Strategic Management

DR. WILLY LABASTIDA,LPT

CANOE THEORY

 Think of your organization as a long canoe

 The canoe has a destination
 Everyone in the canoe has a seat and paddle
 Everyone is expected to paddle
 Those who won’t paddle have to get out of the canoe
 Those who prevent others from paddling have to re-
adjust or get out of the canoe
 There are no passengers in the canoe
 The canoe theory understands crisis
 The canoe theory says you have the right to be happy

BUILT TO LAST  Time to complete takes longer – expect 50% more than
planned.
Preserve the Core Stimulate  Process needs a shepherd.
Progress  Visionaries needed at beginning and detail types
thereafter.

Why Managers Don’t Plan

GOOD TO GREAT  Time Consuming

 High Demands
 Level 5 Leadership  Not Rewarded
 First Who…Then What  Executives Don’t Support It
 Confront the Brutal Facts  Too Risky
 The Hedgehog Concept
 A Culture of Discipline Strategic Management Model
 Technology Accelerators
 The Flywheel and The Doom Loop  Scanning
Where are we now?
Private versus Public Organizations  Strategy Formulation
Where do we want to be?
 Purpose  Strategy Implementation
 Goals How do we get there?
 Financing  Measurement/Performance
 Decision-Making How do we measure our progress?
 Key Stakeholders
 Strategy Formulation
Strategic Management Versus Strategic Planning
 Where do we want to be?
Features of Successful Strategic Management  Vision
 Mission
 Has support of organization’s executive officer.  Values
 Is user friendly.  Goals
 Is participatory, not left to planners.  Objectives
 Is flexible.
 Leads to resources decisions. VISION
 Engages and motivates all staff.
 Is fresh and continuous, not static and stale. Vision without Action is a Daydream
 Is Proactive Action without Vision is a Nightmare
 Not a Quick Fix  Not Optional
 Part of Quality Management  Stretch – 30+ Years
 Payoffs Increase over Time  8-10 Words in length
 Future State
Lessons Learned About Strategic Planning  Brief and Memorable
 Inspiring and Challenging
 Plans must be tailored to organization.  Descriptive of the Ideal
 No one size ‘fits’ all.
Vision Examples
 “Light the Fire Within”
 “A Safer Future for All Communities”
 “See the Mountains – Breathe Freely”
 To Be the Happiest Place on Earth
 To Be the World’s Best Quick Service Restaurant
 Public Company Accounting Oversight Board
 “Triple bottom line”
 Four major issues:
 Ownership structure and influence
 Fianacial Stakeholder rights and relations
 Financial transparency and information disclosure
 Board structure and processes (audit)

Vision Levels of People Role of the Board of Directors

 Some people never see it. (Wanderers)  Monitor

 Some people see it but never pursue it on their own.  Evaluate and influence
(Followers)  Initiate and determine
 Some people see it and pursue it. (Achievers)  Organization of Board
 Some people see it and pursue it and help others see it.  Insiders versus outsiders
(Leaders)  CEO/chair position
John Maxwell, Developing The Leader Within You,  Committees’ Effectiveness
1993.
Role of Top Management Team
VISION EXERCISE
 Who is the TMT?
Mission Statement  Executive Leadership and Strategic Vision
 Articulates strategic vision for corporation
 In the absence of a clearly defined direction one is  Sets the model for others to identify and follow
forced to concentrate on confusion that will ultimately  Communicates high performance standards and
consume you. builds confidence in followers’ abilities to
meet standards
MISSION  Managing strategic planning process

