Strategic management

1. Screen graphics created by:
Jana F. Kuzmicki, Indiana University Southeast
STRATEGIC MANAGEMENT:
Concepts and Cases
Arthur A. Thompson, Jr. &
A. J. Strickland, III
Tenth Edition
The University of Alabama

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© The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
THE STRATEGIC
MANAGEMENT
PROCESS
CHAPTER 1
Screen graphics created by:
Jana F. Kuzmicki, PhD, Indiana University Southeast

3. “Without a strategy the
organization is like a ship without
a rudder, going around in circles.”
Joel Ross and Michael Kami
© The McGraw-Hill Companies, Inc., 1998
Irwin/McGraw-Hill
“Quote”

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Chapter Outline
 Five Tasks of Strategic Management
 Developing a Strategic Vision and Mission
 Setting Objectives
 Crafting a Strategy
 Implementing the Strategy
 Evaluating Performance and Initiating
Corrective Adjustments
 Why Strategic Management Is a Process
 Who Performs the Tasks of Strategy?
 Benefits of “Managing Strategically”
 Terms to Remember

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Thinking Strategically:
The Three Big Strategic Questions
1. Where are we now -- what is our situation?
2. Where do we want to go?
 Business(es) we want to be in and market
positions we want to stake out
 Buyer needs and groups we
want to serve
 Outcomes we want to achieve
3. How will we get there?

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What Is Strategy?
 Competitive moves and business
approaches management employs in
running a company
 Management’s “game plan” to
 Please customers
 Position a company in its chosen market
 Compete successfully
 Achieve good business performance
Concept

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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,
companywide
game plan

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Strategic Management Concept
Competent execution of a well-
conceived strategy is a proven
recipe for organizational
success and the best test of
managerial excellence!

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Craft a
Strategy
to Achieve
Objectives
Set
Objectives
Develop a
Strategic
Vision
& Mission
Implement
& Execute
Strategy
Evaluate &
Make
Corrections
Improve/
Change
Revise as
Needed
Revise as
Needed
Improve/
Change
Recycle
as Needed
Task 1 Task 2 Task 3 Task 4 Task 5
The Five Tasks
of Strategic Management

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Developing a Vision and Mission
 Begins with thinking strategically about
 The firm’s future business makeup
 Where to take the firm
 The task is to
 Create a roadmap of a company’s future
 Decide what future business position to
stake out
 Provide long-term direction
 Give the firm a strong identity
The First Task of Strategic Management

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Missions vs. Strategic Visions
 A mission statement
focuses on current
business activities
 Business(es)
company is in
now
 Customer needs
currently being
served
 A strategic vision
concerns a firm’s
future business path
 The kind of
company it is trying
to become
 Customer needs to
be satisfied in the
future

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Developing a Strategic Vision
 A strategic vision is a
roadmap of a company’s
future --
 Direction it is headed
 Business position it
intends to stake out
 Capabilities it plans to
develop
 Customer needs it
intends to serve

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Examples: Mission and
Vision Statements
McDonald’s Corporation
McDonald’s vision is to dominate the global
foodservice industry. Global dominance means
setting the performance standard for customer
satisfaction while increasing market share and
profitability through our Convenience,
Value, and Execution Strategies.

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Examples: Mission and
Vision Statements
Otis Elevator
Our mission is to provide any customer a means
of moving people and things up, down, and
sideways over short distances with higher
reliability than any similar enterprise in the world.
Microsoft Corporation
One vision drives everything we do: A computer
on every desk and in every home using great
software as an empowering tool.

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Examples: Mission and
Vision Statements
Avis Rent-a-Car
Our business is renting cars. Our mission is
total customer satisfaction.
American Red Cross
The mission of the American Red Cross is to
improve the quality of human life; to enhance self-
reliance and concern for others; and to help
people avoid, prepare for, and
cope with emergencies.

