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Strategic management overview zeinab nasser eddine
- 2. Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go.
- 3. STRATEGIC MANAGEMENT 1- Formulating 2- Implementing 3- Evaluating strategies to accomplish long-term goals and sustain competitive advantage.
- 4. Vision Mission External Audit Internal Audit Objectives Generate Evaluate and Select Strategies Implement Strategy Evaluate Strategy In Action Strategy Formulation STRATEGIC MANAGEMENT PROCESS
- 5. “Create a vision for the life you really want and then work relentlessly towards making it a reality.” ― Roy T. Bennett VISION AND MISSION STATEMENT
- 6. What do we want to become? What is our business?
- 7. Mission Employees We respect the individuality of each employee …creativity and productivity are encourages, values, and rewarded Communities We are committed to being caring and supportive corporate citizens within the worldwide communities in which we operate Customers We are committed to providing superior value in our products and services Suppliers We think of our suppliers as partners who share our goal of … highest quality Shareholders We are dedicated to performing in a manner that will enhance returns on investments
- 8. Vision: “to help people and businesses throughout the world realize their full potential.” Mission: “to empower every person and every organization on the planet to achieve more.”
- 9. Vision to integrate the principles of sustainable development into its business model to build a sustainable growth both responsible and united.
- 10. For more than a century, we have devoted our energy and our competencies solely to one business: beauty. It is a business rich in meaning, as it enables all individuals to express their personalities, gain self-confidence and open up to others. Beauty is a language. L’Oréal has set itself the mission of offering all women and men worldwide the best of cosmetics innovation in terms of quality, efficacy and safety. By meeting the infinite diversity of beauty needs and desires all over the world. Beauty is universal. Since its creation by a researcher, the group has been pushing back the frontiers of knowledge. Its unique Research arm enables it to continually explore new territories and invent the products of the future, while drawing inspiration from beauty rituals the world over. Beauty is a science. Providing access to products that enhance well-being, mobilizing its innovative strength to preserve the beauty of the planet and supporting local communities. These are exacting challenges, which are a source of inspiration and creativity for L’Oréal. Beauty is a commitment. By drawing on the diversity of its teams, and the richness and the complementarity of its brand portfolio, L’Oréal has made the universalization of beauty its project for the years to come. L’Oréal, offering beauty for all.
- 11. EXTERNAL ASSESSMENT It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change - Charles Darwin
- 12. External factors can be divided into five broad categories: 1- Economic 2- Social | Cultural | Demographic | Natural Environment 3- Political | Governmental | Legal 4- Technological 5- Competitors
- 13. PORTER’S FIVE-FORCES MODEL Source: Developed from Michael E. Porter, Competitive Strategy Industry Competition Rivalry among firms Substitute Products Suppliers New Entrants Customers
- 14. INTERNAL ASSESSMENT "Weak leadership can wreck the soundest strategy." - Sun Tzu
- 15. What are our Strengths? Manufacturing efficiency? Skilled workforce? Good market share? Strong financing? Superior reputation? STRENGTHS AND WEAKNESSES
- 16. What are our Weaknesses? Outdated facilities? Inadequate research and development? Obsolete technologies? Weak management? Past planning failures? STRENGTHS AND WEAKNESSES
- 17. SETTING OBJECTIVES Objectives: Long term Short term/Annual
- 18. Strengths Weaknesses Opportunities Threats SWOT Analysis Internal Assessment of the Organization External Assessment of the Environment
- 19. STRATEGIES IN ACTION "Whether it’s broke or not, fix it—make it better. Not just products, but the whole company if necessary." —Bill Saporito
- 20. LEVELS OF STRATEGIES Corporation Strategic Business Unit A Strategic Business Unit B Finance Human Resources Manufacturing Marketing Strategic Business Unit C
- 21. INTUITION OR ANALYSIS “In God we trust. All others bring data.” Edward Deming ADAPT TO CHANGE Firms must be “adept at adapting” or they will not survive.
- 22. KEEP IN MIND THREE IMPORTANT QUESTIONS WHILE DEVELOPING A STRATEGIC PLAN: Where are we now? Where do we want to go? How are we going to get there?
- 23. "Alice said, ‘Would you please tell me which way to go from here?’ The cat said, ‘That depends on where you want to get to.’ " - Lewis Carroll
Editor's Notes
- If a man takes no thought about what is distant, he will find sorrow near at hand. He who will not worry about what is far off will soon find something worse than worry - Confucius When CEOs from the big three American Automakers: Ford, GM and Chrysler asked the congressional leaders for bailout monies: asking for a bailout without a convincing plan was crazy. If the three auto CEOs need a bridge, it’s got to be a bridge to somewhere, not a bridge to nowhere.
