Business strategy chapter (1)


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Business strategy chapter (1)

  1. 1. CHAPTER -1 THE STRATEGIC MANAGEMENT PROCESS Mohammad Mizenur Rahaman Ph.D Researcher Assistant Professor Shahjalal University of Science & Technology, Sylhet 1Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  2. 2. “Without a strategy the organization is like a ship without a rudder, going around in circles.” Joel Ross and Michael Kami “Quote”Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  3. 3. Chapter Outlinel Five Tasks of Strategic Management 4 Developing a Strategic Vision and Mission 4 Setting Objectives 4 Crafting a Strategy 4 Implementing the Strategy 4 Evaluating Performance and Initiating Corrective Adjustmentsl Why Strategic Management Is a Processl Who Performs the Tasks of Strategy?l Benefits of “Managing Strategically”l Terms to Remember 3Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  4. 4. What Is Strategy? Conceptl Competitive moves and business approaches management employs in running a companyl Management’s “game plan” to 4 Please customers 4 Position a company in its chosen market 4 Compete successfully 4 Achieve good business performance 4Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  5. 5. Why Are Strategies Needed ? l To proactively l To mold the shape how a independent company’s actions and business will decisions of be conducted managers and employees into a coordinated, companywide game plan 5Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  6. 6. Strategic Management Concept Competent execution of a well- conceived strategy is a proven recipe for organizational success and the best test of managerial excellence! 6Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  7. 7. The Five Tasks of Strategic ManagementTask 1 Task 2 Task 3 Task 4 Task 5Develop a Craft a Implement Evaluate &Strategic Set Strategy & Execute Make Vision Objectives to Achieve Strategy Corrections& Mission Objectives Revise as Revise as Improve/ Improve/ Recycle Needed Needed Change Change as Needed 7Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  8. 8. Developing a Vision and Mission The First Task of Strategic Managementl Begins with thinking strategically about 4 The firm’s future business makeup 4 Where to take the firml The task is to 4 Create a roadmap of a company’s future 4 Decide what future business position to stake out 4 Provide long-term direction 4 Give the firm a strong identity 8Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  9. 9. Missions vs. Strategic Visionsl A mission statement l A strategic vision focuses on current concerns a firm’s business activities future business path 4 Business(es) 4 The kind of company is in company it is trying now to become 4 Customer needs 4 Customer needs to currently being be satisfied in the served future 9Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  10. 10. Developing a Strategic Vision l A strategic vision is a roadmap of a company’s future -- 4 Direction it is headed 4 Business position it intends to stake out 4 Capabilities it plans to develop 4 Customer needs it intends to serve 10Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  11. 11. 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. 11Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  12. 12. 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 higherreliability 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. 12Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  13. 13. 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 toimprove the quality of human life; to enhance self- reliance and concern for others; and to help people avoid, prepare for, and cope with emergencies. 13Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  14. 14. Examples: Mission and Vision Statements The Body Shop We aim to achieve commercial success by meeting our customers’ needs through the provision of highquality, good value products with exceptional serviceand relevant information which enables customers to make informed and responsible choices. Eastman Kodak We are in the picture business. 14Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  15. 15. 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 serviceand 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. 15Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  16. 16. 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. 16Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  17. 17. 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. 17Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  18. 18. Setting Objectives The Second Task of Strategic Managementl Establishing OBJECTIVES 4 Converts vision into specific performance targets 4 Creates yardsticks to track performance 4 Pushes firm to be inventive and focused 4 Helps prevent coasting and complacency if targets require stretch 18Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  19. 19. Types of Objectives RequiredFinancial Objectives Strategic Objectives Outcomes focused on Outcomes focused on improving a firm’s improving a firm’s competitiveness and financial performance its long-term business position $ 19Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  20. 20. Examples: Financial Objectivesl Grow earnings per share 15% annuallyl Boost annual return on investment (or EVA) from 15% to 20%l Increase annual dividends per share to stockholders by 5% each yearl Strive for stock price appreciation equal to or above the S&P 500 averagel Maintain a positive cash flowl Achieve and maintain a AA bond rating 20 Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  21. 21. Examples: Strategic Objectivesl Increase firm’s market sharel Overtake key rivals on quality or customer service or product performancel Attain lower overall costs than rivalsl Boost firm’s reputation with customersl Attain stronger foothold in international marketsl Achieve technological superiorityl Become leader in new product introductionsl Capture attractive growth opportunities 21Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  22. 