Chapter 1 - The Strategy-Making Process.pptx

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Strategy Making Process
Mabuhay!
By: Mary Kristine Laurilla, MBA, CLSSGB

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Learning Objectives
• Explain what is meant by competitive advantage
• Discuss the strategic role of managers at different levels within the
organization
• Identify the primary steps in a strategic planning process
• Discuss the common pitfalls of planning and how those pitfalls can be
avoided
• Outline the cognitive biases that might lead to poor strategic
decisions, and explain how these biases can be overcome
• Discuss the role strategy leaders play in the strategy-making process

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STRATEGY
• Set of related actions that managers take to
increase their company’s performance:
• Strategic leadership: Creating competitive
advantage through effective management of
the strategy-making process
• Strategy formulation: Selecting strategies
based on analysis of an organization’s external
and internal environment
• Strategy implementation: Putting strategies
into action

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Determinants of Shareholder Value

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Superior Performance
• Risk capital: Equity capital for which there is no guarantee that
stockholders will:
• Recoup their investment
• Earn a decent return
• Shareholder value: Returns that shareholders earn from purchasing
shares in a company
• Sources
• Capital appreciation in the value of a company’s shares
• Dividend payments

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Superior Performance
• Profitability: Return a company makes on the capital invested in the
enterprise
• Return on invested capital (ROIC) - Net profit over the capital invested in a
firm
• Result of how efficiently the capital is used to satisfy customer needs
• Profit growth: Increase in net profit over time, achieved by:
• Selling products in rapidly growing markets
• Gaining market share from rivals

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Superior Performance
• Selling more to existing customers
• Expanding overseas or diversifying into new
businesses
• To boost profitability and profit growth,
managers must:
• Use strategies to give their company a
competitive advantage over rivals
• Deliver high profitability and sustainable
profit growth

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Competitive Advantage
• Occurs when a company’s profitability is greater than the average
profitability of firms in its industry
• Sustained competitive advantage: A company’s strategies enable it to
maintain above-average profitability for a number of years

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BUSINESS MODEL
• Conception of how strategies should work
together as a whole to enable the company to
achieve competitive advantage
• Deals with how a company:
• Selects, acquires, and keeps its customers
• Defines and differentiates its product offerings
• Creates value for its customers
• Produces goods or services and delivers to the market
• Lowers costs and organizes its resources and activities
• Achieves and sustains high profitability and growth

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Return on Invested Capital (ROIC) in selected
industries, 2022-2011.

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Strategic Management General Managers
Manager Description
General managers Bear responsibility for a company’s overall performance
or for one of its major self-contained subunits or
divisions
Functional managers Responsible for supervising a particular function, task,
activity, or operation
Multidivisional company Competes in several different businesses and has a
separate self-contained division to manage each

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Levels of Strategic Management

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Corporate-level managers
• Oversee the development of
strategies for the entire organization
• Provide a link between people
concerned with the firm’s strategic
development and the shareholders
• Ensure that business strategies
pursued by the company are
consistent with maximizing
profitability and profit growth

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Business-level managers
• Heads of business units
• Business unit: Self-contained division
that provides a product or service for
a particular market
• Translate statements of intents into
concrete strategies for individual
businesses
• Are concerned with strategies specific
to a particular business

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Functional-level managers
• Responsible for specific business
functions
• Develop functional strategies to
fulfill the strategic objectives set by
business- and corporate-level
general managers
• Provide information that helps
formulate realistic and attainable
strategies

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Steps in a formal strategic planning process
• Select the corporate mission and goals
• Analyze the organization’s external competitive environment and
internal operating environment
• Select strategies that:
• Build on the organization’s strengths and correct it’s weaknesses
• Are consistent with the organization’s mission and goals
• Are congruent and constitute a viable business model
• Implement the strategies

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Main components of the strategic planning process

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Components of a Mission statement
Mission Purpose of the company, or a statement of what the company
strives to do
Vision Articulation of a company’s desired achievements or future
state
Values Statement of how employees should conduct themselves and
their business to help achieve the company mission
Goal Precise and measurable desired future state that a company
attempts to realize

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External and Internal Analysis
External Analysis Internal Analysis
Identifies strategic opportunities and
threats that will affect how an
organization pursues its mission
Focuses on reviewing the resources,
capabilities, and competencies of a
company
Involves examination of the:
• Industry environment in which the
company operates
• Country or national environment
• Macroenvironment
Goal - Identify the company’s strengths
and weaknesses

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SWOT Analysis
• Comparison of strengths, weaknesses, opportunities, and threats
• Purpose - Identify the strategies to:
• Exploit external opportunities
• Build on and protect company strengths
• Eradicate weaknesses and counter threats
• Goal - Affirm a company-specific business model
• To align, fit, or match a company’s resources and capabilities to the
demands of its environment

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Scenario Planning

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Scenario Planning
• Formulating plans that are based on “what-if” scenarios about the
future
• Encourages managers to:
• Think outside the box and be more flexible
• Anticipate probable scenarios
• Ivory tower planning - Recognizes that successful strategic planning
encompasses managers at all levels of the corporation

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Characteristics of Good Strategic Leaders
• Vision, eloquence, and consistency
• Articulation of a business model
• Commitment
• Being well informed
• Willingness to delegate and empower
• Astute use of power
• Emotional intelligence
• Self-awareness, self-regulation, and motivation
• Empathy and social skills

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