Strategic management Vision statement

The art and science of formulating, Answers the question "What do we want to
implementing, and evaluating cross- become?"

functional decisions that enable an Mission statement

organization to achieve its objectives
Enduring statements of purpose that
Strategic-management process distinguish one business from other similar
firms
1. Strategy formulation
Objectives
2. Strategy implementation
Specific results that an organization seeks
3. Strategy evaluation
to achieve in pursuing its basic mission
Strategy formulation
Long-term objectives
Developing a vision and mission, identifying
Objectives that are more than one year
an organization's external opportunities and
threats, determining internal strengths and Strategies
weaknesses, establishing long-term
objectives, generating alternative strategies, The means by which long-term objectives
and choosing particular strategies to pursue will be achieved

The strategic-management process is Business strategies

based on the belief that organizations
Geographic expansion
should continually monitor internal and
external events and trends so that timely Diversification
changes can be made as needed
Acquisition
Competitive advantage
Product development
Anything that a firm does especially well
compared to rival firms Market penetration

When a firm can do something that rival Retrenchment

firms cannot do, or owns something that Divestiture
rival firms desire, that can represent a
competitive advantage Liquidation

Strategists Joint ventures

Individuals who are most responsible for Some firms do not engage in strategic
the success or failure of an organization planning, and some firms do strategic
planning but receive no support from
managers and employees
Reasons for poor or no strategic planning Achieve higher organizational performance

Lack of knowledge or experience in Achieve synergy among all managers and

strategic planning employees

Poor reward structures Mission statement components

Firefighting Customers

Waste of time Products or services

Too expensive Markets

Laziness Technology

Mission statement Concern for survival, growth, and

profitability
Answers the question "What is our
business?" Philosophy

Many organizations have both a mission Self-concept

and vision statement
Concern for public image
Ten benefits of having a clear mission and
vision Concern for employees

Achieve clarity of purpose among all The purpose of an external audit is to

managers and employees develop a finite list of opportunities that
could benefit a firm and threats that should
Provide a basis for all other strategic be avoided
planning activities
The process of performing an external audit
Provide direction must involve as many managers and
employees as possible
Provide a focal point for all stakeholders of
the firm Industrial Organization (I/O) view

