Introductory Lecture..


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Introductory Lecture..

  1. 1. Lecture Outline <ul><li>Developing a Strategic Vision / Mission </li></ul><ul><li>Establishing Financial and Strategic Objectives </li></ul><ul><li>Crafting a Strategy </li></ul><ul><li>Factors Shaping a Company's Strategy </li></ul><ul><li>Linking Strategy With Ethics </li></ul>
  2. 2. Developing a Strategic Vision <ul><li>Entails management efforts to create a future-oriented roadmap for a company that spells out “where we are headed” </li></ul><ul><ul><li>Buyer needs we are moving to satisfy </li></ul></ul><ul><ul><li>Buyer groups and markets we are going to target </li></ul></ul><ul><ul><li>Kind of company we are trying to become </li></ul></ul>First Direction-Setting Task
  3. 3. Characteristics of a Mission Statement <ul><li>Defines current business activities </li></ul><ul><li>Highlights boundaries of current business </li></ul><ul><li>Conveys </li></ul><ul><ul><li>Who we are, </li></ul></ul><ul><ul><li>What we do, and </li></ul></ul><ul><ul><li>Where we are now </li></ul></ul><ul><li>Company specific , not generic — so as to give a company its own identity </li></ul><ul><li>A company’s mission is not to make a profit ! </li></ul><ul><ul><li>The real mission is always— “What will we do to make a profit?” </li></ul></ul>
  4. 4. Defining a Company’s Business <ul><li>A good business definition incorporates three factors </li></ul><ul><ul><li>Customer needs -- What is being satisfied </li></ul></ul><ul><ul><li>Customer groups -- Who is being satisfied </li></ul></ul><ul><ul><li>Technologies and competencies employed -- How value is delivered to customers to satisfy their needs </li></ul></ul>
  5. 5. <ul><li>Narrow enough to specify real arena of interest </li></ul><ul><li>Serve as </li></ul><ul><ul><li>Boundary for what to do and not do </li></ul></ul><ul><ul><li>Beacon of where top management intends to take firm </li></ul></ul><ul><li>Diversified companies have broader business definitions than single-business enterprises </li></ul>Broad or Narrow Mission Statements?
  6. 6. Definitions: Broad vs. Narrow Scope <ul><li>Broad Definition </li></ul><ul><ul><li>Furniture </li></ul></ul><ul><ul><li>Telecommunications </li></ul></ul><ul><ul><li>Beverages </li></ul></ul><ul><ul><li>Global mail delivery </li></ul></ul><ul><ul><li>Travel & tourism </li></ul></ul><ul><li>Narrow Definition </li></ul><ul><ul><li>Wrought-iron lawn furniture </li></ul></ul><ul><ul><li>Long-distance telephone service </li></ul></ul><ul><ul><li>Soft drinks </li></ul></ul><ul><ul><li>Overnight package delivery </li></ul></ul><ul><ul><li>Caribbean cruises </li></ul></ul>
  7. 7. 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.
