Chapter 4 Strategic Direction

1. Chapter 4 Strategic Direction

2. Learning Objectives To understand: • The various components that indicate a firm’s strategic direction • Factors that influence the establishment of strategic direction • How to define a firm’s mission, vision and business definition • How stakeholder management and the establishment of firm values and enterprise strategy can help a firm be socially responsible and sustain high performance.

3. The Strategic Management Process Internal and External Analysis Strategy Formulation (corporate and business level) Strategic Direction Strategy Implementation and Control Strategic Restructuring

4. Strategic Direction Strategic direction is defined by a firm’s vision of where it is heading, the businesses in which it is involved and how it serves its stakeholders Influences on strategic direction • Internal stakeholders – CEO and top management team, managers, employees • External stakeholders – especially customers, suppliers, competitors and communities • Broad environment – sociocultural, technological, economic, and political/legal forces • History and inertia – past successes and failures, founder’s vision and values

5. Mission and Vision A mission statement reflects what an organization is: “to provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders.” (Bank of India) A vision statement is a forward-looking view of what the organization wants to become: “to become the bank of choice for corporates, medium businesses, and upmarket retail customers and to provide cost effective developmental banking for small business, mass market and rural markets.” (Bank of India) Frequently a vision statement is incorporated into the mission statement

6. Business Definition • What is our product or service? • Who are our customers? (markets and distribution channels) • What do we do for them or provide for them? (functions served by our products or services) • How do we produce the service or do it? (What are our resource conversion processes, technologies)

7. Business Definition for Wal-Mart • Products/services – Consumer products • Markets - Retail customers, broadly defined • Functions served – Availability of perishable and nonperishable consumer items • Resource conversion processes - Buying, inventory management, distribution, limited service, promotion and advertising

8. Stakeholder Management Stakeholder management includes processes associated with serving the interests of a broad group of stakeholders. • Stakeholder management processes (described in Chapter 1) include effectively communicating with stakeholders, negotiating and contracting with them, managing relationships with them and motivating them to act in beneficial ways • Stakeholder legitimacy comes from the need for cooperation or resources, or if the stakeholder has a formal stake in the firm, such as a joint venture partner. • Effective stakeholder management helps a firm avoid value-destroying stakeholder actions such as legal suits and bad press • Effective stakeholder management can also increase firm competitiveness by attracting stakeholders (i.e., employees, customers) to the firm and its products, by providing the firm with more and better opportunities, and by facilitating management of a network of contracts with multiple stakeholders.

9. Enterprise Strategy and Ethics Enterprise strategy—a statement of the purpose and values of the firm, especially with regard to treatment of various stakeholder groups. Demonstrates the intent of the organization. Organizational Ethics—value system that has been widely adopted by members of an organization. The “ground rules” that actually guide behavior • Worth of customers/employees vs. focus on profit • Value of honesty vs. getting the job done • Work ethic Ideally, enterprise strategy and organizational ethics should be in harmony

10. Ethical Behavior in Organizations Ethical dilemmas - occur when the values of different stakeholders are in conflict over a particular issue. Poor ethical behavior– people often do not personalize ethical issues – they see the organization as responsible for the problem Increasing ethical behavior • Corporate values statement – broad values that guide behavior • Codes of ethics – similar to values statements. Sometimes include more detail regarding specific behavior • CEOs should clearly communicate values to managers and other stakeholders • Rewards systems should reinforce values • Major decisions should be based on values • Firms may create an ethics compliance program and systems

11. SAFRAN Group Core Values • Focus on customers • Meeting our commitments • Innovation • Responsiveness • The power of Teamwork • People development and recognition • Corporate citizenship Note: SAFRAN is a large French aerospace company

12. SOCIAL RESPONSIBILITY • Economic responsibilities • Legal responsibilities • Moral obligations • Discretionary responsibilities