Module 1

THE STRATEGIC MANAGEMENT

PROCESS : An Introduction

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 Module Outline
• Five Tasks of Strategic Management
– Developing a Strategic Vision & Mission
– Setting Objectives
– Crafting a Strategy
– Implementing the Strategy
– Evaluating Performance & Initiating Corrective Adjustments
• Strategic Management is an Ongoing Process
• Who performs the Tasks of Strategy?
• Benefits of “Managing Strategically”
• Terms to Remember

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 What is “STRATEGY”?
Concept and Definition

• Consists of competitive moves and business

approaches to produce successful
performance.
• Management’s “game plan” for
– Running the business
– Strengthening firm’s competitive position
– Satisfying customers
– Achieving performance targets
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THINKING STRATEGICALLY: THREE
BIG STRATEGIC QUESTIONS
• WHERE ARE WE NOW?
• WHERE DO WE WANT TO GO?
– Business positions management wants to stake out.
– FINANCIAL outcomes to achieve
– STRATEGIC outcomes to achieve
• HOW WILL WE GET THERE?

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 The Five Tasks of Strategic
Management
Task 1 Task 2 Task 3 Task 4 Task 5

Crafting
Develop Strategic Implementing Evaluating
Setting Strategy
Vision and and executing and
Mission Objectives to Achieve
Strategy Correcting
Objective

Recycle
Revise Revise Improve/ Improve/
as
as needed as needed Change Change needed

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 FIVE TASKS OF STRATEGIC
MANAGEMENT
1. Defining business, stating a mission &
forming a strategic vision.
2. Setting measurable objectives.
3. Crafting a strategy to achieve objectives.
4. Implementing & executing strategy.
5. Evaluating performance, reviewing new
developments, & initiating corrective
adjustments.
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 DEVELOPING A VISION AND MISSION
First Task of Strategic Management

• Begins with thinking strategically.

– About Firm’s future makeup &
– Forming vision of firm’s future in 5-10 years
• Task is to
– Inject Sense of purpose into firm’s activities.
– Provide LONG- TERM DIRECTION
– Give firm STRONG IDENTITY
– Decide “WHO we are, WHAT we do, &
WHERE we are headed”
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 SPECIFIC QUESTIONS THAT HELP
FORM STRATEGIC VISIONS
• What business are we in now?
• What business do we want to be in?
• What will out customers want in future?
• What are expectations of our stakeholders?
• Who will be our future competitors? Suppliers?
Partners?
• What should our competitive scope be?
• How will technology impact our industry
• What environmental scenarios are possible?

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DEVELOPING A VISION & MISSION

• An organization’s MISSION
– Reflects management’s vision of what firm seeks
to do & become.
– Provides clear view of what firm is trying to
accomplish for its customers.
– Indicates intent to stake out a particular business
position.

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WHY A SHARED VISION MATTERS

• A strategic vision widely shared among all

employees functions similar to how a magnet
aligns iron fillings.
• When all employees are committed to firm’s
long term direction, optimum choices on
business decisions are more likely
– Individuals and teams know the intent of firm’s
strategic vision
– Daily execution of strategy is improved

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 EXAMPLES: MISSION/VISION
STATEMENTS
AVIS RENT-A-CAR
Our business is renting cars. Out mission is total
customer satisfaction

McCORMICK & COMPANY

The primary mission is to expand our worldwide
leadership position in the spice, seasoning, and
flavoring markets.
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 EXAMPLES: MISSION/VISION
STATEMENTS
SATURN DIVISION OF GM
To market vehicles developed and manufactured in the
U.S. that are world leaders in quality, cost and
customer satisfaction through the integration of people,
technology and business systems and to transfer
knowledge, technology and experience throughout GM

EASTMAN KODAK
To be the world’s best in chemicals and electronic
imaging.

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 EXAMPLES: MISSION/VISION
STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO
Our mission is to work for the success of people we
serve by providing our customers reliable electric
service, energy information, and energy options that
best satisfies their needs.
AMERICAN RED CROSS
The mission 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/VISION
STATEMENTS
MCCAW CELLULAR COMMUNICATIONS
To develop a reliable wireless network that empowers
people with the freedom to travel anywhere– across
the hall or across the continent– and communicate
effortlessly
LONG JOHN SILVER’S
The mission 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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SAMPLE MISSION STATEMENTS
OTIS ELEVATOR

Key Market: To provide any customer

Contribution: A means of moving people and
things up, down and sideways
over short distances
Distinction: With higher reliability than any
similar enterprise in the world.
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SAMPLE MISSION STATEMENTS
Deluxe Checks

Key Market: To provide all banks, SLs and

investment firms
Contribution: With error free financial
instruments delivered in a timely
fashion
Distinction: Error free means absolutely no
errors; timely means a 48 hours
turnaround.

