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Module 2
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- 2. Contents The Strategy-Making,Strategy-Executing Process Phase 1 of the Strategy-Making, Strategy-Executing Process: Developing a Strategic Vision Phase 2 of the Strategy-Making, Strategy-Executing Process: Setting Objectives Phase 3 of the Strategy-Making, Strategy-Executing Process: Crafting a Strategy to Achieve the Vision and Objectives Case Discussion: Air Asia – What should be their Entry Strategy for India?
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- 4. Developing a StrategicVision Involves thinking strategically about: Overall future direction of company Specific changes in company’s product/market/customer technology to improve: Current market position Future prospects Phase 1 of the Strategy-Making Process A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future.
- 5. Key Elements ofa Strategic Vision Describes management’s aspirations for the business Provides a panoramic view of “where we are going” Is distinctive and specific to a particular organization Captures the emotions of employees and steers them in a common direction Is challenging and a bit beyond a company’s immediate reach Amazon.com Our vision is to be the world's most customer centric company ; to build a place where people can come to find and discover anything they might want to buy online. McDonald’s To be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value, so that we make every customer in every restaurant smile.
- 7. Mission Statement Identifiesthe boundaries of the current business and highlights: Present products and services Types of customers served Geographic coverage Conveys: Who we are, What we do, and Why we are here A company’s mission is not to make a profit! Its true mission is its answer to “What will we do to make a profit?” Making a profit is an objective or intended outcome!
- 8. Example of MissionStatement FedEx Corporation FedEx will produce superior financial returns for shareowners by providing high value-added supply chain, transportation, business and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.
- 9. Mission Statement v/sStrategic Vision A strategic vision concerns a firm’s future business path - “where we are going” Markets to be pursued Future product/market/ customer/technology focus Type of company management is trying to create The mission statement of a firm focuses on its present business purpose - “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities VISION * Future-oriented * Inspirational MISSION * Present-focused * Informational
- 10. Test Your Knowledge Thedifference between a company's mission statement and the concept of a strategic vision is that: A. the mission statement lays out the desire to make a profit, whereas the strategic vision addresses what strategy the company will employ in trying to make a profit. B. a mission statement deals with “where we are headed ” whereas a strategic vision provides the critical answer to “how will we get there?” C. a mission deals with what a company is trying to do and a vision concerns what a company ought to do. D. a mission statement typically concerns an enterprise’s present business scope and purpose—“who we are, what we do, and why we are here”— whereas the focus of a strategic vision is on the direction the company is headed and what its future product-customer-market-technology focus will be. E. a mission is about what to accomplish for shareholders whereas a strategic vision concerns what to accomplish for customers.
- 11. Strategic Inflection Point Strategic Inflection Point is an order-of-magnitude change in a company’s environment that: Dramatically alters its future prospects Mandates radical revision of its strategic course Critical decisions have to be made about ‘where to go from here’: A major new directional path may have to be taken A major new strategy may be needed Not responding quickly to unfolding changes in the marketplace results in: Becoming trapped in a stagnant business or Letting attractive new growth opportunities slip away e.g. Kingfisher Airlines’s difficult situation due to external market conditions and internal mis-management
- 12. Intel’s ‘Strategic Inflection Points’ Prior to mid-1980s Focus on memory chips Starting in mid-1980s Abandon memory chip business (due to lower-cost Japanese companies taking over the market) and Become preeminent supplier of microprocessors to PC industry Make PC central appliance in workplace and home Be undisputed leader in driving PC technology forward 1998 onwards Shift focus from PC technology to becoming the premium supplier to Internet economy
- 13. Setting Objectives Purposeof setting objectives Converts vision into specific performance targets Creates measures to track performance Well-stated objectives are Quantifiable Measurable Contain a deadline for achievement Clarify how much of, what kind of performance and by when e.g. Hero Motors aims to capture 50% market share in 2-wheelers by 2015 Phase 2 of the Strategy-Making Process
- 14. Types of Objectives Outcomesfocused on improving financial performance Outcomes focused on improving competitive vitality and future business position Financial ObjectivesStrategic Objectives
- 15. Strategic Objectives: Place more emphasis on delivering an exceptional customer experience Add 350 new restaurants by FY end Reduce general and administrative spending as a percent of total revenues Financial Objectives: System wide sales and revenue growth of 8-9% Annual operating income growth of 6-7% Annual returns on incremental invested capital of 17-18% McDonald’s Strategic and Financial Objectives
- 16. Test Your Knowledge Whichof the following represents the best example of a well-stated strategic objective (as opposed to a well-stated financial objective)? A. Achieve revenue growth of 150% annually B. Achieve a AA bond rating within 3 years and an annual cash flow of $750 million C. Invest more money in R&D to enable the company to offer customers the widest selection of products in the industry D. Increase market share from 15% to 20% and achieve the lowest overall costs of any producer in the industry, both within three years E. Pay more attention to reducing costs over the next two years
- 17. The Balanced Scorecard– Setting Strategic and Financial Objectives Developed by Robert Kaplan (Harvard) and David Norton in the early 1990’s A Balanced Scorecard is a strategic management system used for measuring company performance and involves: Setting financial and strategic objectives Placing balanced emphasis on achieving both these objectives The Balanced Scorecard suggests viewing the company from four perspectives: Customer perspective Financial perspective Internal Business Processes perspective Learning and Growth perspective Develop metrics, collect data and analyze each of these perspectives
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- 19. Why Implement aBalanced Scorecard? Increased focus on strategic implementation and results Improved organizational performance by measuring what really matters Align organization strategy with the work people do on a day-to-day basis Focus on the drivers of future performance Improved communication of the organization’s Vision and Strategy Prioritize Projects / Initiatives Philips, Tata Motors etc. have implemented Balanced Scorecard and reaped huge benefits
- 20. Short-Term v/s Long-TermObjectives Short-term objectives: Targets to be achieved within 1 year e.g. Airtel - reach ARPU of Rs. 250 by December 2013 Milestones or steps for reaching long-range performance Medium to Long-term objectives: Targets to be achieved within 3 to 5 years e.g. Nike - achieve $35 billion revenues by 2016 Initiate actions now that will permit reaching targeted long-range performance later
- 21. Objectives are neededat all levels A top-down approach for setting objectives is generally followed: First, establish group objectives and performance targets Next, set business objectives Then, establish functional and departmental objectives Individual objectives are established last e.g. Objectives setting at Reliance Industries: Group Business (Refinery, Petrochemicals, Textiles, Retail) Functional (Marketing, Finance, HR, Operations) Individual employees
- 22. Concept of StrategicIntent Created by Gary Hamel (London Business School) and CK Prahalad (University of Michigan) A company exhibits Strategic Intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective! e.g. Canon’s intention to overpower Xerox ; Toyota’s ambition to surpass General Motors’s sales
- 23. Characteristics of StrategicIntent Indicates firm’s intent to making significant gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against severe odds Involves establishing a extravagant performance target beyond immediate capabilities and market position but then devoting a firm’s full resources and energies to achieving the target over time Signals relentless commitment to achieving and maintaining a particular market position and competitive standing
- 24. Test Your Knowledge Acompany pursues strategic intent when: A. it pursues its strategic vision. B. it crafts a strategy and proceeds to implement it. C. it adopts a strategic plan and tries to execute it. D. it sets objectives and pursues their achievement. E. it relentlessly pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective.