Resolve divergent views among managers
Promote a sense of shared expectations
among all managers and employees
Project a sense of worth and intent to all
stakeholders
Project an organized, motivated
organization worthy of support
External (industry) factors are more
important than internal factors in a firm
achieving competitive advantage
Increasing numbers of two-income
households is an economic trend in the
United States
Technological forces
Influences that have an impact on how an
organization operates that are related to the
equipment used within the organization's
environment
Porter's Five-Forces Model
A widely used approach for developing
strategies in many industries
Five forces in Porter's model
Rivalry among competing firms
Potential entry of new competitors
Potential development of substitute
products
Bargaining power of suppliers
Bargaining power of consumers
Steps for using Porter's Five-Forces Model
1. Identify key aspects or elements of each
competitive force that impact the firm
2. Evaluate how strong and important each
element is for the firm
3. Decide whether the collective strength of
the elements is worth the firm entering or
staying in the industry
Rivalry among competing firms is usually
the most powerful of the five competitive
forces
Sources of external information
Customer surveys
Market research
Speeches at professional and shareholders'
meetings
Television programs
Interviews
Conversations with stakeholders
Websites (marketwatch.multexinvestor.com,
moneycentral.msn.com, finance.yahoo.com,
clearstation.com, us.etrade.com,
hoovers.com)
It is not possible in a strategic-management
text to review in depth all the material
presented in courses such as marketing,
finance, accounting, management,
management information systems, and
production/operations
Process of performing an internal audit
Representative managers and employees
from throughout the firm need to be
involved in determining a firm's strengths
and weaknesses
Functions of management
Planning
Organizing
Motivating
Staffing
Controlling
Planning
The essential bridge between the present
and the future that increases the likelihood
of achieving desired results
Organizing
Achieving coordinated effort by defining
task and authority relationships
Motivating
The process of influencing people to
accomplish specific objectives
Staffing
Includes activities such as recruiting,
interviewing, testing, selecting, orienting,
training, developing, caring for, evaluating,
rewarding, disciplining, promoting,
transferring, demoting, and dismissing
employees, as well as managing union
relations
Controlling
Includes all of those activities undertaken to
ensure that actual operations conform to
planned operations
Functions of marketing
Customer analysis
Selling products/services
Product and service planning
Pricing
Distribution
Marketing research
Cost/benefit analysis
Customer analysis
The examination and evaluation of
consumer needs, desires, and wants
Selling products/services
Includes many marketing activities such as
advertising, sales promotion, publicity,
personal selling, sales force management,
customer relations, and dealer relations
Product and service planning
Includes activities such as test marketing;
product and brand positioning; devising
warranties; packaging; determining product
options, features, style, and quality; deleting
old products; and providing for customer
service
Pricing
Five major stakeholders affect pricing
decisions: consumers, governments,
suppliers, distributors, and competitors
Distribution
Includes warehousing, distribution channels,
distribution coverage, retail site locations,
sales territories, inventory levels and
location, transportation carriers,
wholesaling, and retailing
Marketing research
The systematic gathering, recording, and
analyzing of data about problems relating to
the marketing of goods and services
Cost/benefit analysis
Compute the total costs associated with a
decision
2. Estimate the total benefits from the
decision
3. Compare the total costs with the total
benefits
Basic functions (decisions) within
production/operations
Process
Capacity
Process decisions
Include choice of technology, facility layout,
process flow analysis, facility location, line
balancing, process control, and
transportation analysis
Capacity decisions
Include forecasting, facilities planning,
aggregate planning, scheduling, capacity
planning, and queuing analysis
Most producers today do not sell their
goods directly to consumers
Marketing research can uncover critical
strengths and weaknesses, and marketing
researchers employ numerous scales,
instruments, procedures, concepts, and
techniques to gather information
Cost/benefit analysis
Assessing the costs, benefits, and risks
associated with marketing decisions
Steps to perform a cost/benefit analysis
1. Compute the total costs associated with
a decision
2. Estimate the total benefits from the
decision
3. Compare the total costs with the total
benefits
When expected benefits exceed total costs,
an opportunity becomes more attractive
The Basic Functions (Decisions) Within
Production/Operations
Process
Capacity
Inventory
Workforce
Quality
Process decisions
Choice of technology, facility layout,
process flow analysis, facility location, line
balancing, process control, and
transportation analysis
Capacity decisions
Forecasting, facilities planning, aggregate
planning, scheduling, capacity planning, and
queuing analysis
Inventory decisions
Managing the level of raw materials, work-in
-process, and finished goods, especially
considering what to order, when to order,
how much to order, and materials handling
Workforce decisions
Managing the skilled, unskilled, clerical, and
managerial employees by caring for job
design, work measurement, job enrichment,
work standards, and motivation techniques
Quality decisions
Ensuring that high-quality goods and
services are produced by caring for quality
control, sampling, testing, quality assurance,
and cost control
Benchmarking
An analytical tool used to determine
whether a firm's value chain activities are
competitive compared to rivals and thus
conducive to winning in the marketplace
Benchmarking entails measuring costs of
value chain activities across an industry to
determine "best practices" among
competing firms for the purpose of
duplicating or improving upon those best
practices
Long-term objectives represent the results
expected from pursuing certain strategies.
Strategies represent the actions to be taken
to accomplish long-term objectives
Characteristics of long-term objectives
Quantitative, measurable, realistic,
understandable, challenging, hierarchical,