22. Example: Nike’s Corporate Objectivesl Protect and improve Nike’s position as the number one athletic brand in America.l Build a strong momentum in growing fitness market.l Intensify the company’s effort to develop products that women need and want.l Explore the market for products specifically designed for the requirements of maturing Americans.l Direct and manage the company’s international business as it continues to develop.l Continue the drive for increased margins through proper inventory management and fewer, better products. 22Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  23. 23. Example: McCormick’s Corporate Objectivesl Dispose of those parts of our businesses which cannot generate adequate returns or do not fit with our business strategy.l Achieve a 20% return on equity.l Achieve net sales growth rate of 10% per year.l Maintain an average earnings per share growth rate of 15% per year.l Maintain total debt to total capital at 40% or less.l Pay out 25% to 35% of net income in dividends. 23Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  24. 24. 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, qualitypizza in 30 minutes or less at a fair price and a reasonable profit. 24Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  25. 25. Example: Strategic and Financial Objectives Ford Motor Company l To satisfy our customers by providing 4 Quality cars and trucks, 4 Developing new products, 4 Reducing the time it takes to bring new vehicles to market, 4 Improving the efficiency of all our plants & processes, and 4 Building on our teamwork with employees, unions, dealers, and suppliers. 25Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  26. 26. 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 theStandard and Poor’s industrial stock index. 26Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  27. 27. 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. 27Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  28. 28. Examples: Strategic and Financial Objectives 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. 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. 28Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  29. 29. Examples: Strategic and Financial Objectives 3M Corp. 4 Annual growth in earnings per share of 10% or better, on average 4 A return on stockholders’ equity of 20-25% 4 A return on capital employed of 27% or better 4 Have at least 30% of sales come from products introduced in the past four years 29Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  30. 30. Crafting a Strategy The Third Task of Strategic Managementl Strategy involves determining whether to 4 Concentrate on a single business or several businesses (diversification) 4 Cater to a broad range of customers or focus on a particular niche 4 Develop a wide or narrow product line 4 Pursue a competitive advantage based on D Low cost or D Product superiority or D Unique organizational capabilities 30Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  31. 31. Crafting a Strategy l Involves deciding how to 4 Respond to changing buyer preferences Our strategy 4 Outcompete rivals will be . . . 4 Respond to new market conditions 4 Grow the business over the long-term 4 Achieve performance targets 31Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  32. 32. Strategy Is Both Planned and Reactive to Changing Circumstances Planned (or Intended) Strategy Actual Strategy Adaptive Reactions 32Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  33. 33. The Hows That Define a Firms Strategy l How to grow the business Strategy l How to please customers is HOW to . . . l How to outcompete rivals l How to respond to changing market conditions l How to manage each functional piece of the business and develop needed organizational capabilities l How to achieve strategic and financial objectives 33Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  34. 34. Understanding Company Strategy -- What to Look For DiversificationActions to Strengthen Responses toResources & Capabilities Changing Conditions How Functional Offensive Moves Activities Are to Gain Edge Managed Pattern of Actions That Define Strategy Changes in Defensive Moves Product Line, Quality, or Service Pursuing New Opportunities Geographic Coverage Forward or Backward Integration, Collaboration 34Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  35. 35. Strategy Example: McDonald’sl Strategic priorities 4 Continued growth 4 Providing exceptional customer care 4 Remaining an efficient and quality producer 4 Offering high value and good-tasting products 4 Effectively marketing McDonald’s brand on a global scale 35Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  36. 36. Core Elements of McDonald’s Strategyl Add 2500 restaurants annuallyl Promote frequent customer visits via attractive menu items, low-price specials, and Extra Value Mealsl Be highly selective in granting franchisesl Locate on sites offering convenience to customers and profitable growth potentiall Focus on limited menu and consistent qualityl Careful attention to store efficiencyl Extensive advertising and use of Mc prefixl Hire courteous personnel; pay an equitable wage; provide good training 36Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  37. 37. Crafting Strategy Is an Exercise in Entrepreneurshipl Strategy-making is a market-driven and customer-driven activity that involves 4 Risk-taking and venturesomeness 4 Innovation and business creativity 4 Keen eye for spotting market opportunities 4 Keen observation of customer needs 4 Choosing among alternatives 37Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  38. 38. Characteristics of Entrepreneurial Managers l Boldly pursue new strategic opportunities l Emphasize out-innovating the competition l Lead the way to improve firm performance l Willing to be a first-mover and take risks l Respond quickly and opportunistically to new developments l Devise trail blazing strategies 38Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  39. 39. Why Do Strategies Evolve?l There is always an ongoing need to react to 4 Shifting market conditions 4 Fresh moves of competitors 4 New technologies 4 Evolving customer preferences 4 Political and regulatory changes 4 New windows of opportunity 4 The crisis of the moment 39Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  40. 