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Examples: Mission and
Vision Statements
The Body Shop
We aim to achieve commercial success by meeting
our customers’ needs through the provision of high
quality, good value products with exceptional service
and relevant information which enables customers to
make informed and responsible choices.
Eastman Kodak
We are in the picture business.

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Examples: Mission and
Vision Statements
Ritz-Carlton Hotels
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.

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Examples: Mission and
Vision Statements
Intel
Intel supplies the computing industry with chips,
boards, systems, and software. Intel’s products are
used as “building blocks” to create advanced
computing systems for PC users. Intel’s mission is
to be the preeminent building block supplier to the
new computing industry worldwide.
Compaq Computer
To be the leading supplier of PCs and PC
servers in all customer segments.

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Examples: Mission and
Vision Statements
Long John Silver’s
To be America’s best quick service restaurant chain.
We will provide each guest great tasting, healthful,
reasonably priced fish, seafood, and chicken in a
fast, friendly manner on every visit.
Bristol-Myers Squibb
The mission is to extend and enhance human
life by providing the highest quality health and
personal care products. We intend to be the
preeminent global diversified health
and personal care company.

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Setting Objectives
 Establishing OBJECTIVES
 Converts vision into specific
performance targets
 Creates yardsticks to track performance
 Pushes firm to be inventive and focused
 Helps prevent coasting and complacency
if targets require stretch
The Second Task of Strategic Management

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Types of Objectives Required
Outcomes focused on
improving a firm’s
financial performance
Outcomes focused on
improving a firm’s
competitiveness and
its long-term business
position
Financial Objectives Strategic Objectives
$

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Examples: Financial Objectives
 Grow earnings per share 15% annually
 Boost annual return on investment (or EVA) from
15% to 20%
 Increase annual dividends per share
to stockholders by 5% each year
 Strive for stock price appreciation
equal to or above the S&P 500 average
 Maintain a positive cash flow
 Achieve and maintain a AA bond rating

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Examples: Strategic Objectives
 Increase firm’s market share
 Overtake key rivals on quality or customer
service or product performance
 Attain lower overall costs than rivals
 Boost firm’s reputation with customers
 Attain stronger foothold in international markets
 Achieve technological superiority
 Become leader in new product introductions
 Capture attractive growth opportunities

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Example: Nike’s Corporate Objectives
 Protect and improve Nike’s position as the
number one athletic brand in America.
 Build a strong momentum in growing fitness market.
 Intensify the company’s effort to develop products that
women need and want.
 Explore the market for products specifically designed
for the requirements of maturing Americans.
 Direct and manage the company’s international
business as it continues to develop.
 Continue the drive for increased margins through
proper inventory management and fewer,
better products.

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Example: McCormick’s
Corporate Objectives
 Dispose of those parts of our businesses which
cannot generate adequate returns or do not fit
with our business strategy.
 Achieve a 20% return on equity.
 Achieve net sales growth rate of 10% per year.
 Maintain an average earnings per share growth
rate of 15% per year.
 Maintain total debt to total capital at 40% or less.
 Pay out 25% to 35% of net income in dividends.

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Examples: Strategic and
Financial Objectives
Banc One Corporation
To be one of the top three banking companies
in terms of market share in all
significant markets we serve.
Domino’s Pizza
To safely deliver a hot, quality
pizza in 30 minutes or less at a fair price
and a reasonable profit.

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Example: Strategic and
Financial Objectives
Ford Motor Company
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.

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Examples: Strategic and
Financial Objectives
Exxon
To provide shareholders a secure
investment with a superior return.
Alcan Aluminum
To be the lowest-cost producer
of aluminum and to outperform the
average return on equity of the
Standard and Poor’s industrial
stock index.

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Example: Strategic and
Financial Objectives
General Electric
To become the most competitive enterprise in
the world by being number one or number two
in market share in every business the
company is in. To achieve an average of 10
inventory turns and a corporate operating
profit margin of 16% by 1998.