  8. 8. Example: Mission Statement 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
  9. 9. 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
  10. 10. Example: Mission Statement <ul><li>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: </li></ul><ul><li>Male grooming products - blades and razors, electric shavers, shaving preparations and deodorants . . . </li></ul><ul><li>Female grooming products - wet shaving products, hair removal and hair care appliances and deodorants . . . </li></ul><ul><li>Alkaline and specialty batteries and cells. </li></ul><ul><li>Writing instruments and correction products. </li></ul><ul><li>Certain areas of the oral care market - toothbrushes . . . </li></ul><ul><li>Selected areas of the high-quality small household appliance business - coffeemakers . . . </li></ul>The Gillette Company
  11. 11. Characteristics of a Strategic Vision <ul><li>Charts a company’s future strategic course </li></ul><ul><li>Defines the business makeup for 5 years (or more) </li></ul><ul><li>Specifies future technology-product-customer focus </li></ul><ul><li>Indicates capabilities to be developed </li></ul><ul><li>Requires managers to exercise foresight </li></ul>
  12. 12. Questions to Address in Developing a Strategic Vision <ul><li>1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction? </li></ul><ul><li>2. What new or different customer needs should we be moving to satisfy? </li></ul><ul><li>3. What new or different buyer segments should we be concentrating on? </li></ul><ul><li>4. What new geographic or product markets should we be pursuing? </li></ul><ul><li>5. What should the company’s business makeup look like in 5 years? </li></ul><ul><li>6. What kind of company should we be trying to become? </li></ul>
  13. 13. Managerial Value of a Well-Conceived Strategic Vision and Mission <ul><li>Crystallizes long-term direction </li></ul><ul><li>Reduces risk of rudderless decision-making </li></ul><ul><li>Conveys organizational purpose and identity </li></ul><ul><li>Keeps direction-related actions of lower-level managers on common path </li></ul><ul><li>Helps organization prepare for the future </li></ul>
  14. 14. Establishing Objectives <ul><li>Represent commitment to achieve specific performance targets by a certain time </li></ul><ul><li>Should be stated in quantifiable terms and contain a deadline for achievement </li></ul><ul><li>Spell-out how much of what kind of performance by when </li></ul>Second Direction-Setting Task
  15. 15. Purpose of Objective-Setting <ul><li>Substitutes results-oriented decision-making for aimlessness over what to accomplish </li></ul><ul><li>Provides a set of benchmarks for judging organizational performance </li></ul>
  16. 16. Two Types of Objectives Are Required <ul><li>Outcomes that improve a firm’s financial performance </li></ul><ul><li>Outcomes that strengthen a firm’s competitiveness and long-term market position </li></ul>Financial Objectives Strategic Objectives $
  17. 17. Examples: Financial Objectives <ul><li>Achieve revenue growth of 10% per year </li></ul><ul><li>Increase earnings by 15% annually </li></ul><ul><li>Increase dividends per share by 5% per year </li></ul><ul><li>Increase net profit margins from 2% to 4% </li></ul><ul><li>Attractive EVA performance </li></ul><ul><li>Stronger bond and credit ratings </li></ul><ul><li>A rising stock price (outperform the S&P 500) </li></ul><ul><li>Attractive increases in MVA </li></ul><ul><li>Recognition as a “blue chip” company </li></ul><ul><li>A more diversified revenue base </li></ul>
  18. 18. Examples: Strategic Objectives <ul><li>A bigger market share </li></ul><ul><li>Quicker design-to-market times than rivals </li></ul><ul><li>Higher product quality than rivals </li></ul><ul><li>Lower costs relative to key competitors </li></ul><ul><li>Broader product line than rivals </li></ul><ul><li>Better e-commerce and Internet sales capabilities than rivals </li></ul><ul><li>Better customer service than rivals </li></ul><ul><li>Recognition as a leader in technology </li></ul><ul><li>Wider geographic coverage than rivals </li></ul>
  19. 19. Example: Corporate Objectives <ul><li>Extend our market leadership and position Exodus as the leading brand name in the category. </li></ul><ul><li>Enhance our systems and network management and Internet technology services. </li></ul><ul><li>Accelerate our domestic and international growth. </li></ul><ul><li>Leverage our technical expertise to address new market opportunities in e-commerce. </li></ul>Exodus Communications (strategic objectives)
