Chapter 1kjensen/CHAP00… · PPT file · Web view · 2011-01-12Title: Chapter 1 Subject:...
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THE THREE THE THREE STRATEGY-MAKING STRATEGY-MAKING
TASKSTASKS
CHAPTER 2
Screen graphics created by:Jana F. Kuzmicki, PhD, Mississippi University for Women
“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
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Developing a Strategic Vision
Entails management efforts to create a future-oriented roadmap for a company that spells out “where we are headed” Buyer needs we are moving to
satisfy
Buyer groups and markets we are going to target
Kind of company we are trying to become
First Direction-Setting Task
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Strategic Management Principle
Effective strategy-making begins with a vision of where the organization
needs to head!
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Who Are We?Who Are We?John Deere has grown and prospered
through a long-standing partnership with the world’s most productive farmers.
Today, John Deere is a global company with several equipment operations and complementary service businesses.
These businesses are closely interrelated, providing the company with
significant growth opportunities and other synergistic benefits.
Example: John Deere’s Strategic Vision
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Where Are We Going?Where Are We Going? Deere is committed to providing genuine
value to the company’s stakeholders. In support of that commitment, Deere aspires to: Grow and pursue leadership positions in
each of our businesses. Extend our preeminent leadership position
in the agricultural equipment market worldwide.
Create new opportunities to leverage the John Deere brand globally.
Example: John Deere’s Strategic Vision
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How Will We Get There?How Will We Get There? By pursuing the broader corporate goals of
profitable growth and continuous improvement, each of the company’s businesses is expected to: Achieve world-class performance by attaining a
strong competitive position in target markets. Exceed customer expectations for quality and
value. Earn in excess of the cost of
capital over a business cycle.
Example: John Deere’s Strategic Vision
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How Will We Get There?How Will We Get There? By growing profitably and continuously improving,
each of the company’s businesses will benefit from and contribute to Deere’s unique intangible assets: Our distinguished brand. Our heritage of integrity and teamwork. Our advanced skills. The special relationships that have long existed
between the company and our employees, customers, dealers and other business partners around the world.
Example: John Deere’s Strategic Vision
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How Will We Measure Our Performance?How Will We Measure Our Performance? Each business will make a positive contribution to the
corporation’s objectives in the pursuit of creating genuine value for our stakeholders. Our “scorecard” includes: Human Resources--employee satisfaction,
training Customer Focus--loyalty, market leadership Business Processes--productivity, quality, cost,
environment Business Results--return on assets, sales growth
Example: John Deere’s Strategic Vision
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Example: Delta Airline’s 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.
Example: Delta Airline’s Strategic Vision
DELTA AIRLINES
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Example: Delta Airline’s Strategic Vision
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.
Example: Delta Airline’s Strategic Vision
DELTA AIRLINES
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Three Elements of a Strategic Vision
Use the mission statement mission statement as a as a starting pointstarting point
Develop a strategic vision strategic vision that spells out a course to pursue
CommunicateCommunicate the vision in a clear clear and exciting exciting manner
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Characteristics of a Mission Statement
Defines current business activities Highlights boundaries of current business Conveys
Who we are, What we do, and Where we are now
Company specific, not generic —so as to give a company its own identity
A company’s mission is not to make a profit !The real mission is always—“What will we do to
make a profit?”
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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 and competencies
employed -- How value is delivered to customers to satisfy their needs
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Cardinal Health is a leading provider of services supporting health care worldwide.
The company offers a broad array of services for health-care providers and manufacturers to help them improve the efficiency and quality of health care.
These services include pharmaceutical distribution, health-care product manufacturing and distribution, drug delivery systems development, . . . , retail pharmacy franchising, and health-care information systems development.
Business Mission: Cardinal Health
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JDS Uniphase is the leading provider of advanced fiber optic components and modules.
These products are sold to the world’s leading telecommunications and cable television system providers . . .
Our products perform both optical-only functions and optoelectronic functions within fiber option networks.
Our products include semiconductor lasers, . . . , and isolators for fiber optic applications.
In addition, we design, manufacture, and market laser subsystems for a broad range of OEM applications, which include . . .
Business Mission:
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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.
Business Mission: Russell Corp.
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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
have broader business definitions than single-business enterprises
Broad or Narrow Mission Statements?
