Principles of Strategic

Management
 Outline
• Five tasks of Strategic Management
1. Developing a Strategic Vision and Mission
2. Setting Objectives
3. Crafting a Strategy
4. Implementing the Strategy
5. Evaluating Performance and Initiating
Corrective Adjustments
• Strategic Management is an Ongoing Process
• Who Performs the Task Strategy?
• Benefits of “Managing Strategically”
• Terms to Remember
 WHAT IS “STRATEGY”?
Concept & Definition
• Consists of competitive moves & approaches
to produce successful performance
• Management’s “game plan” for
– Running the organization
– Strengthening organizations’s competitive
position
– Satisfying customers
– Achieving performance targets
 THINKING STRATEGICALLY:
3 Important Questions
1. WHERE ARE WE NOW?

2. WHERE DO WE WANT TO GO?

– Business positions management aims for
– FINANCIAL outcomes to achieve
– STRATEGIC outcomes to achieve

3. HOW WILL WE GET THERE?

 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
 DEVELOPING A VISION & 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”
 DEVELOPING A VISION & MISSION
First Task of Strategic Management

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
SPECIFIC QUESTIONS THAT HELP FORM
STRATEGIC VISIONS
• What business are we in now?
• What business do we want to be in?
• What will our customers want in future?
• What are expectations of our
stakeholders?
SPECIFIC QUESTIONS THAT HELP FORM
STRATEGIC VISIONS

• 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?
WHY A SHARED VISION MATTERS
• A strategic vision widely shared among all
employees functions similar to how a magnet
aligns iron filings
• When all employees are committed to firm’s
long-term direction, optimum choices on
business decisions are more likely
– Individuals & teams know intent of firm’s strategic
vision
– Daily execution of strategy is improved
EXAMPLES: MISSION / VISION STATEMENTS

AVIS RENT-A-CAR
Our business is renting cars. Our mission is total
customer satisfaction.
McCORMICK & COMPANY
The primary mission is to expand our worldwide
leadership position in the spice, seasoning, and
flavoring markets.
 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.
Courtyard by Marriott
• Key Market: To provide economy and quality minded
travelers
• 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.
SAMPLE MISSION STATEMENTS
McDonald’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 decor and
friendly atmosphere.
Wal-Mart
• Key Market: To offer all of 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.
The AFP mission:

To exercise command, direction of all AFP

units to protect and secure the sovereignty
of the state and the integrity of the national
territory.
 The AFP vision:

A world class AFP, source of national pride by 2028

By 2028, a world class Army that is a source of

national pride.

A professional and competent Air Force responsive

to national security and development.

By 2020, we shall be a strong and credible Navy that

our maritime nation can be proud of
 WHY BOTHER TO DEFINE “WHO,”
“WHAT,” & “WHERE?
Helps managers avoid trap of
– Trying to move in too many directions
– Being so confused about firm’s direction that
effective actions are NOT taken to move in
ANY direction
To successfully 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
 SETTING OBJECTIVES
Second Task of Strategic Management
• Purpose of setting OBJECTIVES is to
– Convert mission into performance targets
– Create yardsticks to track performance
– Establish performance goals requiring stretch
– Push firm to be inventive, intentional, focused

• Setting CHALLENGING but ACHIEVABLE

objectives guards against
– Complacency
– Drift
– Internal confusion
– Status quo performance
 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
 EXAMPLE: CORPORATE OBJECTIVES
NIKE
• Protect & improve Nike’s position as the 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 market for products specifically designed for
the requirements of maturing Americans.
• Direct & 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.
 EXAMPLE: CORPORATE OBJECTIVES
McCORMICK & COMPANY
• Improve returns from each of our existing
operating groups.
• Dispose of 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.
 EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE OBJECTIVES

FORD MOTOR COMPANY

• To satisfy our customers by providing quality
cars & trucks, developing new products,
reducing time it takes to bring new vehicles to
market, improving efficiency of all our plants &
processes, & building on our teamwork with
employees, unions, dealers, & suppliers.
 EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE OBJECTIVES

APPLE COMPUTER
• To offer the best possible personal
computing technology, and to put that
technology in the hands of as many
people as possible.
 CRAFTING A STRATEGY
Third Task of Strategic Management