  20. 20. Example: Corporate Objectives <ul><li>Self-funding revenue growth of 15% annually. </li></ul><ul><li>An average return on assets of 13 to 15%. </li></ul><ul><li>An average return on shareholders’ equity investment of 16 to 18%. </li></ul><ul><li>A strong balance sheet. </li></ul>Motorola (financial objectives)
  21. 21. Example: Corporate Objectives <ul><li>To achieve a 20% return on equity. </li></ul><ul><li>To achieve a net sales growth rate of 10% per year. </li></ul><ul><li>To maintain an average earnings per share growth rate of 15% per year. </li></ul><ul><li>To maintain total debt-to-total capital at 40% or less. </li></ul><ul><li>To pay out 25% to 35% of net income in dividends. </li></ul><ul><li>To make selective acquisitions which complement our current businesses and can enhance our overall returns. </li></ul><ul><li>To dispose of those parts of our businesses which do not or cannot generate adequate returns or do not fit with our business strategy. </li></ul>McCormick & Company (financial objectives)
  22. 22. Strategic or Financial Objectives -- Which Take Precedence? <ul><li>Pressures for better short-term financial performance become pronounced when </li></ul><ul><ul><li>Firm is struggling financially </li></ul></ul><ul><ul><li>Resource commitments for new strategic initiatives may hurt bottom-line for several years </li></ul></ul><ul><ul><li>Proposed strategic moves are risky </li></ul></ul><ul><li>Otherwise strategic objectives merit top priority—a firm that consistently passes up opportunities to strengthen its long-term competitive position </li></ul><ul><ul><li>Risks diluting its competitiveness </li></ul></ul><ul><ul><li>Risks losing momentum in its markets </li></ul></ul><ul><ul><li>Hurts its ability to fend off rivals’ challenges </li></ul></ul>
  23. 23. Short-Range Versus Long-Range Objectives <ul><li>Short-Range objectives </li></ul><ul><ul><li>Targets to be achieved soon </li></ul></ul><ul><ul><li>Serve as stair steps for reaching long-range performance </li></ul></ul><ul><li>Long-Range objectives </li></ul><ul><ul><li>Targets to be achieved w ithin 3 to 5 years </li></ul></ul><ul><ul><li>Prompt actions now that will permit reaching targeted long-range performance later </li></ul></ul>
  24. 24. Objectives Are Needed at All Levels <ul><li>Objective-setting process is top-down, not bottom-up! </li></ul><ul><li>1. First, establish organization-wide objectives and performance targets </li></ul><ul><li>2. Next, set business and product line objectives </li></ul><ul><li>3. Then, establish functional and departmental objectives </li></ul><ul><li>4. Individual objectives are established last </li></ul>
  25. 25. Strategy Formulation <ul><li>An organization’s strategy deals with </li></ul><ul><ul><li>How to make the strategic vision a reality and achieve target objectives </li></ul></ul><ul><ul><li>The plan for </li></ul></ul><ul><ul><ul><li>Pleasing customers </li></ul></ul></ul><ul><ul><ul><li>Conducting operations </li></ul></ul></ul><ul><ul><ul><li>Building a sustainable competitive advantage </li></ul></ul></ul><ul><li>Strategy constitutes management’s business model for producing good profitability </li></ul>
  26. 26. Strategizing Involves HOW To . . . <ul><li>Achieve performance targets </li></ul><ul><li>Out-compete rivals and achieve a sustainable competitive advantage </li></ul><ul><li>Respond to changing market conditions and new customer requirements </li></ul><ul><li>Make the strategic vision a reality </li></ul>
  27. 27. Characteristics of Strategy-Making <ul><li>Strategy is action-oriented </li></ul><ul><li>Strategy evolves over time </li></ul><ul><li>Strategy-making is a never-ending, ongoing task </li></ul>
  28. 28. Figure 2.1: Levels of Strategy-Making in a Diversified Company Corporate Strategy Business Strategies Functional Strategies Operating Strategies Corporate-Level Managers Business-Level Managers Operating Managers Functional Managers Two-Way Influence Two-Way Influence Two-Way Influence
  29. 29. Figure 2-1: Levels of Strategy-Making in a Single-Business Company Business Strategy Functional Strategies Operating Strategies Executive-Level Managers Operating Managers Functional Managers Two-Way Influence Two-Way Influence
  30. 30. Figure 2.2: Corporate Strategy for a Diversified Company Corporate Strategy Approach to capital allocation Narrow or broad-based diversification Scope of geographic operations Moves to add new new businesses Moves to build positions in new industries Efforts to capture cross-business strategic fits Moves to divest weak business units Is diversification related, unrelated or a mix?
