THE STRATEGIC MANAGEMENT

PROCESS:

An Introduction
MODULE 1
These copyrighted materials are being used with the express written permission of Richard D. Irwin, Inc., and are intended for the benefit of enrolled students using
Thompson & Strickland, Strategic Management: Concepts and Cases (9th edition). All rights reserved. Copyright 1995 Richard D. Irwin, Inc. These files originally were
created in PowerPoint format, and they have been transformed into "browser-friendly" HTML format with Microsoft's PowerPoint Internet Assistant.
Glenn M. Gomes, Ph.D.
*

Professor Emeritus
*
(University of Southern California; at CSUC since 1985)



MODULE OUTLINE

Five Tasks of Strategic Management
Developing a Strategic Vision & Mission
Setting Objectives
Crafting a Strategy
Implementing the Strategy
Evaluating Performance & Initiating Corrective
Adjustments
Strategic Management is an Ongoing Process
Who Performs the Tasks of Strategy?
Benefits of Managing Strategically
Terms to Remember


WHAT IS STRATEGY?
Concept & Definition


Consists of competitive moves & business
approaches to produce successful
performance Managements game plan for
Running the business
Strengthening firms competitive position
Satisfying customers
Achieving performance targets
THINKING STRATEGICALLY:
THREE BIG STRATEGIC QUESTIONS
1. WHERE ARE WE NOW?
2. WHERE DO WE WANT TO GO?
Business positions management wants to
stake out
FINANCIAL outcomes to achieve
STRATEGIC outcomes to achieve
3. HOW WILL WE GET THERE?
The Five Tasks of Strategic
Management
Develop Strategic Vision & Mission (revise as
needed)
Setting Objectives (revise as needed)
Crafting Strategy to Achieve Objectives
(improve /change)
Implementing & Executing Strategy (improve
change)
Evaluating and Correcting (recycle as needed)





FIVE TASKS OF
STRATEGIC MANAGEMENT

1. Defining business, stating a mission, &
forming a strategic vision
2. Setting measurable objectives
3. Crafting a strategy to achieve objectives
4. Implementing & executing strategy
5. Evaluating performance, reviewing new
developments, & initiating corrective
adjustments


DEVELOPING A VISION & MISSION
First Task of Strategic Management


Begins with thinking strategically About firms
future makeup &
Forming vision of firms future in 5-10 years
Task is to
Inject sense of purpose into firms activities
Provide LONG-TERM DIRECTION
Give firm STRONG IDENTITY
Decide WHO we are, WHAT we do, & WHERE we
are headed


DEVELOPING A VISION & MISSION

An organizations MISSION
Reflects managements vision of what firm
seeks to do & become
Provides clear view of what firm is trying to
accomplish for its customers
Indicates intent to stake out a particular
business position


SPECIFIC QUESTIONS THAT HELP
FORM STRATEGIC VISIONS

What business are we in now?
What business do we want to be in?
What will our customers want in future?
What are expectations of our stakeholders?
Who will be our future competitors? suppliers?
partners?
What should our competitive scope be?
How will technology impact our industry?
What environmental scenarios are possible?


WHY A SHARED VISION MATTERS

A strategic vision widely shared among all
employees functions similar to how a magnet
aligns iron filings
When all employees are committed to firms
long-term direction, optimum choices on
business decisions are more likely
Individuals & teams know intent of firms strategic
vision
Daily execution of strategy is improved


EXAMPLES: MISSION / VISION
STATEMENTS

EXAMPLES: MISSION / VISION STATEMENTS
AVIS RENT-A-CAR
Our business is renting cars. Our mission is
total customer satisfaction.
McCORMICK & COMPANY
The primary mission is to expand our
worldwide leadership position in the spice,
seasoning, and flavoring markets.


EXAMPLES: MISSION / VISION
STATEMENTS

SATURN DIVISION OF GM
To market vehicles developed and manufactured
in the U.S. that are world leaders in quality, cost,
and customer satisfaction through the
integration of people, technology, and business
systems and to transfer knowledge, technology,
and experience throughout GM.
EASTMAN KODAK
To be the worlds best in chemicals and
electronic imaging.