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SAMPLE MISSION STATEMENTS
Courtyard by Marriott

Key Market: To provide economy and quality

minded travellers
Contribution: With a premier, moderate priced
lodging facility
Distinction: Which is consistently perceived as
clean, comfortable, well maintained,
and attractive, staffed by friendly,
attentive and efficient people

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SAMPLE MISSION STATEMENTS
Mc Donald’s

Key Market: To offer the fast food customer

Contribution: Food prepared in the same high
quality manner world-wide,
tasty and reasonably priced,
Distinction: Delivered in a consistent, low-
key décor and friendly
atmosphere
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SAMPLE MISSION STATEMENTS
Dayton Hudson

Key Market:To appeal to the younger thinking, style

conscious, moderate and better priced customer
Contribution: by Providing trend merchandising
and superior service
Distinction: Trend means private labels, fast
reaction, measured risks; service means warm,
friendly, helpful people in a convenient, efficient
environment

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SAMPLE MISSION STATEMENTS
Wal-Mart

Key Market: To offer all the fine customers

in our territories
Contribution: All of their household needs
Distinction: In a manner in which they
continue to think of us fondly

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 WHY BOTHER TO DEFINE
“WHO”, “WHAT”, & “WHERE”?
• Helps managers avoid track of
– Trying to move in too many directions
– Being so confused about firms directions that
effective actions are NOT taken to move in ANY
direction
• To successful chart firm’s future, managers
must
– Know where firm is now
– Have view of where it ought to be headed
– Recognize time to shift to a new direction
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 SETTING OBJECTIVES
Second task of Strategic Management
• Purpose of setting OBJECTIVES is to:
– Convert Missions into performance targets.
– Create Yardsticks to track performance
– Establishing performance goals requiring to stretch
– Push firm to be inventive, intentional, focussed
• Setting CHALLENGING but ACHIEVABLE objectives
guards against:
– Complacency
– Drift
– Internal Confusion
– Status quo performance

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TWO TYPES OF OBJECTIVES
NEEDED
Financial Objectives
Outcomes that relate to improving firm’s
financial performance

Strategic objectives
Outcomes that will result in greater
competitiveness & stronger long term market
position
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 EXAMPLES OFTYPES OF
OBJECTIVES
Financial Objectives
• Increase earnings growth from 10 to 15% per year
• Boost return on equity investment from 15 to 20%
• Achieve and maintain a AA bond rating
Strategic Objectives
• Up firm’s market share from 18 to 22%
• Overtake rivals on quality or customer service
• Attain lower overall costs than the rivals
• Become leader in new product introductions.
• Achieve technological superiority
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Example: Corporate Objectives
• Protect and improve Nike’s position as the
NIKE 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 markets 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: Corporate Objectives
McCormick • Improve returns from each of our existing
& Company operating groups.
• Dispose off 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 & FINANCIAL
CORPORATE OBJECTIVES
NATIONSBANK
To build the premier financial services company in the
U.S.

FORD MOTOR COMPANY

To satisfy our customers by providing quality cars and
trucks, developing new products, reducing time to
bring new vehicles to market, improving efficiency of
all our plants & processes, & building on our teamwork
with employees, unions, dealers and suppliers.

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EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE OBJECTIVES
EXXON
Provide a shareholders a secure investment with
a superior return.

ALCAN ALUMINIUM
To be the lowest cost producer of aluminum &
to outperform the average return on equity of
the Standard and Poor’s industrial stock index
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EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE OBJECTIVES
GENERAL ELECTRIC
To become the most competitive enterprise in the world
by being number one or number two in the market
share in every business the company is in

APPLE COMPUTER
To offer the best possible personal computing
technology, and to put that technology in the hands of
as many people as possible.
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EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE 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

QUAKER OATS COMPANY

To achieve a return on equity at 20% or above, “real”
earnings growth averaging 5% or better overtime, be
a leading marketer of strong consumer brand, and
improve the profitability of low return business or
divest them.