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Examples: Strategic and
Financial Objectives
Atlas Corporation
To become a low-cost, medium-size
gold producer, producing in excess of
125,000 ounces of gold a year and building
gold reserves of 1,500,000 ounces.
Bristol-Myers Squibb
To focus globally on those businesses
in health and personal care where we can
be number one or number two through
delivering superior value to the customer.

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3M Corp.
 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
 Have at least 30% of sales come from
products introduced in the past four years
Examples: Strategic and
Financial Objectives

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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
The Third Task of Strategic Management

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Involves deciding how to
 Respond to changing
buyer preferences
 Outcompete rivals
 Respond to new
market conditions
 Grow the business
over the long-term
 Achieve performance
targets
Our strategy
will be . . .
Crafting a Strategy

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Strategy Is Both Planned and Reactive
to Changing Circumstances
Actual
Strategy
Planned (or
Intended)
Strategy
Adaptive
Reactions

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The Hows That
Define a Firm's Strategy
 How to grow the business
 How to please customers
 How to outcompete rivals
 How to respond to changing market
conditions
 How to manage each functional piece of the
business and develop needed
organizational capabilities
 How to achieve strategic and financial
objectives
Strategy
is HOW
to . . .

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Understanding Company Strategy --
What to Look For
Pattern
of Actions
That Define
Strategy
Actions to Strengthen
Resources & Capabilities
Diversification
Responses to
Changing Conditions
Offensive Moves
to Gain Edge
Changes in
Product Line,
Quality, or Service
Geographic
Coverage
Forward or
Backward Integration,
Collaboration
How Functional
Activities Are
Managed
Defensive Moves
Pursuing New
Opportunities

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Strategy Example: McDonald’s
 Strategic priorities
 Continued growth
 Providing exceptional customer care
 Remaining an efficient and quality
producer
 Offering high value and
good-tasting products
 Effectively marketing McDonald’s brand
on a global scale

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Core Elements of
McDonald’s Strategy
 Add 2500 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

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Crafting Strategy Is an
Exercise in Entrepreneurship
 Strategy-making is a market-driven
and customer-driven activity that
involves
 Risk-taking and venturesomeness
 Innovation and business creativity
 Keen eye for spotting market
opportunities
 Keen observation of customer
needs
 Choosing among alternatives

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Characteristics of
Entrepreneurial Managers
 Boldly pursue new strategic opportunities
 Emphasize out-innovating the competition
 Lead the way to improve firm performance
 Willing to be a first-mover and take risks
 Respond quickly and opportunistically
to new developments
 Devise trail blazing strategies

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Why Do Strategies Evolve?
 There is always an ongoing need
to react to
 Shifting market conditions
 Fresh moves of competitors
 New technologies
 Evolving customer preferences
 Political and regulatory changes
 New windows of opportunity
 The crisis of the moment

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What Is a Strategic Plan?
Where firm is headed --
Strategic vision and
business mission
Action approaches to achieve
targeted results -- A
comprehensive strategy
Short and long term
performance targets --Strategic
and financial objectives

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Implementing Strategy
 Creating fits between way
things are done and what it
takes for effective strategy
execution
 Getting the organization to
execute strategy proficiently
and efficiently
 Producing excellent results in
a timely manner
The Fourth Task of Strategic Management

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Strategy implementation is an
internal, operations-driven activity
involving organizing, budgeting,
motivating, culture-building,
supervising, and leading to
“make the strategy work”
as intended!
Strategy Implementation

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What Does Strategy
Implementation Include?
 Building a capable organization
 Allocating resources to strategy-critical activities
 Establishing strategy-supportive policies
 Motivating people to pursue objectives
 Tying rewards to achievement of results
 Creating a strategy-supportive corporate culture
 Installing needed information, communication, and
operating systems
 Instituting best practices for continuous
improvement
 Exerting strategic leadership

