STRATEGIC MANAGEMENT OB/09

THE STRATEGIC MANAGEMENT PROCESS Chapter 1 THE STRATEGIC MANAGEMENT PROCESS

An Introduction to Strategy What Is Strategic Management? Why Is Strategic Management Important? Who Is Involved in Strategic Management?

Chapter Outline Five Tasks of Strategic Management Developing a Strategic Vision and Mission Setting Objectives Crafting a Strategy Implementing and Executing the Strategy Evaluating Performance and Initiating Corrective Adjustments Why Strategic Management Is a Process?

What is Strategy? Definition (Thompson & Strickland) An organisation’s strategy consists of the moves and approaches devised by management to produce successful organisation performance. (Thompson & Strickland) Strategy is management’s “action plan” to Attract and satisfy its customers Run its operations Compete successfully against rival firms Achieve organizational objectives and targets

The 3 Big Strategic Management Questions Where are we now?( the company’s present situation) Where do we want to go?( business or markets, buyers and groups to target) How do we get there?(the co.’s answer to how to get there is its strategy)

Why is Strategy Important? - 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, company-wide plan. - Charts the company’s direction.

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

Who is Involved in Strategic Management? Crafting and executing strategy are core management functions. Senior Corporate Executives Managers of Subsidiary Business Units Functional Area Managers Operating Managers

The 5 Tasks of Strategic Management Craft a Strategy to Achieve Objectives Set Develop a Strategic Vision and Mission Implement Execute Improve/ Change Revise as Needed Recycle as Needed Task 1 Task 2 Task 3 Task 4 Task 5 Monitor, Evaluate, and Take Corrective Action

Developing a Vision & Mission The first task of strategic management The first direction setting task Offers a big picture perspective of “WHO we are, WHAT we do and WHERE we are headed”

Strategic Vision Effective strategy making begins with a vision of where the organisation needs to head.

Strategic Vision (cont) Forming a vision of the firm’s future in 5-10 years. Tasks include: Creates a roadmap for the future Provide long term direction Give firm a strong identity Concerns a firm’s future business path -“where we are going” Markets to be pursued Future technology-product-customer focus Kind of company that management is trying to create

Example of a Strategic Vision Our vision: Getting to a billion connected computers worldwide,millions of servers, and trillions of dollars of e-commerce.

Mission Statement A mission statement focuses on current business activities. Concerns “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

Example of a Mission Statement Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet.

Setting Objectives The 2nd Task of Strategic Management The 2nd Direction Setting Task Represent managerial commitment to achieve specific & measurable performance targets by a certain time. Spell-out how much of what kind of performance by when Direct attention & energy to what needs to be accomplished Establishing objectives converts firm’s mission into concrete performance outcomes

Setting Objectives (cont) Provides benchmarks for judging organisational performance The firm is more focused over what needs to be accomplished Objectives need to be set for every key result area Objectives are required both for the long term term and short term Types of Objectives required: Financial Objectives Strategic Objectives

Financial Objectives Relates to the firm’s financial performance – usually improving the financial performance Financial performance is critical to firm’s survival Examples of Financial Objectives: Grow earnings per share 15% annually Boost annual return on investment from 15% to 20% within three years Increase annual dividends per share to stockholders by 5% each year Maintain a positive cash flow every year

Strategic Objectives Focused on improving long-term, competitive business position 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

Example of Strategic Objective Domino’s Pizza To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit.

Crafting a Strategy 3rd Task of Strategic Management 3rd Direct Setting Task A firm’s strategy consists of combined actions that management has taken and intends to take in Achieving strategic and financial objectives Pursuing organisation’s mission Strategy-making is all about HOW to Reach performance targets Out-compete rivals Achieve sustainable competitive advantage Capture market opportunities Strengthen firm’s long term competitive position Make the strategic vision a reality

Crafting a Strategy (cont) 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

Understanding a Firm’s Strategy Actions to diversify Actions to outcompete rivals Actions to strengthen resources & capabilities Responses to changing external circumstances Pattern of Actions That Define Strategy How functional activities are managed Actions to alter geographic coverage Efforts to pursue new opportunities or defend against threats Actions to form strategic alliances and collaborative partnerships

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 Crisis situation

Executing and Implementing Strategy The 4th Task of Strategy Management Taking actions to put a freshly-chosen strategy into place Supervising the ongoing pursuit of strategy Improving the competence and efficiency with which the strategy is being executed Showing measurable progress in achieving the targeted results and objectives

What does Strategy Implementation and Execution Include? Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Installing needed information, communication, and operating systems Instituting best practices and programs for continuous improvement Exerting the leadership necessary to drive the process forward and keep improving

Monitoring, Evaluating and Taking Corrective Actions as Required The 5th Task of Strategic Management The tasks of crafting, implementing, and executing a strategy are not a one-time exercise Customer needs and competitive conditions change New opportunities appear; technology advances; any number of other outside developments occur One or more aspects of executing the strategy may not be going well New managers with different ideas take over Organizational learning occurs All these trigger the need for corrective actions and adjustments

Characteristics of the Strategic Management Process Need to do the five tasks never goes away Strategizing is not isolated from other managerial activities The big challenge: To get the best strategy-supportive performance from employees, perfect current strategy, and improve strategy execution

Benefits of Strategic Thinking and a Strategic Approach to Managing Guides entire firm regarding “what it is we are trying to do and to achieve” Makes managers more alert to “winds of change, new opportunities,and threatening developments Unifies numerous strategy-related decisions and organizational efforts Creates a proactive atmosphere Promotes development of an evolving business model focused on bottom-line success Provides basis for evaluating competing budget requests HELPS A COMPANY PREPARE FOR THE FUTURE!