 What is our purpose? Executive Compensation

 Describes current state
 Timeline is 3-5 Years  Incentive alignment
 Builds on our distinctive competencies  Executive Ownership
 Tends to focus on Core Business  Incentive compensation
 30-35 Words in length  Salary
 Bonus
Mission Examples  Stock Options
 LT Bonus
 “To Lead All Communities in Disaster Preparedness,
Mitigation, and Recovery by Maximizing Assistance and VALUES
Support.”
 “Caltrans Improves Mobility Across California.”  Guiding Principles
 To produce superior financial returns for our  Help establish Culture
shareholders as we serve our customers with the  Part of Preserving the Core
highest quality transportation, logistics, and e-  Core Ideology
commerce.
Value Examples
MISSION EXERCISE
 CHP PRIDE
Corporate Governance  HP WAY
 J & J Credo
 What is it?  “Build the Spirit of the Place”
 Codes of Governance
 Role of the Board of Directors Ethical Awareness Model
 Role of Top Management Team
 Executive Compensation  Organizational Ethics
 System by which a firm’s owners control its affairs.  Individual Ethics
 Does it work?  Personal Values

Codes of Governance VALUES EXERCISE

 The Cadbury Code: 1992

 Sarbanes-Oxley Act: 2002
 Political-Legal Variables
Strategic Management Model
 Antitrust Regulations
 Scanning:  Tort Reform
Where are we now?  Environmental Protection Laws
Macro Analysis (STEP, PESTEL, ETC.)  Taxation at local, state, federal levels
Industry Analysis – Competitive Intelligence  Hiring and Promotion Laws
SWOT Analysis  Americans Disabilities Act of 1990
Internal versus  Sarbanes-Oxley Act of 2002
External Elements
Demographic Variables

 Aging Population
Why Scan?  Rising affluence
 Changes in Ethnic Composition
 To know your position in the environment  Geographic distribution of population
 To respond effectively to constant change  Disparities in income levels
 To see the organization as a whole
 To avoid surprises Global Variables
 To survive
 To lay the foundation for strategic issues  Increasing Global Trade
 Currency Exchange Rates
SCANNING:  Emergence of Indian and Chinese Economies
Key Environmental Variables  Trade agreements (NAFTA, EU, ASEAN)
 Creation WTO
 Macro Environment: STEP, PESTEL
 Task Environment: Industry STEP EXERCISE
 Internal Environment: Focal Organization
 Socio-Cultural
Socio-Cultural Variables  Technological
 Economic
 Lifestyle Changes  Politico-Legal
 Career Expectations
 Regional Shifts in Population Industry Analysis
 Life Expectancies
 More women in workforce  6 Forces Analysis
 Greater concern for fitness  Industry Competitors
 Postponement of family formation  Suppliers/Vendors
 Increase in temporary workers  Customers/Clients
 Potential New Entrants
Technological Variables  Substitutes
 Other Stakeholders
 Total Federal Spending for R&D  Role of Complementors
 Total Industry Spending for R&D
 Focus of Technological Efforts New Entrants and Entry Barriers
 Patent Protection
 Wireless Communications  Absolute cost advantages
 Nanotechnology  Access to inputs
 Productivity Improvements  Government policy
 Genetic engineering  Economies of scale
 Capital requirements
Economic Variables  Brand identity
 Switching costs
 GDP Trends  Access to distribution
 Interest Rates  Proprietary products
 Money Supply
 Inflation Rates Buyer Power (Channel and End Consumer)
 Unemployment Levels
 Wage/Price Controls  Buyer volume and information
 Energy Availability & Cost  Brand identity
 Disposable & Discretionary Income  Price sensitivity
 Threat of backward integration
 Product differentiation
 Substitutes Industry Foresight

Supplier Power Customer Needs

 Supplier concentration Unarticulated

 Differentiation of inputs
 Switching costs
 Threat of forward integration Articulated
 Cost relative to total purchases in industry

Substitutes Customer
Served Unserved Types
 Switching costs
 Buyer inclination to substitute Internal Environment
 Variety of substitutes
 Price-performance tradeoff of substitutes  Internal Profile Analysis
 Necessity for product or service  SWOT Analysis