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 CRAFTING A STRATEGY
Third task of strategic management
• Strategy Making concerns HOW to
– Achieve desired strategic & financial objectives.
– Out-compete rivals and win a competitive
advantage
– Respond to changing industry & competitive
conditions
– Defend against threats to firm’s well-being.
– Grow the business.
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Strategy as Planned and Reactive to
Changing Circumstances
Planned
Strategy

Actual Strategy

Adaptive
Reaction

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 CRAFTING A STRATEGY
• Objectives = targeted results &
Outcomes
• Strategy = HOW to achieve outcomes

• A firm’s actual strategy is a blend of

– Deliberate & purposeful actions- intended strategy
– As needed reactions to unanticipated developments & fresh
competitive pressures – unintended strategy

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 UNDERSTANDING COMPANY STRATEGY–
WHAT TO LOOK FOR

Actions to improve Diversification Responses to

Short Term Profits Changing Conditions

How Key functions are Fresh Offensive to Gain

managed? The pattern of Market Edge
Actions That
Define
Defensive moves Strategy Product Line, quality,
or service

Geographic Coverage
Pursuing New
Opportunities Forward or Backward Integration

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 WHAT DOES A FIRM’S STRAETGY
CONSIST OF?
• How to satisfy customers
• How to grow the business
• How to respond to changing industry & market
conditions
• How to best capitalize on new opportunities
• How to manage each functional piece of business
• How to achieve strategic and financial objectives

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 STRATEGY EXAMPLE : Mc DONALD’S

• Strategic and financial objectives

– Continued growth
– Providing exceptional customer care
– Remaining an excellent & quality producer
– Offering high value
– Effectively marketing McDonald’s brand on a
global scale

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 KEY ELEMENTS OF
McDONALD’S STRATEGY
• Adding 700-900 restaurants annually
• Using new menu items, low price specials, extra
value meals to promote frequent customer visits
• Being highly selective in granting franchisees
• Choosing sites convenient to customers
• Focusing on limited product line & consistent quality
• Careful attention to store efficiency
• Extensive advertising &use of Mc prefix
• Hiring courteous personnel; paying an equitable
wage; & providing good training

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CRAFTING STRATEGY IS AN EXERCISE
IN ENTREPRENEURSHIP
• Strategy Making is entrepreneurial.
– Risk-taking & venturesomeness
– Innovation and business creativity
– Keen eye on spotting market opportunities
– Choosing among alternatives
• Strategy-making challenge is to keep strategy
– Fresh
– Timely
– Responsive to changing conditions
– Opportunistic

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 CHARACTERISTICS OF
ENTREPRENEURIAL MANAGERS
• Boldly pursues new strategic opportunities
• Emphasizes out-innovating the competition.
• Leads the way to improve firm performance
• Willing to be a first-mover & take risks.
• Responds quickly and opportunistically to new
developments.
• Devises trail blazing strategies

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 WHY GOOD MANAGEMENT OF
STRATEGY MATTERS
• Powerful execution of powerful strategy is a proven
recipe for success.
• Crafting & implementing strategy are CORE
management funtions.
• To qualify as WELL MANAGED, a firm should
– Have an attractive strategy
– Demonstrate proficiency in executing straetgy
• A good strategy is strong enough to overcome rivals
& flexible enough to overcome obstacles
• Without proficient strategy execution, firm cannot
achieve peak performance.

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 WHY IS A FIRM’S STRATEGY
CONSTANTLY EVOLVING
• Because firm’s often need to react to
– Changing market conditions
– Moves of competitors
– New Technologies & production capabilities
– Evolving customer needs and preferences
– Political & regulatory changes
– New windows of opportunities
– Fresh ideas to improve current strategy
– A crisis situation
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 WHAT IS A STRATEGIC PLAN?
• A strategic plan maps out
– Where firm is headed
– Short and long range performance targets
– Actions of management to achieve outcomes
• A strategic plan consists of
– A strategic vision and business mission
– Strategic & financial performance objectives
– Comprehensive strategy for achieving the objectives

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IMPLEMENTING STRATEGY
Fourth Task of Strategic management
• Implementing strategy involves:
– Creating fits between way things are done & what it takes
for effective strategy execution
– Executing strategy proficiently & efficiently
– Producing excellent results in timely manner
• Most important FITS are between strategy AND
– Organizational capabilities
– Reward structures
– Internal Support Systems
– Organizational CULTURE

