“Management’s job is not to see the company as it is….but as it can become.”

1. “Quote” “Management’s job is not to see the company as it is….but as it can become.” John W. Teets “A strategy is a commitment to undertake one set of actions rather than another.” Sharon M. Oster • The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill

2. Chapter Outline • Developing a Strategic Vision / Mission • Establishing Financial and Strategic Objectives • Crafting a Strategy • Factors Shaping a Company's Strategy • Linking Strategy With Ethics • Approaches to Performing the Strategy-Making Task

3. Our future direction will be . . . Developing a Vision or Mission First Direction-Setting Task • Indicates the long-term course management has charted for the organization -- • Business activities to be pursued • Future market position • Future customer focus • Kind of company to become

4. Why Have a Mission orStrategic Vision? • Power of a well-conceived strategic vision • Guides managerial decision-making • Arouses employee buy-in and commitment • Prepares a company for the future

5. x Characteristics of a Strategic Vision • Charts a company’s future strategic course • Defines the business makeup in 5 to 10 years • Company specific, not generic • Provides a company with its own special identity and path to follow • The vision is not to make a profit • The real mission/vision is “what will we do to make a profit?” • Requires the exercise of management foresight

6. Elements of a Strategic Vision Defines present andfuture business make-up of company Charts a long-term path to follow Communicated in an inspiringandexcitingmanner

7. Defining a Company’s Business • A good business definition incorporates three factors • Customer needs-- WHATis being satisfied • Customer groups-- WHO is being satisfied • Technologies used and functions performed--HOW customer needs are satisfied

8. Business Mission:McDonald’s Serving a limited menu of hot, tasty food quickly in a clean, friendly restaurant for a good value to a broad base of fast-food customers worldwide. McDonald’s serves approximately 30 million customers daily at 20,000-plus restaurants in over 90 countries.

9. Broad - Narrow Mission Statements? • Narrow enough to specify real arenaof interest • Serve as • Boundary for what to do and not do • Beacon of where top management intends to take firm • Diversified companies employ broader business definitions

10. Broad Definition Beverages Children’s products Furniture Global mail delivery Travel & tourism Narrow Definition Soft drinks Toys Wrought iron lawn furniture Overnight package delivery Ship cruises in the Caribbean Definitions: Broad - Narrow Scope

11. Mission Statements forFunctional Departments • Spotlights department’s • Contributionto firm’s mission/vision/objectives • Roleand scope of activities • Direction which department needs to pursue

12. Decision Time: What Will the Vision Be? • Entrepreneurial challenge -- • Creatively preparing a company for the future • Astute strategists focus on • Shifting customer needs • New technologies • Attractive foreign markets • Growing or shrinking opportunities

13. Intel’s “Strategic Inflection Points” • Pre - mid 1980s • Business focus was memory chips • Post - mid 1980s • Abandon memory chip business • Adopt new strategic vision • Become preeminent supplier of microprocessors to PC industry • Make PC central appliance in workplace and home • Be undisputed leader in driving PC technology forward

14. Communicating the Vision • An exciting, inspirational vision • Inspires, challenges, and motivates workforce • Arouses strong sense of organizational purpose and induces employee buy-in • Brings workforce together and galvanizes people to live the business

15. Managerial Value: Strategic Vision and Mission • Crystallizes long-term direction • Reduces riskof rudderless decision-making • Conveysorganizational purpose and identity • Keeps direction-related actions of lower-level managers on common path • Helps organization prepare for the future

16. Establishing Objectives Second Direction-Setting Task • Represent commitment to achieve specific performance targetsby a certain time • Must be stated in quantifiable terms and contain a deadline for achievement • Spell-out how muchof whatkind of performance by when

17. Purpose of Objectives • Substitutes results-oriented decision-making for aimlessness over what to accomplish • Provides benchmarks for judging organizational performance

18. Strategic Management Principle Companies whose managers set objectives for each key result area and then press forward with actions aimed directly at achieving these performance outcomes typically outperform companies whose managers exhibit good intentions, try hard, and hope for the best!