- A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. Strategic management can be defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, finance/accounting, production/operations, research and development, and information systems to achieve organizational success. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action. Competitive advantage — operating with an attribute or set of attributes that allows an organization to outperform its rivals. Sustainable competitive advantage — one that is difficult for competitors to imitate.
- The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation. Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-formulation issues include deciding what new businesses to enter, what businesses to abandon, how to allocate resources, whether to expand operations or diversify, whether to enter international markets, whether to merge or form a joint venture, and how to avoid a hostile takeover. Because no organization has unlimited resources, strategists must decide which alternative strategies will benefit the firm most. Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed. Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and utilizing information systems, and linking employee compensation to organizational performance.
- Good leaders have vision and inspire others to help them turn vision into reality. Great leaders create more leaders, not followers. Great leaders have vision, share vision, and inspire others to create their own.” ― Roy T. Bennett, The Light in the Heart A traveler came upon three men working. He asked the first man what he was doing and the man said he was laying bricks. He asked the second man the same question and he said he was putting up a wall. When he got to the third man and asked him what he was doing he said he was building a cathedral. They were all doing the same thing. The first man had a job. The second man had a career. The third man had a calling. https://www.huffingtonpost.com/siobhan-kukolic/are-you-laying-bricks-or-_b_12387634.html
- Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Many vision statements are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is “Our vision is to take care of your vision.” It is especially important for managers and executives in any organization to agree on the basic vision that the firm strives to achieve in the long term. It can be argued that profit, not mission or vision, is the primary corporate motivator. But profit alone is not enough to motivate people. Profit is perceived negatively by some employees in companies. Employees may see profit as something that they earn and management then uses and even gives away to shareholders. Although this perception is undesired and disturbing to management, it clearly indicates that both profit and vision are needed to motivate a workforce effectively. A resolution of divergent views
- Mission Statement’s Components: Customers Products Markets Technology Concern for survival, growth and profitability Philosophy Self-concept Concern for public image Concern for employees
- A wealth of strategic information is available to organizations from both published and unpublished sources. Unpublished sources include customer surveys, market research, speeches at professional and shareholders’ meetings, television programs, interviews, and conversations with stakeholders. Published sources of strategic information include periodicals, journals, reports, government documents, abstracts, books, directories, newspapers, and manuals.
- A basic tenet of strategic management is that firms need to formulate strategies to take advantage of external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying, monitoring, and evaluating external opportunities and threats are essential for success. This process of conducting research and gathering and assimilating external information is sometimes called environmental scanning or industry analysis. Lobbying is one activity that some organizations utilize to influence external opportunities and threats. The process of performing an external audit must involve as many managers and employees as possible. As emphasized in earlier chapters, involvement in the strategic-management process can lead to understanding and commitment from organizational members. Individuals appreciate having the opportunity to contribute ideas and to gain a better understanding of their firms’ industry, competitors, and markets. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a chalkboard. A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat. In the academic world, as state budgets have dropped in recent years, so too has state support for colleges and universities. Due to the decline in monies received from the state, many institutions of higher learning are doing more fundraising on their own—naming buildings and classrooms, for example, for donors. The Internet has changed the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets, and changing the historical trade-off between production standardization and flexibility. Collecting and evaluating information on competitors is essential for successful strategy formulation. Identifying major competitors is not always easy because many firms have divisions that compete in different industries. Hiring top executives from rival firms is also a way companies obtain competitive intelligence.
- The strategies pursued by one firm can be successful only to the extent that they provide competitive advantage over the strategies pursued by rival firms. Changes in strategy by one firm may be met with retaliatory countermoves, such as lowering prices, enhancing quality, adding features, providing services, extending warranties, and increasing advertising. The intensity of rivalry among competing firms tends to increase as the number of competitors increases, as competitors become more equal in size and capability, as demand for the industry’s products declines, and as price cutting becomes common. Despite numerous barriers to entry, new firms sometimes enter industries with higher-quality products, lower prices, and substantial marketing resources. When the threat of new firms entering the market is strong, incumbent firms generally fortify their positions and take actions to deter new entrants, such as lowering prices, extending warranties, adding features, or offering financing specials. The presence of substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product. Price ceilings equate to profit ceilings and more intense competition among rivals. Producers of eyeglasses and contact lenses, for example, face increasing competitive pressures from laser eye surgery. Firms may pursue a backward integration strategy to gain control or ownership of suppliers. This strategy is especially effective when suppliers are unreliable, too costly, or not capable of meeting a firm’s needs on a consistent basis. Bargaining power of consumers also is higher when the products being purchased are standard or undifferentiated. When this is the case, consumers often can negotiate selling price, warranty coverage, and accessory packages to a greater extent.