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 Strategy implementation
Strategy implementation is an-
- Internal,
- Operations-driven activity involving
- Organizing, Budgeting, Motivating, Culture-
building, Supervising, &
- leading to “make the strategy work” as
intended!
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 WHAT DOES STRATEGY
IMPLEMENTATION INCLUDE?
• Building a firm capable of carrying out strategy
successfully
• Allocating ample resources to strategy-critical
activities
• Establishing strategy-supportive policies
• Instituting best practices & programs for continuous
improvement
• Installing support systems
• Trying reward structure to achievements of results
• Creating a strategy-supportive corporate culture
• Exerting strategic leadership
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 EVALUATING PERFORMANCE
Fifth Task of strategic Management
• None of the tasks of strategic management are a one-
time only exercise
– Times& conditions change
– Events unfold
– Better ways to do things become evident
– New managers with different ideas take over
• Manager must
– Constantly evaluate performance
– Monitor situation & decide how well things are going
– Make necessary adjustments

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 EVALUATING PERFORMANCE
• Corrective adjustments can entail
– Altering firm’s long-term direction
– Re-defining the business
– Raising or lowering performance objectives
– Modifying the strategy
– Improving strategy execution

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 CHARACTERISTICS OF STRATEGIC
MANAGEMENT PROCESS
• Need to perform tasks never goes away because
changes occur regularly
• Boundaries among tasks are blurry
• Doing the 5 tasks is not isolated from other
managerial activities
• Time required to do tasks comes in lumps & spurts
• Pushing to get best strategy-supportive performance
from each employee, perfecting current strategy, &
improving strategy execution
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 WHO PERFORMS THE 5 STRATEGIC
MANAGEMENT TASKS
• Chief Executive Officer & Other Senior
Corporate Level Executives
• Managers of Subsidiary Business units
• Functional Area Managers within a subsidiary
Business Unit
• Managers of Operating Departments &
Geographic Units

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 ROLE OF STRATEGIC
PLANNERS
• COLLECT INFORMATION needed by strategy
managers.
• Conduct BACKGROUND ANALYSES as needed
• Establish & administer an ANNUAL STRATEGY
REVIEW CYCLE
• COORDINATE review & approval process of
strategic plans
• ASSIST all managers to focus on strategic issues
WARNING
Planners should NOT make strategic decisions or do
strategic thinking for line managers
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 WHY PLANNERS SHOULD NOT
BE STRATEGY MAKERS
• Planners know less about situation, placing
them in weaker position than the line
managers to devise workable action plan
• Seperates responsibility & accountablity for
strategy-making from implementing
A MAJOR FLAW!
• Allows managers to toss decisions to planners
& avoid doing own strategic thinking
• Implementers have no “buy in” to strategy
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STRATEGIC MANAGEMENT
PRINCIPLE

Strategy making is NOT

a proper task for
strategic planners!

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 STRATEGIC ROLES OF A
BOARD OF DIRECTORS
• See that five strategic management tasks are
performed adequately
• Review important strategic moves & officially
approve strategic plans
• Ensure strategic proposals are adequately
analyzed & superior to alternatives
• Evaluate caliber of top management’s
strategy-making & implementing skills
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 STRATEGY 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 participate directly in
the details of strategic making!

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 BENEFITS OF STRATEGIC
APPROACH TO MANAGING
• Guides entire firm regarding “what it is we are trying
to do &to achieve”
• Lowers management’s threshold to change
• Provides basis for evaluating competing budget
requests & steering resources to strategy-supportive
results-producing areas
• Unites numerous strategy-related decisions of
managers at all organizational levels
• Creates a PROACTIVE, rather than REACTIVE,
atmosphere
• Enhances LONG-RANGE performance

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RECAP OF IMPORTANT TERMS
Strategic Vision

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.

Organization Mission

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
organisation is to do and to become.

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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 57

Competitive viability.
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 peace for achieving the
Long-range objectives.

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RECAP OF IMPORTANT TERMS
Strategy

Managerial action plan for achieving organization's 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 organzation’s
Mission and reaching target objectives.

Strategy 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.

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RECAP OF IMPORTANT TERMS
Strategy Formulation

Refers to the entire direction-setting management function– conceptualizing an

Organization’s mission, setting specific performance objectives, and forming a
strategy. The end formation of strategic formation is a strategic plan.

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.

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