  31. 31. Tasks of Corporate Strategy <ul><li>Moves to achieve diversification </li></ul><ul><li>Actions to boost performance of individual businesses </li></ul><ul><li>Capturing valuable cross-business strategic fits that result in 1 + 1 = 3 effects! </li></ul><ul><li>Establishing investment priorities and steering corporate resources into the most attractive businesses </li></ul>
  32. 32. Figure 2.3: Identifying the Components of a Single-Business Company’s Strategy Efforts to build competitive advantage Planned, proactive moves to outcompete rivals Responses to changing conditions Scope of geographic coverage Collaborative partnerships and strategic alliances R&D strategy Supply chain management strategy Manufacturing strategy Human resources strategy Finance strategy Business Strategy Marketing strategy Functional Strategies
  33. 33. What Business Strategy Involves <ul><li>Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc. </li></ul><ul><li>Designing competitive moves to produce sustainable competitive advantage </li></ul><ul><li>Building competitively valuable competencies and capabilities </li></ul><ul><li>Uniting strategic initiatives of functional areas </li></ul><ul><li>Addressing strategic issues facing the company </li></ul>
  34. 34. Functional Strategies <ul><li>Game plan for a strategically-relevant function, activity, or business process </li></ul><ul><li>Details how key activities will be managed </li></ul><ul><li>Provide support for business strategy </li></ul><ul><li>Specify how functional objectives are to be achieved </li></ul>
  35. 35. Figure 2.5: Factors Shaping the Choice of Company Strategy Company’s Strategic Situation Craft the 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
  36. 36. Social, Political, Regulatory, and Community Factors <ul><li>Pressures from special interest groups </li></ul><ul><li>Glare of investigative reporting </li></ul><ul><li>Health and nutrition concerns </li></ul><ul><li>Concerns about alcohol and drug abuse </li></ul><ul><li>Sexual harassment </li></ul><ul><li>Corporate downsizing </li></ul><ul><li>Impact of plant closings on communities </li></ul><ul><li>Rising/falling interest rates </li></ul><ul><li>Economic conditions (good or bad) </li></ul><ul><li>Trade restrictions, tariffs, and import quotas </li></ul>
  37. 37. What Do We Mean by “Corporate Social Responsibility?” <ul><li>Conducting company activities within bounds of what is considered ethical and in public interest </li></ul><ul><li>Responding positively to emerging societal priorities and expectations </li></ul><ul><li>Demonstrating willingness to take needed action ahead of regulatory confrontation </li></ul><ul><li>Balancing stockholder interests against larger interest of society as a whole </li></ul><ul><li>Being a “good citizen” in community </li></ul>
  38. 38. Competitive Conditions and Industry Attractiveness <ul><li>A company’s strategy has to be responsive to </li></ul><ul><ul><li>Fresh moves of rival competitors </li></ul></ul><ul><ul><li>Changes in industry’s price-cost-profit economics </li></ul></ul><ul><ul><li>Shifting buyer needs and expectations </li></ul></ul><ul><ul><li>New technological developments </li></ul></ul><ul><ul><li>Pace of market growth </li></ul></ul>
  39. 39. Ambitions, Philosophies, and Ethics of Key Executives <ul><li>Managers generally stamp strategies they craft with their own personal </li></ul><ul><ul><li>Ambitions </li></ul></ul><ul><ul><li>Values </li></ul></ul><ul><ul><li>Business philosophies </li></ul></ul><ul><ul><li>Attitudes toward risk </li></ul></ul><ul><ul><li>Ethical beliefs </li></ul></ul>
  40. 40. Shared Values and Company Culture <ul><li>Values and culture often shape the strategic moves a company will </li></ul><ul><ul><li>Consider </li></ul></ul><ul><ul><li>Reject </li></ul></ul><ul><li>It is generally unwise for a company to undertake strategic moves which conflict with: </li></ul><ul><ul><li>Its culture </li></ul></ul><ul><ul><li>Values widely shared by managers and employees </li></ul></ul>
  41. 41. Linking Strategy With Ethics <ul><li>Ethical and moral standards go beyond </li></ul><ul><ul><li>Prohibitions of law and </li></ul></ul><ul><ul><li>Language of “thou shalt not” </li></ul></ul><ul><li>Ethical and moral standards involve </li></ul><ul><ul><li>Issues of duty and </li></ul></ul><ul><ul><li>Language of “should and should not do” </li></ul></ul>
  42. 42. A Firm’s Ethical Responsibilities to 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