Degree of Rivalry Internal Profile Analysis

 Exit barriers  Identify Key Core Functions

 Industry concentration  Identify Key Measures for Core Functions
 Fixed costs  Build Matrix
 Industry growth
 Intermittent overcapacity SWOT Analysis
 Switching costs
 Brand identity  Internal Environment
 Diversity of rivals  Strengths
 Corporate stakes  Weaknesses
 External Environment
Other Stakeholders  Opportunities
 Threats
 Employees
 Unions SWOT EXERCISE
 Government
 Trade and Professional Associations Strategic Management Model
 Other Direct Influencers
 Strategy Formulation
Role of Complementors  Where do we want to be?
 Vision
 Number of complements  Mission
 Relative value added  Values
 Difficulty of engaging complements  Goals
 Buyer perception of complements  Objectives
 Complement exclusivity
 Tend to increase profits by increasing demand for an GOAL
industry’s products
 Supports the Mission
6 FORCES EXERCISE  Deals with One Issue or Item of Focus
 Reflects a primary activity or strategic direction
Competitive Profile Analysis  Describes the “To Be” State
 “BHAG”
 Identify Key Competitive Factors  Encompasses a long period, i.e. at least 3 years
 Identify key Competitors
Goal Examples
COMPETITIVE PROFILE EXERCISE
 Achieve excellence in the delivery of disaster recovery
and mitigation programs.
 Professionally develop our employees as a reflection of
DAD’s key attributes and values.
 Increase the supply of housing, especially affordable
housing.
 Become a model for customer service.
 To provide benefits in correct amounts and issued in a  Skills
timely manner.  Style
 Staff
Goal Statements Litmus Test
Human Resource Rule
Goal Exercise
 Hire Smart
OBJECTIVES  Train Hard
 Manage Easy
 Add specificity beyond Goals
 Answer the questions Parable of the Bamboo
 What is to be accomplished?
 When? It takes patience and discipline to develop and empower
 Should contain the SMART Elements people; in fact, it’s like growing bamboo. Once the seed is
planted, you must water it daily for four years before the tree
OBJECTIVES: SMART Model breaks ground – then it grows 60 feet in 90 days! Executives
who nurture people can get similar results…How, you ask,
 Specific can such rapid growth be possible? It results from the miles
 Measurable of roots that develop in those first four years. Preparing
 Aggressive but Attainable people to perform is the task of leadership.
 Results-Oriented
 Timeframe Implementation Strategies

Strategic Objective Examples  GOOMs

 By June 30, 2005 achieve 75% rating on the DAD service
index from all stakeholders.
 Increase sales growth 6-8% in the next 5 years. (P&G)
 Cut corporate overhead costs by $30 million per year.
(Fortune Brands)
 Operate 6,000 stores by 2010 – up from 3,000 in the
year 2000. (Walgreen’s)
 Reduce greenhouse gases by 10 percent (from a 1990
bast) by 2010. (BP Amoco)
 Implementation Conference
 CEO involvement
 Other Strategies?
GOOMs
 Goals
 Outcomes
 Objectives
 Measures

Objectives Litmus Test Definitions

Strategic Objective Exercise  Goal: Broad, General BHAG

 Outcome: Desired end result and report
Strategic Management Model performance
 Objective: What and When
 Strategy Implementation  Measure: A quantified unit that
 Everyone is Responsible assesses progress or achievement
 Few Guidelines
 No Easy 10-Step Checklist to Follow GOOM Example
 Most open-ended part of Strategic Mgmt
 People implement strategies not Organizations  Goal 1: Achieve excellence in the delivery of disaster
 How do we get there? recovery and mitigation.
 Work Action Plans  Outcome: Increased Customer Satisfaction
 GOOMs  Objective 1.1: By June 30, 2005, achieve 75% rating on
the DAD Service Index from all stakeholders.
Strategy Implementation Considerations  Measure: DAD Service Index (DSI)