19. Outcomes that improve a firm’s financial performance Outcomes that strengthen a firm’s competitiveness and long-term market position Types of Objectives Required Financial Objectives Strategic Objectives $

20. Strategic Management Principle Every company needs both strategic and financial objectives!

21. Examples: Financial Objectives • Achieve revenue growth of 10% per year • Increase earnings by 15% annually • Increase dividends per share by 5% per year • Increase net profit margins from 2% to 4% • Attractive EVA performance • Stronger bond and credit ratings • A rising stock price (outperform the S&P 500) • Attractive increases in MVA • Recognition as a “blue chip” company • A more diversified revenue base

22. Examples: Strategic Objectives • A bigger market share • Quicker design-to-market times than rivals • Higher product quality than rivals • Lower costs relative to key competitors • Broader product line than rivals • A stronger reputation with customers than rivals • Better customer service than rivals • Recognition as a leader in technology • Wider geographic coverage than rivals • More innovative products than rivals

23. Corporate Objectives: McDonald’s To achieve 100 percent total customer satisfaction . . . everyday . . . in every restaurant . . . for every customer.

24. Corporate Objectives: 3M Corporation 30 percent of the company’s annual sales must come from products fewer than four years old.

25. Corporate Objectives: Anheuser-Busch • To make all our companies leaders in their industries in quality while exceeding customer expectations. • To achieve a 50% share of the U.S. beer market. • To establish and maintain a dominant leadership position in the international beer market. • To provide all our employees with challenging and rewarding work, . . . , and opportunities for personal development, advancement, and competitive compensation. • To provide our shareholders with superior returns by achieving double-digit annual earnings per share growth, . . .

26. Strategic or Financial Objectives --Which Take Precedence? • Pressures for better short-term financial performance become pronounced when • Firm is struggling financially • Resource commitments for new strategic initiatives may hurt bottom-line for several years • Proposed strategic moves are risky • A firm that consistently passes up opportunities to strengthen its long-term competitive position • Risks diluting its competitiveness • Risks losing momentum in its markets • Can hurt its ability to fend off rivals’ challenges

27. Strategic Management Principle Building a stronger long-term competitive position benefits shareholders more lastingly than improving short-term profitability!

28. The Concept of Strategic Intent A company exhibits STRATEGIC INTENTwhen it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!

29. The Concept of Strategic Intent • Indicates firm’s intent to stake out a particular position over the long-term • Serves as a rallying cry for employees to do their very best • Signals deep-seated commitment to winning

30. Objectives Are Needed at All Levels Process istop-down, not bottom-up! 1. First, establish organization-wide objectives 2. Next, set business and product lineobjectives 3. Then, establish functionaland departmental objectives 4. individual objectives come last

31. Strategic Management Principle Objective-setting needs to be more of a top-down than a bottom-up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.

32. Crafting a Strategy Third Direction-Setting Task • An organization’s strategy deals with • How to make management’s strategic vision a reality • The game plan for • Moving the company into an attractive business position • Building a sustainable competitive advantage

33. Strategizing Is HOW To . . . • Achieve performance targets • Out-compete rivals • Achieve sustainable competitive advantage • Strengthen firm’s long-term competitive position • Make the strategic vision a reality Our game plan for running the company will be . . .

34. Two-Way Influence Two-Way Influence Two-Way Influence Fig. 2-1(a): Levels of Strategy-Making:A Diversified Company Corporate-Level Managers Corporate Strategy Business-Level Managers Business Strategies Functional Managers Functional Strategies Operating Managers Operating Strategies

35. Two-Way Influence Two-Way Influence Levels of Strategy-Making:A Single-Business Company Executive-Level Managers Business Strategy Functional Managers Functional Strategies Operating Managers Operating Strategies

36. Corporate Strategy fora Diversified Company Kind of Diversification How Much Diversification Responses to Changing Conditions Corporate Strategy Efforts to Build Competitive Advantage Via Diversification Approach to Capital Allocation Moves to Divest Weak Units Moves to Strengthen Positions and Profits in Present Businesses Moves to Add New Businesses