- 25. Crafting a Strategy Strategy-making involves entrepreneurship: Actively searching for opportunities to do new things or Actively searching for opportunities to do existing things in new or better ways Strategizing also involves: Developing timely responses to happenings in the external environment and Steering company activities in new directions dictated by shifting market conditions e.g. Yahoo’s acquisitions of Rockmelt (news aggregator), Tumblr (blogging), Lexity (e-commerce analytics) etc. Phase 3 of the Strategy-Making Process
- 26. Who participates inCrafting Corporate Strategy? CEO (Chief Executive Officer): Has ultimate responsibility for leading the strategy-making, strategy-executing process Functions as strategic visionary and Chief Architect of strategy COO(Chief Operating Officer), Vice-Presidents: Lead efforts to create chief strategy components in their own areas of responsibility General Managers of subsidiaries, divisions and other important operating units: On-the-scene people with detailed knowledge of local competitive conditions and customer requirements/expectations
- 27. Why are CollaborativeEfforts used in the Strategy-Making Process? Many strategic issues are complex or cut across multiple areas of expertise Ideas of people with different expertise and perspectives strengthen the strategizing effort A team effort in crafting the strategy enhances motivation, commitment and accountability in executing the strategy and making it work
- 28. Strategy-Making role of CorporateIntrapreneurs Intrapreneurship is the act of working like an Entrepreneur while functioning within a large organization Companies such as Accenture, Coca-Cola, Hilton actively encourage Intrapreneurs Involves encouraging lower-level managers/employees to lead significant initiatives and join in on the strategy-making effort Unleashes talents and energies of employees to brainstorm and champion suggestions for: New technologies or technological applications New products or services New business ventures Requires that Senior Executives: Provide organizational and budgetary support for worthwhile proposals Create an organizational climate where free-thinking and new ideas are welcome
- 29. Levels of Strategy-Makingin a Diversified Company (e.g. Reliance Industries) Corporate Strategy Business Strategies Functional Strategies Operating Strategies Two-Way Influence Two-Way Influence Two-Way Influence Corporate Level Managers Business Level Managers Functional Managers Operating Managers
- 30. Levels of Strategy-Makingin a Single-Business Company (e.g. Maruti-Suzuki) Business Strategy Two-Way Influence Functional Strategies Operating Strategies Business Level Managers Operating Managers Functional Managers Two-Way Influence
- 31. Tasks of CorporateStrategy (Group Level) Actions to improve performance of all the group businesses Establishing investment priorities: By steering corporate resources into the most attractive businesses and Taking appropriate decisions on loss-making businesses Making suitable moves to achieve diversification into other businesses
- 32. Initiating approachesto produce successful performance in a specific business e.g. Refinery, Petrochemicals, Textiles, Retail in Reliance Industries Crafting competitive moves to build sustainable competitive advantage Uniting strategic activities of functional areas Align suitable resources for functional and operational activities Tasks of Business Strategy
- 33. Game planfor a particular function or business process e.g. Marketing, Finance, HR Provide support for business strategy Specify how functional objectives are to be achieved Detail how key operational activities will be managed Tasks of Functional Strategies
- 34. Tasks of OperatingStrategies Relates to focused approaches for managing key operating units and strategically-relevant operating activities e.g. Advertising in Marketing ; Taxation in Finance ; Talent Planning in HR Adds minute details to business and functional strategies Delegation of responsibility to frontline managers and their teams
- 35. Test Your Knowledge Thestrategy-making hierarchy in a single business company consists of A. it pursues business strategy, divisional strategies, and departmental strategies. B. business strategy, functional strategies, and operating strategies, whereas in a diversified company it consists of corporate strategy, business strategies (one for each business the diversified company is in), functional strategies, and operating strategies. C. business strategy and operating strategy. D. company strategy, divisional strategies, and functional strategies. E. corporate strategy, divisional strategies, and departmental strategies.
- 36. Activity Design aBalanced Scorecard for IBM, Vodafone, HBO, Hyundai, Puma and Citibank with regard to the four perspectives: Customer perspective Financial perspective Internal Business Processes perspective Learning and Growth perspective