 7-S Framework – Strategic Fit GOOM Exercise

 Human Resources W ork A ction P lan T emplate
 Patience Sponsor: C om pletion D ate
O rganization:

7-S Framework n.n G oal

O utcom e

Shared Values
n.n O bjective
 M easure

 Strategy T ask D escriptio n T eam Lead Staff H o urs C o mpletio n

D ate
 Structure
Plan- Do-Check-Act

 Systems
Strategic Management Model QUALITY Measure

 Measurement / Performance  Reflect the effectiveness in meeting the expectations of

Why do we measure our progress? customers and stakeholders
 Examples:
Why Measure?  Number of defect reports compared to number of
reports produced
 Reactive Reasons  Number of course ratings in highest category related to
 Government Intervention total number of course ratings
 Fewer Resources and Smaller Budgets
 Increased Demand for Accountability EFFICIENCY Measure
 Mandated
 Also known as productivity measures. Reflect the cost of
 Proactive Reasons providing products or services.
 Makes us more responsive to public needs  Examples:
 Provides feedback on mission accomplishment  Output/Input
 Creates blueprint for linking budget to outcomes  Output/Time
 Good management and good public policy  Output/Cost
 Outcome/Cost
Measurement / Performance
Keeping Plans Off The Shelf
 How do we measure our progress?
 5 Types of Measures  All Staff Meeting
 Input  Announce Phases
 Output  Review and Assess Plans at Quarterly Sessions
 Outcome  Sponsors and Team Leads for Strategic Goals and
 Quality Strategic Objectives
 Efficiency  Deming Philosophy – PDCA

INPUT Measure Developing Bench Strength

 Amount of resources needed to provide a particular  “Drill Down” Application

product or service.  Sponsors, Team Leads, and Team Members
 Examples:  Work Action Plan
 Number of FTEs or PYs  “Project” Champion
 Number of eligible clients  Leadership Training
 Number of customers requesting service  Leadership Conference Presentations
 Number of applications received
 Number of sales orders received Establishing Organizational Permanence

OUTPUT Measure  Training Emphasis

 Certification
 Amount of products or services provided  Awards & Recognitions
 Examples:  “Caught-Ya”
 Percent of highways resurfaced  Celebrations
 Number of police reports filed  Walk the Walk
 Number of vaccinations given to school-age children per
year
 Number of shafts produced in a single operating shift
THANK YOU AND STUDY HARD!!!!!
OUTCOME Measure