- Compared to the external audit, the process of performing an internal audit provides more opportunity for participants to understand how their jobs, departments, and divisions fit into the whole organization. This is a great benefit because managers and employees perform better when they understand how their work affects other areas and activities of the firm. For example, when marketing and manufacturing managers jointly discuss issues related to internal strengths and weaknesses, they gain a better appreciation of the issues, problems, concerns, and needs of all the functional areas. Performing an internal audit thus is an excellent vehicle or forum for improving the process of communication in the organization. Communication may be the most important word in management. The Resource-Based View (RBV) approach to competitive advantage contends that internal resources are more important for a firm than external factors in achieving and sustaining competitive advantage.
- Internal assessment is based on finding the strengths and weaknesses in each department: culture, management (planning, organizing, motivating, staffing and controlling), Marketing (pricing, distribution, market research), Finance/Accounting, Research and Development; through checklist of questions for each functional area of business. The following checklist of questions can help determine specific strengths and weaknesses in the functional area of business. An answer of no to any question could indicate a potential weakness, although the strategic significance and implications of negative answers, of course, will vary by organization, industry, and severity of the weakness. Positive or yes answers to the checklist questions suggest potential areas of strength. 1. Does the firm use strategic-management concepts? 2. Are company objectives and goals measurable and well communicated? 3. Do managers at all hierarchical levels plan effectively? 4. Do managers delegate authority well? 5. Is the organization’s structure appropriate? 6. Are job descriptions and job specifications clear? 7. Is employee morale high? 8. Are employee turnover and absenteeism low? 9. Are organizational reward and control mechanisms effective?
- Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission. Long-term means more than one year. Objectives are essential for organizational success because they state direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Objectives should be challenging, measurable, consistent, reasonable, and clear. In a multidimensional firm, objectives should be established for the overall company and for each division. Analysis of objectives: Operating objectives direct activities toward key and specific performance results. Typical operating objectives: Profitability Market share Human talent Financial health Cost efficiency Product quality Innovation Social responsibility In the 1950s, during the lingering wake of the devastation of the Second World War, Japan was intensely focused on growing the nation’s economy. A large portion of the country’s population lived in or between the cities of Tokyo and Osaka, which were separated by just 320 miles of train track. Every day, tens of thousands of people traveled between the two cities… And in addition to the thousands of people who traveled on these trains, tons of industrial goods were transported on them, too… But because Japan had so many mountains spread throughout and in between the two cities that it made an already old and outdated railway system even slower due to the rough and mountainous Japanese terrain the trains were forced to travel on; making the trip as long as 20 hours. So, in 1955, the head of the Japanese railway system issued a challenge to the nation’s finest engineers: invent a faster train. Six months later, a team unveiled a prototype locomotive capable of going 65 miles per hour—a speed that, at the time, made it among the fastest passenger trains in the world… Not good enough, the head of the railway system said. He wanted 120 miles per hour. The engineers told the head of the railway that this just wasn’t a realistic expectation—and was, in fact, a pretty dangerous undertaking because a train designed to go that fast (120 miles p/hr) along the sharp and mountainous Japanese topography would definitely derail if it turned too sharply, and end up killing everyone on board as a result. No way they could design a train to go that fast. So, instead of 120 miles an hour, the engineers said that 70 miles an hour was a much more realistic number to shoot for… 75 if they’re lucky. Any faster and the trains would just crash. “Why do the trains need to turn?” the railway head asked. “There are numerous mountains between the cities,” the engineers replied. The railway head shot back—“Why not make tunnels, then?” … Tunnels, huh? The labor required to tunnel through that much territory could require just as many physical and financial resources as it did to rebuild the entire city of Tokyo after World War II. Three months after that conversation, the engineers came back to the railway chief with an engine that could go as fast as 75 miles an hour. You can probably already guess what the railway chief said: 75 miles an hour has absolutely no chance of transforming the nation! The only way to revamp the nation’s transportation system was to rebuild every element of how these trains functioned. Everything. So they got to work, and over the next two years, the engineers experimented: They designed train cars that each had their own motors. They rebuilt gears so they meshed with less friction. They discovered that their new cars were too heavy for Japan’s existing tracks, and so they reinforced the rails, which had the added bonus of increasing the train’s stability, which added another 1/2 mile per hour to train’s speed. There were hundreds of innovations, both big and small, just like these; each of which made the trains just a little bit faster than before. And after tons of tiny tweaks and years of hard work and hustle under the Japanese railway chief’s go-big-or-go-home style of leadership, the very same team of engineers that thought it was impossible to build a 120 mile train—ended up building a 120 mile train. In 1964, the Tōkaidō Shinkansen, the world’s first bullet train, left Tokyo and made its 320-mile trip towards Osaka. Except this time, instead of taking twenty hours, the trip took only four. (From 20—to—4? That’s huge!) In his book, Smarter Faster Better, Charles Duhigg actually details how Jack Welch implemented bullet train thinking at GE, starting with a letter to his shareholders: Going forward, every executive and department, in addition to delivering specific and achievable and timely objectives, would also have to identify a stretch goal—an aim so ambitious that managers couldn’t describe, at least initially, how they would achieve it.
