Chapter 3

1. Chapter 3 Strategic Management: Planning and Execution for Competitive Advantage

2. Objectives After reading the chapter and reviewing the materials presented the students will be able to: • Define strategic management. • Understand core competencies and competitive advantage. • Conduct SWOT analysis. • Develop the vision. • Develop the mission. • Develop the broad strategic objectives. • Execute of the strategic plan.

3. What is Strategic Management? • Strategic management is management that bases all actions, activities, and decisions on what is most likely – within an ethical framework – to ensure successful performance in the marketplace. • From the strategic manager’s perspective, resources are wasted unless they contribute to the success in the marketplace, and the more direct the contribution, the better.

4. Core Competencies • A core competency is something an organization does so well that it can be viewed as a competitive advantage. • A competitive advantage is any aspect of the organization that (1) contributes directly and significantly to increase customer demand by achieving superior value (superior quality, cost, and service) and (2) is difficult for competitors to replicate.

5. Strategic Planning Overview • The steps in a strategic planning process should be completed in order because each successive step grows out of the preceding one. • Step 1: The SWOT (strengths, weaknesses, opportunities, and threats) analysis provides a body of knowledge that is needed to undertake strategic planning. • Steps 2 & 3: The mission grows out of and supports the vision. • Step 4: The guiding principle, which represents the organization’s value system, guide the organization’s behavior as it pursues its mission. • Step 5: The broad strategic objectives grow out of the mission and translate it into measurable terms. • Step 6: Specific tactics (action plan) tie directly to the broad objectives. Typically there will be 2 to 5 tactical goals for each objective.

6. Creative Thinking in Strategic Planning • In an age of global competition it is even more important than ever to think creatively when developing strategic plans. • Following are some strategies to promote creative thinking as part of the strategic planning process: • (1) Begin by telling a couple of stories about creative ideas that changed everything for a few selected organizations (e.g. Nokia’s idea to produce digital cellular phones when Motorola had the lock on analog phones). • (2) Challenge participants to see who can suggest the most ridiculous idea and record all ideas. • (3) Do not allow naysayers to put down or criticize the ideas of others. • (4) Challenge all existing approaches, and • (5) Allow time for ideas to germinate – do not try to complete the planning process too quickly.

7. Conducting the SWOT Analysis • An organization’s internal situation is defined by its strengths and weaknesses. • An organization’s external situation is defined by the opportunities and threats that exist in a business environment. • The strategic plan should be designed in such a way that it exploits the organization’s strengths and opportunities while simultaneously overcoming, accommodating, or circumventing weaknesses and threats.

8. Developing the Vision • A vision is like a beacon in the distance towards which an organization is always moving. • Everything about the organization – its structure, policies, procedures, and allocation of resources – should support the realization of the vision. • In an organization with a clear vision, it is relatively easy to stay appropriately focused. • A well written vision statement has the following characteristics: • It is easily understood by its stakeholders. It is briefly stated, yet clear and comprehensive in its meaning. It is challenging, yet attainable. It is lofty, yet tangible. It is capable of stirring excitement for all stakeholders. It is capable of creating unity of purpose among its stakeholders. It is not concerned with numbers. It sets the tone for employees. • For example: Pendleton Manufacturing Company will be the leading producer of fireproof storage cabinets.

9. Developing the Mission • The mission takes the next step and describes who the organization is, what it does, and where it is going. • For example: Pendleton Manufacturing Company is a hazardous materials storage company dedicated to making your work environment safe and healthy. To this end, Pendleton produces high quality fireproof cabinets for safely storing toxic substances and hazardous materials for an ever broadening market.

10. Developing the Guiding Principles • An organization’s guiding principles establish the parameters within which it is free to pursue its mission. These principles might be written as follows: • XYZ company will uphold the highest ethical standards in all its operations. • At XYZ company, customer satisfaction is the highest priority. • XYZ company will make every effort to deliver the highest quality products and services in the business. • At XYZ company all stakeholders (customers, suppliers, and employees) will be treated as partners. • At XYZ company, employee input will be actively sought, carefully considered, and strategically used. • At XYZ company, continual improvement of products, processes, and people will be the norm. • XYZ company will provide employees with a safe and healthy work environment that is conducive to consistent peak performance. • XYZ company will be a good corporate neighbor in all communities where its facilities are located. • XYZ company will take appropriate steps to protect the environment.

11. Developing Broad Strategic Objectives • Broad strategic objectives translate an organization’s vision and mission into measurable terms. • Following are some broad strategic objectives: • 1. To establish and maintain a world class workforce at all levels of the organization. • 2. To continually increase the organization’s market share for its existing products and services. • 3. To continually introduce new products and services to meet emerging needs in the organizational development market.

12. Executing the Strategic Plan • Steps in executing strategic plan: • 1. Communicate: Make sure all stakeholders understand the plan and where they fit into it. • 2. Build capabilities: Make sure all stakeholders have the skills needed to carry out their assignments and responsibilities in the plan. • 3. Establish strategy supportive stimuli: In a work setting the most effective stimuli are reward and recognition incentives. • 4. Eliminate administrative barriers: Administrative procedures put in place when moving in one direction can become inhibitors when the organization decides to move in another direction. • 5. Identify advocates and resisters: Assign all initial activity to advocates. Eventually all employees must play a role in executing the strategic plan, but avoid resisters in the early stages. • 6. Exercise strategic leadership: Allocate resources based on priorities established in the strategic plan. • 7. Be flexible and improvise: Managers who want to make their organizations competitive must be willing to improvise when necessary. • 8. Monitor and adjust as needed: Developing and executing a strategic plan is an example of the plan-do-check-adjust cycle in action. Make necessary adjustments when roadblocks are encountered. Decide what needs to be done to overcome the barriers, and do it.

13. Summary • Strategic management is management that bases all actions, activities, and decisions on what is most likely – within an ethical framework – to ensure successful performance in the marketplace. From the strategic manager’s perspective, resources are wasted unless they contribute to the success in the marketplace, and the more direct the contribution, the better. • A core competency is something an organization does so well that it can be viewed as a competitive advantage. • A competitive advantage is any aspect of the organization that (1) contributes directly and significantly to increase customer demand by achieving superior value (superior quality, cost, and service) and (2) is difficult for competitors to replicate. • An organization’s internal situation is defined by its strengths and weaknesses. An organization’s external situation is defined by the opportunities and threats that exist in a business environment. The strategic plan should be designed in such a way that it exploits the organization’s strengths and opportunities while simultaneously overcoming, accommodating, or circumventing weaknesses and threats. • A vision is like a beacon in the distance towards which an organization is always moving. • The mission takes the next step and describes who the organization is, what it does, and where it is going. • An organization’s guiding principles establish the parameters within which it is free to pursue its mission. • Broad strategic objectives translate an organization’s vision and mission into measurable terms. • Steps in executing strategic plan: 1. Communicate 2. Build capabilities 3. Establish strategy supportive stimuli 4. Eliminate administrative barriers 5. Identify advocates and resisters 6. Exercise strategic leadership 7. Be flexible and improvise 8. Monitor and adjust as needed.

14. Home Work • Answer Questions 1, 2, 5 on page 52. • 1. What is strategic management? • 2. List the steps in the strategic planning process. • 5. What is SWOT analysis?