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Definitions: Broad vs. Narrow Scope
Broad Definition
Furniture
Telecommunications
Beverages
Global mail delivery
Travel & tourism
Narrow Definition Wrought-iron lawn
furniture Long-distance
telephone service Soft drinks Overnight package
delivery Caribbean cruises
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Business Mission: The McGraw Hill Companies(a diversified firm)
The McGraw-Hill Companies is a global publishing, financial, information and media services company with such renowned brands as Standard & Poor’s, Business Week, and McGraw-Hill educational and professional materials.
The Company provides information via various media platforms: books, magazines and newsletters; on-line; via television, satellite and FM sideband broadcast; and software, videotape, facsimile and CD-ROM products.
The Company now creates more than 90 % of its information on digital platforms and its business units are represented on more than 75 Web sites.
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Business Mission: FDX Corporation(a diversified firm)
FDX is composed of a powerful family of companies: FedEx, RPS, Viking Freight, FDX Global Logistics and Roberts Express.
These companies offer logistics and distribution solutions on a regional, national and global scale: fast, reliable, time-definite express delivery; . . . expedited same-day delivery; . . . ; and integrated information and logistics solutions
With all this expertise under one umbrella, the FDX companies can provide businesses with the competitive advantage they need by providing streamlined solutions that are on the cutting edge of technology.
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Example: Mission Statement
Pfizer is a research-based, global pharmaceutical company.
We discover and develop innovative, value-added products that improve the quality of life of people
around the world and help them enjoy longer, healthier, and more productive lives.
The company has three business segments: health care, animal health and consumer health care. Our products are available in more than 150 countries.
Pfizer Inc.
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The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission.
We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm,
relaxed yet refined ambiance.
The Ritz-Carlton experiences enlivens the senses, instills well-being, and fulfills even the unexpressed
wishes and needs of our guests.
Ritz-Carlton Hotels
Example: Mission Statement
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Example: Mission Statement
Apple Computer, Inc., ignited the personal computer revolution in the 1970s with the Apple II, and
reinvented the personal computer in the 1980s with the Macintosh.
Apple is now committed to its original mission--to bring the best personal computing products and
support to students, educators, designers, scientists, engineers, business persons and consumers in over
140 countries around the world.
Apple Computer
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Example: Mission Statement
The Gillette Company is a globally focused consumer products company that seeks competitive advantage in
quality, value-added personal care and personal use products. We compete in four large, worldwide businesses:
personal grooming products, consumer portable power products, stationery products and small electrical
appliances.As a company, we share skills and resources among
business units to optimize performance. We are committed to a plan of sustained sales and profit growth that
recognizes and balances both short- and long-term objectives.
The Gillette Company
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Example: Mission Statement
Our mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which we
choose to compete. Current core categories are: Male grooming products - blades and razors, electric shavers,
shaving preparations and deodorants . . . Female grooming products - wet shaving products, hair removal
and hair care appliances and deodorants . . . Alkaline and specialty batteries and cells. Writing instruments and correction products. Certain areas of the oral care market - toothbrushes . . . Selected areas of the high-quality small household appliance
business - coffeemakers . . .
The Gillette Company
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Mission Statements forFunctional Departments
Spotlights department’s
Role and scope of activities
Direction which department needs to pursue
Contribution to firm’s overall mission
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Mission Statements ofFunctional Departments
HUMAN RESOURCESHUMAN RESOURCES To contribute to organizational success by developing effective leaders, creating high performance teams,
and maximizing the potential of individuals.
CORPORATE SECURITYCORPORATE SECURITYTo provide services for the protection of corporate
personnel and assets through preventive measures and investigations.
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Characteristics of a Strategic Vision
Charts a company’s future strategic course
Defines the business makeup for 5 years (or more)
Specifies future technology-product-customer focus
Indicates capabilities to be developed
Requires managers to exercise foresight
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Questions to Address inDeveloping a Strategic Vision
1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction?