- Questions addressed by different strategic level: Corporate strategy In what industries and markets should we compete? Business strategy How are we going to compete for customers in this industry and market? Functional strategy How can we best utilize resources to implement our business strategy?
- Growth strategies: Seek an increase in size and the expansion of current operations. Types of growth strategies: Concentration strategies, Diversification strategies: Related diversification, Unrelated diversification, Vertical integration Readjusting operations when an organization is in trouble. Retrenchment: Correcting weaknesses by making changes to current operations: Liquidation, Restructuring, Downsizing and rightsizing, Restructuring through divestiture Globalization strategy: World is one large market; standardize products and advertising as much as possible. Ethnocentric view. Multidomestic strategy: Customize products and advertising to local markets as much as possible. Polycentric view. Strategic alliances — two or more organizations partner to pursue an area of mutual interest. Types of strategic alliances: Outsourcing alliances, Supplier alliances, Distribution alliances
- BCG matrix is used for multidimensional (multi-industry) companies.
- Integrating Intuition and Analysis: The strategic management process can be described as an objective, logical, systematic approach for making major decisions in an organization. It attempts to organize qualitative and quantitative information in a way that allows effective decisions to be made under conditions of uncertainty. Yet strategic management is not a pure science that lends itself to a nice, neat, one-two-three approach. Based on past experiences, judgment, and feelings, most people recognize that intuition is essential to making good strategic decisions. Intuition is particularly useful for making decisions in situations of great uncertainty or little precedent. It is also helpful when highly interrelated variables exist or when it is necessary to choose from several plausible alternatives. Albert Einstein acknowledged the importance of intuition when he said, “I believe in intuition and inspiration. At times I feel certain that I am right while not knowing the reason. Imagination is more important than knowledge, because knowledge is limited, whereas imagination embraces the entire world. Drucker says, “I believe in intuition only if you discipline it. ‘Hunch’ artists, who make a diagnosis but don’t check it out with the facts, are the ones in medicine who kill people, and in management kill businesses.” The strategic-management process is an attempt both to duplicate what goes on in the mind of a brilliant, intuitive person who knows the business and to couple it with analysis. "Most of us fear change. Even when our minds say change is normal, our stomachs quiver at the prospect. But for strategists and managers today, there is no choice but to change.“ —Robert Waterman Jr. The strategic-management process is based on the belief that organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. The rate and magnitude of changes that affect organizations are increasing dramatically as evidenced how the global economic recession has caught so many firms by surprise. The strategic management process is aimed at allowing organizations to adapt effectively to change over the long run. As Waterman has noted: In today’s business environment, more than in any preceding era, the only constant is change. Successful organizations effectively manage change, continuously adapting their bureaucracies, strategies, systems, products, and cultures to survive the shocks and prosper from the forces that decimate the competition. E-commerce and globalization are external changes that are transforming business and society today. On a political map, the boundaries between countries may be clear, but on a competitive map showing the real flow of financial and industrial activity, the boundaries have largely disappeared. The need to adapt to change leads organizations to key strategic-management questions, such as “What kind of business should we become?” “Are we in the right field(s)?” “Should we reshape our business?” “What new competitors are entering our industry?” “What strategies should we pursue?” “How are our customers changing?” “Are new technologies being developed that could put us out of business?”
- Identifying an organization’s existing vision, mission, objectives, and strategies is the logical starting point for strategic management because a firm’s present situation and condition ay preclude certain strategies and may even dictate a particular course of action. Every organization has a vision, mission, objectives, and strategy, even if these elements are not consciously designed, written, or communicated. The answer to where an organization is going can be determined largely by where the organization has been! The strategic-management process is dynamic and continuous. A change in any one of the major components in the model can necessitate a change in any or all of the other components. For instance, a shift in the economy could represent a major opportunity and require a change in long-term objectives and strategies; a failure to accomplish annual objectives could require a change in policy; or a major competitor’s change in strategy could require a change in the firm’s mission. Therefore, strategy formulation, implementation, and evaluation activities should be performed on a continual basis, not just at the end of the year or semiannually. The strategic-management process never really ends. Note in the strategic-management model that business ethics/social responsibility/ environmental sustainability issues impact all activities in the model e.g. Adidas