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Evaluating Performance
 The tasks of strategy are not a
one-time only exercise
 Times and conditions change
 Events unfold
 Better ways to do things
emerge
 New managers with different
ideas take over
The Fifth Task of Strategic Management

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Evaluating Performance
 Corrective adjustments
 Alter long-term direction
 Redefine the business
 Raise or lower performance
objectives
 Modify the strategy
 Improve strategy execution

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Characteristics of the
Strategic Management Process
 Need to perform tasks never goes away
 Boundaries among tasks are blurry
 Strategizing is not isolated from other
managerial activities
 Time required comes in lumps and spurts
 The big challenge is to get the best strategy-
supportive performance from employees,
perfect current strategy, and improve
strategy execution

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Who Performs the Five
Strategic Management Tasks?
 Senior Corporate
Level Executives
 Subsidiary
Business Unit
Managers
 Functional Area
Managers
 Operating
Managers

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Strategizing: An Individual
or Group Responsibility?
 Teams are increasingly used because
 Strategic issues cut across departmental
lines
 Ideas of people with different backgrounds
can be tapped into
 More people will have an ownership stake in
the strategy

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Role of Strategic Planners
 Gather necessary information
 Provide support in revising strategic plans
 Coordinate review and approval process
 Crystallize strategic issues to be
addressed
 Conduct studies of industry and
competitive conditions
 Establish an annual review cycle
 Develop strategy performance
assessments

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Why Planners Should Not
Be Strategy Makers
 Managers may toss tough
decisions to planners
 Planners know less about
company’s situation
 Difficult to fix accountability for
poor results
 Managers have no “buy in” to strategy
 Strategic planning may be viewed as
an unproductive “bureaucratic” activity

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Strategic Management Principle
Strategy-making is a job for
line managers, not a staff of
planners -- doers should be the
strategy-makers!

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Strategic Role of a
Board of Directors
 Continuously audit validity of a company’s
long-term direction and strategy
 Evaluate strategic leadership skills of the
CEO and candidates to succeed the CEO

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Strategic Management Principle
A board of director’s role in the
strategic management process is to
critically appraise and ultimately
approve strategic action plans, but
rarely, if ever, to develop the details!

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Benefits of Strategic
Approach to Managing
 Guides entire firm regarding “what it is we are
trying to do and to achieve”
 Lowers management’s threshold to change
 Provides basis for evaluating competing
budget requests
 Unifies numerous strategy-related
decisions
 Creates a proactive atmosphere
 Enhances long-range performance

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Recap of Important Terms
A view of an organization’s future direction and
business course; a guiding concept for what the
organization is trying to do and to become.
Represents management’s customized answer to the
question “what is our business and what will it be.” A
mission statement broadly outlines the organization’s
future direction and serves as a guiding concept for
what the organization is to do and to become.
Strategic Vision
Organization Mission

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Recap of Important Terms
Organization’s targets for achievement; both short
and long range objectives are needed.
Financial performance targets a company wants to
achieve.
Targets relating to strengthening a company’s
overall market position and competitive viability.
Performance Objectives
Financial Objectives
Strategic Objectives

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Recap of Important Terms
Achievement levels to be reached within the next
three to five years.
Near-term performance targets; they establish the
pace for achieving the long-range objectives.
Long-Range Objectives
Short-Range Objectives

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Recap of Important Terms
Managerial action plan for achieving organizational
objectives; strategy is mirrored in the pattern of
moves and approaches devised by management to
produce the desired performance. Strategy is the
how of pursuing an organization’s mission and
reaching target objectives.
Statement outlining an organization’s mission and
future direction, near-term and long-term performance
targets, and strategy, in light of organization’s external
and internal situation.
Strategy
Strategic Plan

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Recap of Important Terms
Includes the full range of managerial
activities associated with putting the chosen
strategy into place, supervising its pursuit,
and achieving the targeted results.
Strategy Implementation