40. What Is a Strategic Plan? Where firm is headed -- Strategic vision and business mission Short and long term performance targets --Strategic and financial objectives Action approaches to achieve targeted results -- A comprehensive strategy 40Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  41. 41. Implementing Strategy The Fourth Task of Strategic Management l Creating fits between way things are done and what it takes for effective strategy execution l Getting the organization to execute strategy proficiently and efficiently l Producing excellent results in a timely manner 41Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  42. 42. Strategy Implementation Strategy implementation is an internal, operations-driven activity involving organizing, budgeting, motivating, culture-building, supervising, and leading to “make the strategy work” as intended! 42Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  43. 43. What Does Strategy Implementation Include?l Building a capable organizationl Allocating resources to strategy-critical activitiesl Establishing strategy-supportive policiesl Motivating people to pursue objectivesl Tying rewards to achievement of resultsl Creating a strategy-supportive corporate culturel Installing needed information, communication, and operating systemsl Instituting best practices for continuous improvementl Exerting strategic leadership 43Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  44. 44. Evaluating Performance The Fifth Task of Strategic Management l The tasks of strategy are not a one-time only exercise 4 Times and conditions change 4 Events unfold 4 Better ways to do things emerge 4 New managers with different ideas take over 44Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  45. 45. Evaluating Performance l Corrective adjustments 4 Alter long-term direction 4 Redefine the business 4 Raise or lower performance objectives 4 Modify the strategy 4 Improve strategy execution 45Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  46. 46. Characteristics of the Strategic Management Processl Need to perform tasks never goes awayl Boundaries among tasks are blurryl Strategizing is not isolated from other managerial activitiesl Time required comes in lumps and spurtsl The big challenge is to get the best strategy- supportive performance from employees, perfect current strategy, and improve strategy execution 46Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  47. 47. Who Performs the Five Strategic Management Tasks? l Senior Corporate Level Executives l Subsidiary Business Unit Managers l Functional Area Managers l Operating Managers 47Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  48. 48. Strategizing: An Individual or Group Responsibility?l Teams are increasingly used because 4 Strategic issues cut across departmental lines 4 Ideas of people with different backgrounds can be tapped into 4 More people will have an ownership stake in the strategy 48Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  49. 49. Role of Strategic Plannersl Gather necessary informationl Provide support in revising strategic plansl Coordinate review and approval processl Crystallize strategic issues to be addressedl Conduct studies of industry and competitive conditionsl Establish an annual review cyclel Develop strategy performance assessments 49Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  50. 50. Why Planners Should Not Be Strategy Makers l Managers may toss tough decisions to planners l Planners know less about company’s situation l Difficult to fix accountability for poor results l Managers have no “buy in” to strategy l Strategic planning may be viewed as an unproductive “bureaucratic” activity 50Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  51. 51. Strategic Management Principle Strategy-making is a job for line managers, not a staff of planners -- doers should be the strategy-makers! 51Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  52. 52. Strategic Role of a Board of Directors l Continuously audit validity of a company’s long-term direction and strategy l Evaluate strategic leadership skills of the CEO and candidates to succeed the CEO 52Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  53. 53. 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! 53Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  54. 54. Benefits of Strategic Approach to Managingl Guides entire firm regarding “what it is we are trying to do and to achieve”l Lowers management’s threshold to changel Provides basis for evaluating competing budget requestsl Unifies numerous strategy-related decisionsl Creates a proactive atmospherel Enhances long-range performance 54Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  55. 55. Recap of Important Terms Strategic VisionA view of an organization’s future direction andbusiness course; a guiding concept for what theorganization is trying to do and to become. Organization MissionRepresents management’s customized answer to thequestion “what is our business and what will it be.” Amission statement broadly outlines the organization’sfuture direction and serves as a guiding concept forwhat the organization is to do and to become. 55Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  56. 56. Recap of Important Terms Performance Objectives Organization’s targets for achievement; both short and long range objectives are needed. Financial Objectives Financial performance targets a company wants to achieve. Strategic Objectives Targets relating to strengthening a company’s overall market position and competitive viability. 56Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  57. 57. Recap of Important Terms Long-Range Objectives Achievement levels to be reached within the next three to five years. Short-Range Objectives Near-term performance targets; they establish the pace for achieving the long-range objectives. 57Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  58. 58. Recap of Important Terms Strategy 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. Strategic Plan 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. 58Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998
  59. 59. Recap of Important Terms Strategy Implementation Includes the full range of managerial activities associated with putting the chosen strategy into place, supervising its pursuit, and achieving the targeted results. 59Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998