and
 Have at least 30% of sales come from products
introduced in the past four years.

19. 2–19
THE NEED FOR SHORT-TERM AND
LONG-TERM OBJECTIVES
♦ Short-Term Objectives:
● Focus attention on quarterly and annual
performance improvements to satisfy near-term
shareholder expectations.
♦ Long-Term Objectives:
● Force consideration of what to do now to
achieve optimal long-term performance.
● Stand as a barrier to an undue focus on
short-term results.

20. 2–20
STAGE 3: CRAFTING A STRATEGY
♦ Strategy involves determining whether to
● Concentrate on a single business or several
businesses (diversification)
● Cater to a broad range of customers or focus on
a particular niche
● Develop a wide or narrow product line
● Pursue a competitive advantage based on
 Low cost or
 Product superiority or
 Unique organizational capabilities
♦ Involves deciding how to
● Respond to changing buyer preferences
● Respond to new market conditions
● Grow the business over the long-term
● Achieve performance targets
● Outcompete rivals

21. Who Is Involved in Strategy Making?
♦ Chief Executive Officer (CEO)
● Has ultimate responsibility for leading the strategy-making process as
strategic visionary and as chief architect of strategy.
♦ Senior Executives
● Fashion the major strategy components involving their areas of
responsibility.
♦ Managers of subsidiaries, divisions, geographic regions,
plants, and other operating units (and key employees with
specialized expertise)
● Utilize on-the-scene familiarity with their business units to orchestrate
their specific pieces of the strategy.
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 2–21

22. 2–22
A
Compan
y’s
Strategy
-Making
Hierarch
y

23. 2–23
Strategic Priorities of McDonald’s
♦ Continued growth
♦ Providing exceptional customer care
♦ Remaining an efficient and quality producer
♦ Developing people at every organizational level
♦ Sharing best practices among all units
♦ Reinventing the fast food concept by fostering innovation in the menu,
facilities, marketing, operation, and technology
♦ Core Elements of McDonald’s Strategy
♦ Add 1750 restaurants annually
♦ Promote frequent customer visits via attractive menu items, low-price
specials, and Extra Value Meals
♦ Be highly selective in granting franchises
♦ Locate on sites offering convenience to customers and profitable
growth potential
♦ Focus on limited menu and consistent quality
♦ Careful attention to store efficiency
♦ Extensive advertising and use of Mc prefix
♦ Hire courteous personnel; pay an equitable wage; provide good
training

24. What Is a Strategic Plan?
Elements of a Firm’s
Strategic Plan
Its strategic vision, business
mission, and core values
Its strategic and financial
objectives
Its chosen strategy
A Strategic Plan maps out
Where firm is heading
Short and long range
performance targets
Actions of management to
achieve outcomes
A Strategic Plan consists of A
strategic vision & mission
Performance objectives
Comprehensive strategy for
achieving the objectives
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 2–24

25. 2–25
STAGE 4: EXECUTING THE STRATEGY
♦ Converting strategic plans into actions
requires:
● Directing organizational action.
● Motivating people.
● Building and strengthening the firm’s
competencies and competitive capabilities.
● Creating and nurturing a strategy-supportive
work climate.
● Meeting or beating performance targets.

26. 2–26
Managing the Strategy Execution Process
♦ Staffing the firm with the needed skills and expertise.
♦ Building and strengthening strategy-supporting resources and
competitive capabilities.
♦ Organizing work effort along the lines of best practice.
♦ Allocating ample resources to the activities critical to strategic success.
♦ Ensuring that policies and procedures facilitate rather than impede
effective strategy execution.
♦ Installing information and operating systems that enable effective and
efficient performance.
♦ Motivating people and tying rewards and incentives directly to the
achievement of performance objectives.
♦ Creating a company culture and work climate conducive to successful
strategy execution.
♦ Exerting the internal leadership needed to propel implementation forward
and drive continuous improvement of the strategy execution processes.

27. STAGE 5: EVALUATING PERFORMANCE
AND INITIATING CORRECTIVE ADJUSTMENTS
2–27
♦ Evaluating Performance:
● Deciding whether the enterprise is passing the
three tests of a winning strategy—good fit,
competitive advantage, strong performance.
♦ Initiating Corrective Adjustments:
● Deciding whether to continue or change the
firm’s vision and mission, objectives, strategy,
and/or strategy execution methods.
● Based on organizational learning.

28. THE ROLE OF THE BOARD OF DIRECTORS IN
CORPORATE GOVERNANCE
2–28
♦ Obligations of the Board of Directors:
● Critically appraise the firm’s direction, strategy, and
business approaches.
● Evaluate the caliber of senior executives’ strategic
leadership skills.
● Institute a compensation plan that rewards top
executives for actions and results that serve
stakeholder interests—especially shareholders.
● Oversee the firm’s financial accounting and reporting
practices compliance with the Sarbanes-Oxley Act.

29. 2–29
What Does Strategy Implementation
and Execution Include?
♦ Strategy implementation and execution is an action-oriented, “make-it-
happen” process involving people management, developing
competencies and capabilities, budgeting, policy-making, motivating,
culture-building, and leadership
♦ Building a capable organization
♦ Allocating resources to strategy-critical activities
♦ Establishing strategy-supportive policies
♦ Motivating people to pursue the target objectives
♦ Tying rewards to achievement of results
♦ Creating a strategy-supportive corporate culture
♦ Installing needed information, communication, and operating systems
♦ Instituting best practices and programs for continuous improvement
♦ Exerting the leadership necessary to drive the process forward and keep
improving