Strategic Management Model: Formulating Vision and Mission Statements

Formulating Objective and Strategies Dosen : Drs. HA. ROMADLON, MM, CTP

Strategic Management Model Perform External Audit Strategy Formulation Strategy Implementation Strategy Evaluation Implement Strategies Mkt, Fin, R&D, Prod/Op, MIS Generate, Evaluate, Choose Strategies Develop Vision & Mission Statement Establish Long-term Objective Implement Strategies Mgt’ Issues Measure, Evaluate Performance Perform Internal Audit

“notable quotes” Alice said, “would you please tell me which way to go from here?” The cat said, “that depends on where you want to get to” Lewis Carrol Start from the end

What is Long-Term Objective ? Long-term objective, represent the results expected from pursuing certain strategies Strategies, represent the actions to be taken to accomplish long-term objectives Time frame for objective & strategies should be consistent 2 – 5 years.

Long-term Objective Org’ Level Basis for Annual Bonus or Merit Pay Corporate 75% based on Long-term objectives 25% based on Annual Objectives Division 50% based on Long-term objectives 50% based on Annual Objectives Function 25% based on Long-term objectives 75% based on Annual Objectives Objective should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obtainable and congruent among organizational units. Term of objective : growth in assets, growth in sales, profitability, market share, degree and nature of diversification, earning per share and social responsibility. Varying performance measure by organizational level :

Characteristic of Objectives Quantitative Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent across departments

Benefits of Having Clear Objectives Provide direction by revealing expectation Allow synergy Aid in evaluation by serving as standard Establish priority Reduce uncertainty Minimize conflict Stimulate exertion Aid in allocation of resources Aid in design of jobs Provide basis for consistent decision making

Financial vs Strategic Objectives • Financial Objectives • Strategic Objective • Growth in revenue • Growth in earning • Higher dividends • Larger profit margin • Greater ROI • Higher EPS • Rising Stock Price • Improve Cash flow • Larger market share • Quicker on time delivery than rivals • Shorter design-to-market times than rivals • Lower cost than rivals • Higher product quality than rivals • Wider geographic coverage than rivals • Achieving technological leadership • Consistently getting new or improved product to market ahead than rivals

The Balanced Scorecard “Untuksuskessecarafinasial, bagaimanakitaharusnampakdihadapanpemegangsaham?” Financial Objectives Targets Measures Initiatives Internal Business Process Customer Untukmencapaivisikita, bagaimanakitaharusnampakdihadapanpelanggan Untukmemuaskanpemegangsahamdanpelanggan, prosesbisnisapa yang diperbaiki Visi & Strategi Objectives Objectives Measures Measures Targets Targets Initiatives Initiatives Learning and Growth Untukmencapaivisikita, bagaimanaakanmempertahankankemampuanuntukberubahdanberkembang Objectives Measures Targets Initiatives Ref : BSC (Kaplan)

Con’t Cause and Effect Relationship Menggambarkanrantaidarilogika yang merubah/ mentranformasikandariasettakberwujudmenjadinilai yang terukur Financial Perspective Long term hareholders value Revenue Growth Productivity Customer Perspective Customer Value Proposition Menjelaskankondisi yang akanmenciptakan Value untukpelanggan Product & Service Attr.ibutes Relationship Image Price Quality Time Function Partnership Brand Internal Process Perspective Value Creating Processes Menentukanproses-proses yang akan Mentranfoemasikanasettakberwujud Menjadihasilkeuangandan Customer Operation Management Processes Regulatory and Social Processes Customer Management Processes Innovation Processes Clustering of Assets and Activities Menentukanasettakberwujud yang harus diselaraskandandiintegrasikanuntuk menciptakan value Learning & Growth Perspective Human Capital Information Capital Organization Capital