2. What new or different customer needs should we be moving to satisfy?
3. What new or different buyer segments should we be concentrating on?
4. What new geographic or product markets should we be pursuing?
5. What should the company’s business makeup look like in 5 years?
6. What kind of company should we be trying to become?
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Entrepreneurial Challenges inForming a Strategic Vision
How to creatively prepare a company for the future
How to keep the company responsive to Evolving customer needs Competitive pressures New technologies New market opportunities Growing or shrinking
opportunities
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Intel’s “Strategic Inflection Points” Prior to mid-1980s
Focus on memory chips Starting in mid-1980s
Abandon memory chip business and Become preeminent supplier of
microprocessors to PC industry Make PC central appliance in
workplace and home Be undisputed leader in driving
PC technology forward 1998
Shift focus from PC technology to becoming the preeminent building block supplier to the Internet economy
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Communicating the Vision
An exciting, inspirational vision Challenges and motivates workforce Arouses strong sense of organizational
purpose Induces employee buy-in Galvanizes people to live the business
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Managerial Value of a Well-Conceived Strategic Vision and Mission
Crystallizes long-term directionReduces risk of rudderless decision-
makingConveys organizational
purpose and identityKeeps direction-related actions of
lower-level managers on common pathHelps organization prepare for the
future
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Establishing Objectives
Represent commitment to achieve specific performance targets by a certain time
Should 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 Objective-Setting
Substitutes results-oriented decision-making for aimlessness over what to accomplish
Provides a set of benchmarks for judging organizational performance
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Two Types of Objectives Are 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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Strategic Management Principle
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 Better e-commerce and Internet sales capabilities
than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals
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Examples: Corporate Objectives
Citigroup (strategic objective)
To attain one billion customers worldwide.
McDonald’s (strategic objective)
To achieve 100 percent total customer satisfaction . . . everyday . . . in every
restaurant . . . for every customer.
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Example: Corporate Objectives
Become the most competitive enterprise in the world.
Be number one or number two in each business we are in.
Globalize every activity in the company. Embrace the Internet and become a global
e-business.
General Electric (strategic objectives)
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Example: Corporate Objectives
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, . . .
Anheuser-Busch(strategic & financial objectives)
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Example: Corporate Objectives
Extend our market leadership and position Exodus as the leading brand name in the category.
Enhance our systems and network management and Internet technology services.
Accelerate our domestic and international growth. Leverage our technical expertise to address new
market opportunities in e-commerce.
Exodus Communications (strategic objectives)
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Example: Corporate Objectives
Self-funding revenue growth of 15% annually.
An average return on assets of 13 to 15%. An average return on shareholders’ equity
investment of 16 to 18%. A strong balance sheet.
Motorola (financial objectives)
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Example: Corporate Objectives
To achieve a 20% return on equity. To achieve a net sales growth rate of 10% per year. To maintain an average earnings per share growth rate
of 15% per year. To maintain total debt-to-total capital at 40% or less. To pay out 25% to 35% of net income in dividends. To make selective acquisitions which complement our
current businesses and can enhance our overall returns. To dispose of those parts of our businesses which do
not or cannot generate adequate returns or do not fit with our business strategy.
McCormick & Company(financial objectives)
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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
Otherwise strategic objectives merit top priority—a firm that consistently passes up opportunities to strengthen its long-term competitive position
Risks diluting its competitiveness Risks losing momentum in its markets Hurts its ability to fend off rivals’ challenges
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Strategic Management Principle
Building a stronger long-term competitive position benefits
shareholders more lastingly than improving short-term
profitability!
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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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Characteristics of Strategic Intent
Indicates firm’s intent to stake out a particular position over the long-term
Involves establishing a BHAG - ”big, hairy, audacious goal”
Signals relentless commitment to winning
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Short-Range VersusLong-Range Objectives
Short-Range objectivesTargets to be achieved soonServe 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
Objective-setting process is top-down, not bottom-up!
1. First, establish organization-wide objectives and performance targets
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4. Individual objectives are established last
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Strategic Management Principle
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 the strategic vision a reality
and achieve target objectives The game plan for
Pleasing customers Conducting operations Building a sustainable competitive
advantage Strategy constitutes management’s business
model for producing good profitability
Third Direction-Setting Task
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Strategizing Involves HOW To . . .
Achieve performance targets Out-compete rivals and
achieve a sustainable competitive advantage
Respond to changing market conditions and new customer requirements
Make the strategic vision a reality
Our game plan for running the company will be . . .
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Characteristics of Strategy-Making
Strategy is action-oriented
Strategy evolves over time
Strategy-making is a never-ending, ongoing task
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Rule-Breaking Strategies
Challenge fundamental conventions by Reconceiving a product or service
(Creating a single-use disposable camera) Redefining the marketplace
(Detouring retailers by selling online at the company’s website)
Redrawing industry boundaries
(Getting credit cards from Shell Oil or General Motors or AOL)
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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
Figure 2.1: Levels of Strategy-Making in a Diversified Company
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Figure 2-1: Levels of Strategy-Making in a Single-Business Company
Business Strategy
Two-Way Influence
Two-Way Influence
Functional Strategies
Operating Strategies
Executive-Level Managers
OperatingManagers
Functional Managers
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Figure 2.2: Corporate Strategy fora Diversified Company
CorporateStrategy
Approach tocapital allocation
Narrow or broad-based diversification
Scope ofgeographicoperations
Moves to add newnew businesses
Moves to build positionsin new industries
Efforts to capturecross-businessstrategic fits
Moves to divestweak business units
Is diversificationrelated, unrelatedor a mix?