obtainable, and congruent among
organizational units
Each objective should also be associated
with a timeline
Financial objectives
Common financial business objectives
include increasing revenue, increasing profit
margins, retrenching in times of hardship
and earning a return on investment
Strategic objectives
High-level and measurable goals outlining
what an organization wants to achieve, with
a clearly defined deadline
Vertical integration strategy
A fast food retail chain acquires a bun or a
cup factory to reduce dependencies and cut
costs
Backward vertical integration
Acquiring a business operating earlier in the
supply chain - e.g. a retailer buys a
wholesaler, a brewer buys a hop farm
Forward vertical integration
Acquiring a business further up in the
supply chain - e.g. a vehicle manufacturer
buys a car parts distributor
Horizontal integration
Businesses in the same industry and which
operate at the same stage of the production
process are combined
Market penetration strategy
Seeks to increase market share for present
products or services in present markets
through greater marketing efforts
Market development
The use of an existing product or service
offering to attract new customer market
Product development strategy
Seeks increased sales by improving or
modifying present products or services
Liquidation
Selling all of a company's assets, in parts,
for their tangible worth
Liquidation is a recognition of defeat and
consequently can be an emotionally difficult
strategy
Cooperation among competitors is being
used more, where both firms must
contribute something distinctive, such as
technology, distribution, basic research, or
manufacturing capacity
Merger
Two organizations of about equal size unite
to form one enterprise
Joint venture
Two or more companies form a temporary
partnership or consortium for the purpose
of capitalizing on some opportunity
In 1991, Coca-Cola and Nestlé created Coca
-Cola Nestlé Refreshments Company
(CCNR), a joint venture expected to be
among the most successful of its
generation. Three and a half years later,
however, the joint venture was dissolved. In
2001, it was relaunched
Strategy analysis and choice seek to
determine alternative courses of action that
could best enable the firm to achieve its
mission and objectives
Strategists never consider all feasible
alternatives that could benefit the firm
because there are an infinite number of
possible actions and an infinite number of
ways to implement those actions
An effective leadership must start with a
clear vision and mission that serve as a
base for the development of business
Strategic business model
The guideline that guides you how to make
the market value of your business
Components of strategic business model
The mission
Target
Value proposition
Go-to-market
Organization
Value proposition
A concise statement of the benefits that a
company is delivering to customers who
buy its products or services
Go-to-market strategy
Concerned with how those products will be
brought to market and sold
All nine techniques included in the strategy-
formulation framework require the
integration of intuition and analysis
Divisional analyses provide a basis for
identifying, evaluating, and selecting among
alternative corporate-level strategies
Input stage
Requires strategists to quantify subjectivity
during early stages of the strategy-
formulation process
Matching stage
Matching external and internal critical
success factors is key to effectively
generating feasible alternative strategies
SWOT Matrix
Helps managers develop four types of
strategies: SO (strengths-opportunities)
Strategies, WO (weaknesses-opportunities)
Strategies, ST (strengths-threats) Strategies,
and WT (weaknesses-threats) Strategies
Equifinality
The idea that there can be multiple different
paths to reach the same goal or outcome
Example of equifinality
Timmy looked for loose change in his
family's furniture while Dottie sold cups of
lemonade in the neighborhood, but they
both saved 2 dollars
Board of directors
A group of individuals who are elected by
the ownership of a corporation to have
oversight and guidance over management
and who look out for shareholders' interests
The board of directors is not above the CEO
because they are elected by the
shareholders. The CEO is responsible for
the day-to-day operations of the company
and reports to the board of directors
Successful strategy formulation does not
guarantee successful strategy
implementation. It is always more difficult
to do something (strategy implementation)
than to say you are going to do it (strategy
formulation)
Strategy formulation
Making plans and decisions concerned with
growing an organisation's strategic goals
and plans
Strategy implementation
Concerned with successfully executing the
plans into action to attain the goal
Annual objectives
Provide a source of legitimacy, serve as
standards of performance, and serve as an
important source of employee motivation
and identification
Policies
Facilitate solving recurring problems and
guide the implementation of strategy
Resource allocation
A central management activity that allows
for strategy execution
Conflict
A disagreement between two or more
parties on one or more issues
Functional structure
Groups tasks and activities by business
function, such as production/operations,
marketing, finance/accounting, research
and development, and management
information systems
Divisional structure by geographic area
Appropriate when a firm operates in
multiple, distinct geographic markets
Strategy implementation
Shift in responsibility from strategists to
divisional and functional managers
Annual Objectives
Activities of organization members, provide
a source of legitimacy by justifying activities
to stakeholders, serve as standards of
performance, serve as an important source
of employee motivation and identification
Policies
Changes in a firm's strategic direction do
not occur automatically, needed to make a
strategy work, facilitate solving recurring
problems and guide the implementation of
strategy
Resource Allocation
Central management activity that allows for
strategy execution, often based on political
or personal factors in organizations that do
not use a strategic-management approach
Conflict
Disagreement between two or more parties
on one or more issues, often due to
interdependency of objectives and
competition for limited resources
Functional Structure
Most widely used, groups tasks and
activities by business function, simple and
least expensive
Divisional Structure by Geographic Area
Appropriate for organizations whose
strategies need to be tailored to fit the