Strategy-Making concerns HOW to

– Achieve desired strategic & financial
objectives
– Out-compete rivals & win a competitive
advantage
– Respond to changing industry & competitive
conditions
– Defend against threats to firm’s well-being
– Grow the business
WHAT DOES A FIRM’S STRATEGY 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 & financial objectives
STRATEGY EXAMPLE: McDONALD’S

Strategic and Financial Objectives

– Continued growth
– Providing exceptional customer care
– Remaining an efficient & quality producer
– Offering high value
– Effectively marketing McDonald’s brand on a
global scale
 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
franchises
• Choosing sites convenient to customers
 KEY ELEMENTS OF
McDONALD’S STRATEGY

• 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
 CRAFTING STRATEGY IS AN
EXERCISE IN ENTREPRENEURSHIP

• Strategy-Making challenge is to keep strategy

– Fresh
– Timely
– Responsive to changing conditions
– Opportunistic
 WHY GOOD MANAGEMENT OF
STRATEGY MATTERS

• Powerful execution of a powerful strategy is a

proven recipe for success
• Crafting & implementing strategy are CORE
management functions
• To qualify as WELL-MANAGED, a firm should
– Have an attractive strategy
– Demonstrate proficiency in executing strategy
 WHY GOOD MANAGEMENT OF
STRATEGY MATTERS

• A good strategy is:

strong enough to overpower rivals &
flexible enough to overcome obstacles

• Without proficient strategy execution,

firm cannot achieve peak performance
 WHY IS A FIRM’S STRATEGY
CONSTANTLY EVOLVING?

Because firms often need to react to

– Changing market conditions
– Moves of competitors
– New technologies & production capabilities
– Evolving customer needs & preferences
 WHY IS A FIRM’S STRATEGY
CONSTANTLY EVOLVING?

Because firms often need to react to

– Political & regulatory changes
– New windows of opportunity
– Fresh ideas to improve current strategy
– A crisis situation
 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
WHAT IS A STRATEGIC PLAN?

• A Strategic Plan consists of

– A strategic vision & mission
– Strategic & financial performance objectives
– Comprehensive strategy for achieving the
objectives
 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
 IMPLEMENTING STRATEGY
Fourth Task of Strategic Management

• Implementing strategy involves

– Most important FITS are between strategy
AND
• Organizational capabilities
• Reward structure
• Internal support systems
• Organizational culture
Strategy implementation is an internal,
operations-driven activity involving
organizing, budgeting, motivating, culture-
building, supervising, and leading
to “make the strategy work” as intended!
 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
 EVALUATING PERFORMANCE
Fifth Task of Strategic Management

• Managers must
– Constantly evaluate performance
– Monitor situation & decide how well things are
going
– Make necessary adjustments
 EVALUATING PERFORMANCE
Fifth Task of Strategic Management

• Corrective adjustments can entail

– Altering firm’s long-term direction
– Redefining the business
– Raising or lowering performance objectives
– Modifying the strategy
– Improving strategy execution
 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
 CHARACTERISTICS OF STRATEGIC
MANAGEMENT PROCESS

• 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
WHO PERFORMS THE FIVE 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 Major Operating
Departments & Geographic Units
 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
 WHY PLANNERS SHOULD NOT BE
STRATEGY MAKERS

• Planners know less about situation,

placing them in weaker position than line
managers to devise workable action plan
• Separates responsibility & accountability
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

STRATEGIC MANAGEMENT PRINCIPLE

• Strategy-making is NOT a proper task for
strategic planners!
 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
 BENEFITS OF
STRATEGIC APPROACH TO MANAGING

• Unites numerous strategy-related

decisions of managers at all organizational
levels
• Creates a PROACTIVE, rather than
REACTIVE, atmosphere

• Enhances LONG-RANGE performance

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.
RECAP OF IMPORTANT TERMS
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
organization is to do and to become.
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.
RECAP OF IMPORTANT TERMS
Strategic Objectives
Targets relating to strengthening a company’s
overall market position and competitive viability.
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.
 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.
RECAP OF IMPORTANT TERMS
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.
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 product of strategy formulation is
a strategic plan.
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.
School of Labor and Industrial Relations