Strategic Objective Example

Alternative Strategies Defined and Example

Con’t

Alternative Strategies • Integration Strategies • Forward Int’ • Backward Int’ • Horizontal Int’ • Intensive Strategies • Market Penetration • Market Dev’ • Product Dev’ • Diversification Strategies • Related Divers’ • Unrelated Diversification • Defensive Strategies • Retrenchment • Divestiture • Liquidation

Levels of Strategies • Large Company • Small Comapny

Corporate Strategy Relationship in Single Business Corporate Strategy Top Management Middle & Supervisory Management Marketing Policies & Plan Production – Operation Management Policies & Plans Financial Policies and Plans Personal – Labor relation Policies & Plans Accounting Policies & Plans R & D Policies and Plans

Corporate Strategy Relationship in Multi Business Corporate Management Corporate Strategy SBU Top Management SBU-1 Strategy SBU-2 Strategy SBU-3 Strategy Middle & Supervisory Management Marketing Policies & Plan Production – Operation Management Policies & Plans Financial Policies and Plans Personal – Labor relation Policies & Plans Accounting Policies & Plans R & D Policies and Plans

Porter’s Five Generic Strategies Generic Strategies Cost Leadership Differentiation Focus Type-1 Type-2 Type-3 ----- Type-1 Cost Leadership-Low cost Type-2 Cost Leadership – Best Cost Type-3 Differentiation Type-4 Focus-Low Cost Type-5 Focus Best Value Large Size of Market ----- Type-3 Type-4 Type-5 Small

Cost Leadership Strategies (Type-1 and Type-2) • A primary reason for pursuing forward, backward and horizontal integration strategies is to gain low-cost or best-value cost leadership benefits. • Can be especially effective when the market is composed of many price-sensitive buyers. • It must achieve their competitive advantage in ways that are difficult for competitors to copy or match. • Cost of overall Value Chain must lower than competitor’s total cost • Perform value chain activities more efficiently than rivals • Revamp the firm’s overall value chain to eliminate or bypass some cost producing activities

Differentiation Strategies (Type-3) Different strategies offer different degree of differentiation, differentiation doesn’t guarantee competitive advantage, especially if standard products sufficiently meet customer needs. A differentiation strategy should be pursued only after a carefully study of buyer’s needs and preference. Strong coordination among R&D and marketing function Effective if hard or expensive for rivals to duplicate

Focus Strategies (Type-4 & Type-5) A low-cost (type-4) or Best-Value (type-5) focus strategy can be especially attractive under the following conditions : Target market niche is large, profitable, and growing Industry leaders do not consider the niche to be crucial to their own success. etc

Means for Achieving Strategies Cooperation Among Competitors. For collaboration between competitors to succeed, both firms must contribute distinctive, such as technology, distribution, basic research or manufacturing capacity  Example : Airline Industry Joint Venture / Partnering JV is a popular strategy that occurs when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on some opportunity  share equity in new entity Other cooperative arrangements : R&D partnership, cross-distribution agreement, cross-licensing agreement, cross-manufacturing agreement  Nokia and Facebook Inc.

Merger/ Acquisition Merger occurs when to organization of about equal size unite to form one enterprise. Acquisition occurs when a large organization purchase (acquires) a smaller firm, or viceversa. When merger and acquisition is not desired by both parties  take over or hostile takeover When merger and acquisition is desired by both parties  friendly merger Outsourcing Business-process outsourcing (BPO) involves companies taking over the functional operation such as human resources, information system, payroll, accounting, customer service. The reasons are : It less expensive Allow the firm to focus on its core business It enable the firms provide better service First Mover Advantage It refers to the benefits a firm may achieve by entering a new market or developing a new product or service prior to rival’s firm.

Requirement for Generic Competitive Strategy Generic Strategic Commonly Required Skill And Resources Common Organizational Requirement Sustained capital investment and access to capital. Process Engineering Skill Intent supervision of labor Product design for ease in manufacture Low-cost distribution system Tight cost control Frequent, detailed control report Structured organization and responsibilities Incentives based on meeting strict quantitative targets. Overall Cost Leadership Strong marketing ability Product engineering Creative flare Strong capabilities in basic research Corporate reputation for quality or technological leadership Strong cooperation from channel Strong coordination among function in R&D, product development and marketing. Subjective measurement and of incentives instead of quantitative measure. Amenities to attract highly skilled labor, scientist or creative people Differentiation Focus Combination of the above policies directed at the particular strategic target. Combination of the above policies directed at the regular strategic target.