particular needs and characteristics of
customers in different geographic areas,
provides each division with autonomy
regarding logistics to achieve maximum
efficiency
Divisional Structure by Product (or
Services)
Most effective for implementing strategies
when specific products or services need
special emphasis
Matrix Structure
Most complex, depends upon both vertical
and horizontal flows of authority and
communication
Benchmarking
Comparing a firm against the best firms in
the industry on a wide variety of
performance-related criteria
Reengineering
Many companies have been organized
vertically by business function, leading to
managers' and employees' mindsets being
defined by their particular functions rather
than by overall customer service, product
quality, or corporate performance
Tests to determine if a performance pay
plan will benefit an organization
Does the plan capture attention?
Do employees understand the plan?
Is the plan improving communication?
Does the plan pay out when it should?
Resistance to Change
The single greatest threat to successful
strategy implementation, can occur in the
form of sabotaging production machines,
absenteeism, filing unfounded grievances,
and an unwillingness to cooperate
Strategy Implementation
Action-oriented, helps in materializing
things, the ability of management to bring
about organizational changes, strives to
attain enhancement operations and in
business procedures on an ongoing basis
Marketing Decisions Requiring Policies
Use of exclusive dealerships or multiple
channels of distribution, use of heavy, light,
or no TV advertising, being a price leader or
a price follower, offering a complete or
limited warranty, rewarding salespeople
based on straight salary, straight
commission, or a combination
salary/commission, advertising online or
not
Purpose-Based Marketing
Developing a deeper rapport with
consumers by appealing to their
understanding of what matters over the
long haul, demonstrating that the company
cares about more than just making sales
and turning a profit
Market Segmentation
The practice of dividing your target market
into approachable groups based on
demographics, needs, priorities, common
interests, and other psychographic or
behavioural criteria
Product Positioning
The process of deciding and
communicating how you want your market
to think and feel about your product,
requires articulating how your product can
solve your customer's problem and why it is
a better solution than its competitors
Projected Financial Statements
Central strategy implementation technique,
allows an organization to examine the
expected results of various actions and
approaches
Divestiture
The process of liquidating assets with the
express intention of generating value, can
be tangible (e.g. a business unit or real
estate) or intangible (e.g. intellectual
property or exploration rights)
Research and Development (R&D)
When businesses gather knowledge to
create new products or discover new ways
to improve their existing products and
services, a valuable tool for growing and
improving a business
Management Information Systems (MIS)
Helps the top level management in goal
setting, strategic planning and evolving the
business plans and their implementation,
plays the role of information generation,
communication, problem identification and
helps in the decision-making process
Strategic Evaluation and Control
The process of determining the
effectiveness of a given strategy in
achieving the organizational objectives and
taking corrective actions whenever required
Organizational Performance
The ability of an organization to reach its
goals and optimize results, can be defined
as a company's ability to achieve goals in a
state of constant change
Strategy Evaluation Process
Examine the underlying bases of a firm's
strategy, compare expected results with
actual results, take corrective actions to
ensure that performance conforms to plans
The strategic-management process results
in decisions that can have significant, long-
lasting consequences, and erroneous
strategic decisions can inflict severe
penalties and can be exceedingly difficult, if
not impossible, to reverse
Strategy evaluation should initiate
managerial questioning of expectations and
assumptions, should trigger a review of
objectives and values, and should stimulate
creativity in generating alternatives and
formulating criteria of evaluation
Organizational Performance Objectives for
a Small Coffee Shop
Increase monthly revenue by 15% within the
next year
Reduce wait times during peak hours by
optimizing workflow
Maintain a customer satisfaction score of
90% or higher
Organizational Performance Metrics for a
Small Coffee Shop
Total sales, average transaction value,
profitability margins
Average service time, customer complaints
related to wait times
Customer feedback surveys, repeat
customer rate, online reviews
Organizational performance
The ability of an organization to reach its
goals and optimize results
In today's workforce, organizational
performance can be defined as a company's
ability to achieve goals in a state of
constant change
Financial Performance
Objective: Increase monthly revenue by 15%
within the next year<|>Key Metrics: Total
sales, average transaction value,
profitability margins
Operational Efficiency
Objective: Reduce wait times during peak
hours by optimizing workflow<|>Key Metrics:
Average service time, customer complaints
related to wait times
Customer Satisfaction
Objective: Maintain a customer satisfaction
score of 90% or higher<|>Key Metrics:
Customer feedback surveys, repeat
customer rate, online reviews
Strategically managed organizations plan
specific goals regularly. Monitoring the
results of those goals is a simple but
effective measure of organizational
performance
Depending on the goals set, this approach
might evaluate the achievement of
objectives in expenditure, bottom-line
profits, innovation, or growth
Strategic management process
1. Organisation decides to implement
selected strategies
2. Formulates an implementation plan
3. Appraises its progress and success
Corrective action
The process of identifying and eliminating
the causes of a problem with the aim of
preventing its recurrence
5 general areas for corrective action
Standards
Objectives
Strategies
Structure, system & support
Activity
A good evaluation system must be
economical, meaningful, provide timely
information, and be contingency-based
be generated for and responded to by
different levels and types of managers
Strategic review
A structured process to identify new value-
creating opportunities within a business