 Reflect the actual results achieved and/or their impact

or benefit.
 Examples:
 Reduction in incidence of disease
 Percentage of discharged patients living independently
 Percent of increase in tourists
 Percent of monthly programmed sales orders filled on
time
Generally accepted accounting principles (GAAP) is the
accounting standard set by the Financial Accounting
Standards Board (FASB) for the Securities and Exchange
Commission (SEC) in the United States. It’s a rule-based
system that all domestic and Canadian publicly traded
companies must follow when filing financial statements. The
purpose of GAAP is to help investors analyze financial data
and compare different companies to make informed financial
decisions.
What are the differences between GAAP and IFRS?
While GAAP and IFRS both pertain to how financial
documents are structured and filed, there are significant
differences. The two main distinctions are:
 Enforcement. GAAP is rule-based, meaning publicly
traded US companies are lawfully required to follow its
directives. On the other hand, IFRS is standard-based,
meaning no one is required to follow its guideline—
though it’s recommended. As a result, the theoretical
framework and principles of IFRS leave more room for
interpretation and sometimes require lengthy
disclosures on financial statements.
 Source and scope. GAAP is US-based, while IFRS is used
worldwide. The IASB, which sets IFRS, is globally
influential; its accounting standards are adapted to
accounting rules in countries worldwide. The US, where
the Securities and Exchange Commission requires
American companies to use GAAP when preparing their
financial statements, is the only exception.
There are other notable differences in how GAAP and IFRS
handle specific elements of various financial documents,
including:
1. Inventory valuation methods
Inventory valuation is figuring out how much your inventory
is worth. There are three standard accounting methods for
doing this: the first in, first out (FIFO) method, which
assumes that the first (or oldest) items in your inventory will
be the first to sell; the last in, first out (LIFO) method,
which assumes that the last (or newest) items in your
inventory will be the first to sell; and the weighted average
method, which uses the amount earned from selling a
portion of your inventory to determine the value of the
remaining portion.
Here’s how GAAP and IFRS differ when it comes to inventory
valuation methods:
 GAAP. GAAP allows companies to use any of the three
inventory valuation methods. When using FIFO, GAAP
uses “net asset value”—the total value of a company’s
assets minus the total value of its liabilities—to
determine inventory valuation.
 IFRS. IFRS allows the FIFO and weighted average
method but does not allow the LIFO method, because
LIFO can be manipulated to distort a company’s
earnings to lower tax liability. When using FIFO, IFRS
uses “net realizable value,” which considers how much
an asset might generate when sold, minus an estimate
of costs, fees, and taxes associated with the sale.
2. Cash flow statement
A cash flow statement is a financial statement that shows
precisely how cash and cash equivalents enter and exit a
business over a specific reporting period. GAAP and IFRS
handle cash flow statements differently, particularly in how
they classify interest and dividends:
 GAAP. With GAAP, interest paid and received, and
received dividends are listed under the operating
section, while dividends paid are listed in the financing
section.
 IFRS. With IFRS, all interest and dividends can be listed
under the operating or financing section.
3. Balance sheet
A balance sheet is a financial statement that summarizes a
company’s assets, liabilities, and shareholder equity at a
given point in time. It’s essential to know how to organize
your balance sheet so that your investors and other
interested parties can quickly and accurately read it. GAAP
and IFRS differ in how categories are arranged on a balance
sheet:
 GAAP. GAAP requires assets in order of liquidity, with
the most liquid assets listed first—that is, current assets,
non-current assets, current liabilities, non-current
liabilities, and owners’ equity.
 IFRS. IFRS suggests putting assets in the opposite order
of liquidity, with the least liquid assets listed first—that
is, non-current assets, current assets, owners’ equity,
non-current liabilities, and current liabilities.
4. Asset revaluation
The value of a company’s assets may fluctuate over a given
period, meaning they need to be re-evaluated (i.e.,
reappraised). Asset revaluation is crucial because it can help
you save for replacement costs of fixed assets once they’ve
run through their useful lives, and gives investors a more
accurate understanding of your business. Asset revaluation
can also reduce your debt-to-equity ratio, which can paint a
healthier financial picture of your company.
GAAP and IFRS have different approaches to asset
revaluation:
 GAAP. GAAP only allows the revaluation of fair market
value for marketable securities (i.e., investments and
stocks).
 IFRS. IFRS allows for the revaluation of more assets,
including plant, property, and equipment (PPE),
inventories, intangible assets, and investments in
marketable securities.
5. Inventory write-down reversals

A company’s inventory may lose value over time. An asset

may, for example, lose value because of market or
technological factors, which classifies it as a “loss on
impairment.” GAAP and IFRS require that businesses write
down their inventory as soon as its cost exceeds its net
realizable value (i.e., how much the inventory is expected to
generate when sold).

 While a loss is often permanent, the value of an asset

may increase again if the impairing factor is no longer
present. GAAP doesn’t allow companies to re-evaluate
the asset to its original price in these cases. In contrast,
IFRS allows some assets to be evaluated up to their
original price and adjusted for depreciation.

6. Development costs

In accounting, development costs are the internal costs of

developing intangible assets—assets with no physical form,
like patents, intellectual property, and client relationships.
GAAP considers these expenses, while IFRS allows companies
to capitalize and amortize them over multiple periods. Your
accounting standard, therefore, determines where on your
financial documents you must list intangible assets and
affects your balance sheet’s final balance.