Risk of Generic Strategy Risk of Cost Leadership Risk of Differentiation Risk of Focus • Differentiation is not sustained : • Competitor imitate • Bases for differentiation become less important to buyers. • Cost Proximity is lost. • Cost focusers achieve even lower cost in segment • The focus strategy is imitated • The target segment becomes structurally unattractive : • Structure erode • Demand disappears • Broadly targeted competitors overwhelm the segment : • The segment’s differences from other segment narrow • The advantage of abroad line increase. • New focusers sub-segment the industry • Cost of leadership is not sustained : • Competitor imitate • Technology change • Other bases of cost of leadership erode. • Proximity in differentiation is lost. • Cost focusers achieve even lower cost in segment

Vertical Integration Vertical Integration It is based on growth through the acquisition of firms that supply it with inputs (such as raw materials) or are customers for its outputs (such as warehouse for finish product). Textile Producer Textile Producer Shirt Manufacturer Shirt Manufacturer Clothing Store Clothing Store

Corporate Combination Joint Ventures Occasionally two or more capable firms lack a necessary component for success in a particular competitive environment. The solution is a set of joint ventures, which are commercial companies (children) created and operated for the benefit of the co-owners (parents) Strategic Alliances They are distinguished from joint ventures because the companies involved do not take an equity position in one another. For example one partner provides manufacturing capabilities, while second partner provides marketing capabilities. Consortia / Konsorsium Consortia are defined a large interlocking relationship between businesses of an industry, consortia project are increasing in number and in success rates. Outsourcing Involve farming out certain value chain activities to outside vendors

Merger and Acquisition The Strategic Objective : To gain more market share, create more efficient operation. To expand geographic coverage To expand product categories or international To gain access new technologies To try to invent new industry Merger and acquisition are especially suited for situation in which alliance and partnership not enough to provide a company with access to needed resources and capabilities. Merger, is pooling of equals with the newly created new name of Co’ Acquisition, is combination in which one company, the acquirer, purchases and absorbs the operation of another, acquirer.

Five Generic Competitive Strategies Type of Competitive Advantage Low Cost Differentiation Broad Cross section of Buyers Market Target A narrow buyer segment (market niche)

Five Distinct Competitive Strategy Low-cost provider strategy, striving to achieve lower overall cost than rivals and appealing to a broad spectrum of customer, usually under pricing rivals. A broad differentiation strategy, seeking to differentiate the company’s product offering from rivals in ways that will appeal to a broad spectrum of buyers. A best-cost provider strategy, giving customers more value for the money by incorporating good-to-excellent product attribute at lower cost than rivals. A focused (or market niche) strategy based on low cost, concentrating on a narrow buyer segment and outcompeting rivals by having lower cost than rivals and thus being able to serve niche member at lower price. A focused (or market niche) strategy based on differentiation, concentrating on a narrow buyer segment and outcompeting rivals by offering niche member customize attribute that meet their taste and requirement better than rival’s product.

Tugas-5 A. Case Andakembalikekelompoksesuaidengannaskahkasusanda LakukananalisisSasaranJangkaPanjangperusahaantersebut, kelompokkankedalam model Balance Scorecard Dari sejumlahstrategialternatif, strategiapa yang dijalankanolehperusahaantersebutberikanpenjelasan Dari Generic Strategic Porter, strategiapa yang diterapkanpadaperusahaantersebut, berikanpenjelasan Tugasditulistangandandikumpulkandiakhirsesikuliahhariini B. Tugas Textbook.

Strategic Management Model: Formulating Vision and Mission Statements