37. Tasks of Corporate Strategy • Moves to achieve diversification • Actions to boost performance of individual businesses • Capturing synergy among business units 2 + 2 = 5 effects! • Establishing investment priorities and steering corporate resources into the most attractive business units

38. Strategy Components ofa Single-Business Company Responses to Changing Conditions Strategic Alliances and Collaborative Partnerships Basic Competitive Approach Business Strategy Moves to Secure Competitive Advantage Manufacturing Strategy Marketing Strategy R & D Strategy Geographic coverage; approach to vertical integration Human Resources Strategy Finance Strategy

39. What Business Strategy Involves • Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc. • Crafting competitive moves leading to sustainable competitive advantage • Building competitively valuable competencies and capabilities • Uniting strategic initiatives of functional areas • Addressing strategic issues facing the company

40. Functional Strategies • Game plan for a strategically-relevant function, activity, or business process • Details how key activities will be managed • Provide support for business strategy • Specify how functional objectives are to be achieved

41. Operating Strategies • Concern narrower strategies for managing grassroots activities and strategically-relevantoperating units • Add detail to business and functional strategies but of lesser scope

42. Example: Operating Strategy Boosting Worker Productivity To boost productivity by 10%, managers of firm with low- price, high-volume strategy take following actions: • Recruitment manager develops selection process designed to weed out all but best-qualified candidates • Information systems manager devises way to use technology to boost productivity of office workers • Compensation manager devises improved incentive compensation plan • Purchasing manager obtains new efficiency-increasing tools and equipment

43. Example: Operating Strategy Improving Delivery & Order-Filling Manufacturer of plumbing equipment emphasizes quick delivery andaccurate order-filling as keystones of its customer service approach. Warehouse manager took following approaches: • Inventory stocking strategy allowing 99% of all orders to be completely filled without backordering any item • Staffing strategy of maintaining workforce capability to ship any order within 24 hours

44. Level 1 Overall Scope and Strategic Vision Corporate Level Objectives Corporate Level Strategy Corporate-Level Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 2 Business Level Strategic Vision Business Level Objectives Business Level Strategies Business-Level Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 3 Functional Missions Functional Objectives Functional Strategies Functional Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 4 Operating Missions Operating Objectives Operating Strategies Plant Managers, Lower-Level Supervisors Networking of Missions,Objectives, and Strategies

45. Societal, Political, Regulatory Factors Competitive Conditions & Industry Attractiveness Company Opportunities & Threats External Factors Identify & Evaluate Alterna- tives Craft the Strategy Determine Relevance of Internal & External Factors Company’s Strategic Situation Resource Strengths & Weaknesses Influences of Key Executives Shared Values & Culture Internal Factors Factors Shaping theChoice of Company Strategy

46. Social, Political, Regulatory,and Citizenship Factors • Pressures from special interest groups • Glare of investigative reporting • Health and nutrition concerns • Concerns about alcohol and drug abuse • Sexual harassment • Corporate downsizing • Impact of plant closings on communities • Rising/falling interest rates • Recessionary economic conditions • Trade restrictions, tariffs, and import quotas

47. Corporate Social Responsibility • Conduct company activities within bounds of what is considered ethical and in public interest • Respond positively to emerging societal priorities and expectations • Demonstrate willingness to take needed action ahead of regulatory confrontation • Balance stockholder interests against larger interest of society as a whole • Be a “good citizen” in community

48. Competitive Conditions andIndustry Attractiveness • A company’s strategy has to be responsive to • Fresh moves of rival competitors • Changes in industry’s price-cost-profit economics • Shifting buyer needs and expectations • New technological developments • Pace of market growth

49. Strategic Management Principle A company’s strategy can’t produce real market success unless it is well-matched to industry and competitive conditions!

50. Company Opportunities and Threats • For strategy to be successful, it has to be well matched to • A company’s best opportunities • Threats to the company’s well-being