Contingency planning Benefits of strategic business reviews

Alternative plans that can be put into effect Useful if you are uncertain about how well
if certain key events do not occur as your business is performing, want to know
expected how to get the most out of your business or
market opportunities, or your business plan
Purpose of contingency planning is out of date
Predicting the effects of possible emergent Business ethics
events, and building strategies for
preparation and remediation The standards for morally right and wrong
conduct in business
Auditing
6 elements of business ethics
A systematic process of objectively
obtaining and evaluating evidence regarding Respect
assertions about economic actions and
events to ascertain the degree of Fairness
correspondence between those assertions Care
and established criteria, and communicating
the results to interested users Trust

Strategic audit Responsibility

Assesses your current business strategy, Goodness

how suitable it is for your business and
Code of ethics
whether your company is in position to
execute the strategy A guide of principles designed to help
professionals conduct business honestly
Environmental audit
and with integrity
Assesses how well an organization
12 ethical principles
complies with environmental regulations,
standards, and best practices Honesty
Using computers can efficiently acquire Fairness
information promptly and accurately, and
allow diverse strategy-evaluation reports to Leadership
Integrity
Compassion
Respect
Responsibility
Loyalty
Law-abiding
Transparency
Environmental concerns
Ethical culture
A set of values that are shared and deeply
held by an organisation, where people
understand the importance of acting in
accordance with the law, as well as
demonstrating respect for others
Bribery
The offering, giving, receiving, or soliciting
of any item of value to influence the actions
of an official or other person in discharge of
a public or legal duty
Social responsibility means that besides
maximizing shareholder value, businesses
should operate in a way that benefits
society and the environment while lessening
negative impacts
Environmental sustainability
The ability to maintain an ecological
balance in our planet's natural environment
and conserve natural resources to support
the wellbeing of current and future
generations
Ways to be environmentally sustainable
Think twice before shopping
Make sure big purchases have big
environmental benefits
Go #PlasticFree
Boycott products that endanger wildlife
Pay attention to labels
Be water wise
Drive less, drive green
Green your home
Sustainability report
Includes the company's goals, news
releases, information on products or issues
of public interest, and a list of materials
used in production and distribution
Purpose of sustainability reporting
Enables companies to convey their progress
toward goals on a variety of sustainability
parameters, including environmental, social
and governance metrics, as well as risks
and impacts they may face
Lack of standards for "green" terminology
on products and labels is changing as legal
and generally accepted definitions are being
established
Reasons why firms should "be green"
Consumer demand for environmentally safe
products and packages is high
Public opinion demanding that firms
conduct business in ways that preserve the
natural environment is strong
Environmental advocacy groups now have ISO 14001 (environmental management)
over 20 million Americans as members
ISO 45001 (occupational health and safety)
Federal and state environmental regulations
are changing rapidly and becoming more
complex

More lenders are examining the

environmental liabilities of businesses
seeking loans

Many consumers, suppliers, distributors,

and investors shun doing business with
environmentally weak firms

Liability suits and fines against firms having

environmental problems are on the rise

The benefits of green business include

more customers, increased profits, better
recruitment and retention, more investment,
staying ahead of legislation, and improved
marketing

More firms are becoming environmentally

proactive, doing more than the bare
minimum to develop and implement
strategies that preserve the environment

ISO 14000/14001 certification

Environmental management standards

developed and published by the
International Organization for
Standardization (ISO)

ISO 14001 certification

The international standard that specifies

requirements for an effective environmental
management system (EMS)

Top 3 most popular ISO standards

ISO 9001 (quality management)