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Tasks of Corporate Strategy
Moves to achieve diversification Actions to boost performance of individual
businesses Capturing valuable cross-business strategic
fits that result in 1 + 1 = 3 effects! Establishing investment
priorities and steering corporate resources into the most attractive businesses
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Figure 2.3: Identifying the Components ofa Single-Business Company’s Strategy
Efforts to buildcompetitiveadvantage
Planned, proactive moves to outcompete rivals
Responses to changingconditions
Scope ofgeographiccoverage
Collaborativepartnerships andstrategic alliances
R&D strategy
Supply chain management strategy
Manufacturing strategy
Humanresources strategy
Finance strategy
BusinessStrategyFunctional Strategies
Marketingstrategy
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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 to produce 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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Functional Strategies
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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Operating Strategies
Concern narrower strategies for managing grassroots activities and strategically-relevant operating units
Add detail to business and functional strategies
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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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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 ProductivityExample: Operating Strategy
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Uniting the Company’s Strategy-Making Effort
A company’s strategy is a collection of strategies and initiatives being acted on by managers at various organizational levels
Separate levels of strategy must be unified into a cohesive, company-wide action plan
Pieces of strategy should fit together like the pieces of a puzzle
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Figure 2.4: Networking of Missions,Objectives, and Strategies
Level 1Corporate-LevelManagers
Level 2Business-LevelManagers
Level 3Functional Managers
Level 4Plant Managers,Lower-LevelSupervisors
CorporateLevel
Objectives
Corporate-wideStrategic
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 Two-Way Influence Two-Way Influence
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Strategic Management Principle
Objectives and strategies that are unified from top to bottom of the strategy-making managerial hierarchy require a team effort!
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Figure 2.5: Factors Shaping theChoice of Company Strategy
Company’s Strategic SituationCraftthe
strategy
External Factors
Internal Factors
Social, political,
regulatory and
community factors
Competitive conditions
and industry attractiveness
Company opportunities and threats to
company’s well-being
Resource strengths,
capabilities, and
weaknesses
Influences of key
executives
Shared values and company
culture
Identify and
evaluate alternatives
Determine relevance of internal
and external factors
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Social, Political, Regulatory,and Community 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 Economic conditions (good or bad) Trade restrictions, tariffs, and import quotas
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What Do We Mean by“Corporate Social Responsibility?”
Conducting company activities within bounds of what is considered ethical and in public interest
Responding positively to emerging societal priorities and expectations
Demonstrating willingness to take needed action ahead of regulatory confrontation
Balancing stockholder interests against larger interest of society as a whole
Being 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 competitorsChanges in industry’s
price-cost-profit economicsShifting buyer needs and expectationsNew technological developmentsPace of market growth
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Strategic Management Principle
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 capturing a company’s best opportunities
And help counteract 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 discount the competitive liabilities of company’s resource deficiencies and skills gaps!
Strategic Management Principle
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Ambitions, Philosophies, and Ethics of Key Executives
Managers generally stamp strategies they craft with their own personalAmbitionsValuesBusiness philosophiesAttitudes toward riskEthical beliefs
I believe we should be
#1!
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Shared Values and Company Culture
Values and culture often shapethe strategic moves a company will Consider Reject
It is generally unwise for a company to 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 employeesShowing trust and respect for employeesProviding customers with products or services
of the greatest valueBeing genuinely interested in providing customers
with effective solutions to their problemsMaking profit a high stockholder priorityAvoiding use of long-term debt to finance growth Individual initiative, creativity, & teamworkBeing 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” Ethical and moral standards involve
Issues of duty and
Language of “should and should not do”
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A Firm’s Ethical Responsibilitiesto Its Stakeholders
Owners/shareholders – Rightfully expect some form of return on their investment
Employees - Rightfully expect respect for their worth and devoting their energies to firm
Customers - Rightfully expect a seller to provide them with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable relationship with firms they supply
Community - Rightfully 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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Strategic Management Principle
To be a real winner, a strategy must
1. Fit the enterprise’s internal and external situation
2. Build sustainable competitive advantage
3. Improve company performance