EXAMPLES: MISSION / VISION
STATEMENTS

PUBLIC SERVICE COMPANY OF NEW MEXICO
Our mission is to work for the success of people
we serve by providing our customers reliable
electric service, energy information, and energy
options that best satisfy their needs.
AMERICAN RED CROSS
The mission is to improve the quality of human
life; to enhance self-reliance and concern for
others; and to help people avoid, prepare for,
and cope with emergencies.


EXAMPLES: MISSION / VISION
STATEMENTS

MCCAW CELLULAR COMMUNICATIONS
To develop a reliable wireless network that
empowers people with the freedom to travel
anywhere--across the hall or across the
continent--and communicate effortlessly.
LONG JOHN SILVERS
To be Americas best quick service restaurant
chain. We will provide each guest great tasting,
healthful, reasonably priced fish, seafood, and
chicken in a fast, friendly manner on every visit.


SAMPLE MISSION STATEMENTS

SAMPLE MISSION STATEMENTS
Key Market: To provide any customer
Contribution: a means of moving people and
things up, down and sideways over short
distances
Distinction: with higher reliability than any
similar enterprise in the world.
Otis Elevator


SAMPLE MISSION STATEMENTS

Key Market: To provide all banks, S&Ls and
investment firms
Contribution: with error-free financial
instruments delivered in a timely fashion.
Distinction: Error-free means absolutely no
errors; timely means a 48-hour turnaround.
Deluxe Checks

SAMPLE MISSION STATEMENTS

Key Market: To provide economy and quality
minded travelers
Contribution: with a premier, moderate
priced lodging facility
Distinction: which is consistently perceived as
clean, comfortable, well maintained, and
attractive, staffed by friendly, attentive and
efficient people.
Courtyard by Marriott


SAMPLE MISSION STATEMENTS

Key Market: To offer the fast food customer
Contribution: food prepared in the same
high-quality manner world-wide, tasty and
reasonably priced,
Distinction: delivered in a consistent, low-key
decor and friendly atmosphere.
McDonalds

SAMPLE MISSION STATEMENTS

Key Market: To appeal to a younger-thinking,
style-conscious, moderate and better priced
customer
Contribution: by providing trend merchandising
and superior service.
Distinction: Trend means private labels, fast
reaction, measured risks; service means warm,
friendly, helpful people in a convenient, efficient
environment.
Dayton Hudson

SAMPLE MISSION STATEMENTS

Key Market: To offer all of the fine customers
in our territories
Contribution: all of their household needs
Distinction: in a manner in which they
continue to think of us fondly.
Wal-Mart


WHY BOTHER TO DEFINE
WHO, WHAT, & WHERE?

Helps managers avoid trap of
Trying to move in too many directions
Being so confused about firms direction that effective
actions are NOT taken to move in ANY direction
To successfully chart firms future, managers must
Know where firm is now
Have view of where it ought to be headed
Recognize time to shift to a new direction


SETTING OBJECTIVES
Second Task of Strategic Management
Purpose of setting OBJECTIVES is to
Convert mission into performance targets
Create yardsticks to track performance
Establish performance goals requiring stretch
Push firm to be inventive, intentional, focused
Setting CHALLENGING but ACHIEVABLE objectives
guards against
Complacency
Drift
Internal confusion
Status quo performance


TWO TYPES OF
OBJECTIVES NEEDED

Outcomes that relate to improving firms
financial performance
Outcomes that will result in greater
competitiveness & stronger long-term market
position
Financial Objectives
Strategic Objectives


EXAMPLES OF TYPES
OF OBJECTIVES

FINANCIAL OBJECTIVES
Increase earnings growth from 10 to 15% per year
Boost return on equity investment from 15 to 20%
Achieve & maintain a AA bond rating
STRATEGIC OBJECTIVES
Up firms market share from 18 to 22%
Overtake rivals on quality or customer service
Attain lower overall costs than rivals
Become leader in new product introductions
Achieve technological superiority



EXAMPLE:
CORPORATE OBJECTIVES Nike


Protect & improve Nikes position as the number one
athletic brand in America.
Build a strong momentum in growing fitness market.
Intensify the companys effort to develop products that
women need and want.
Explore the market for products specifically designed
for the requirements of maturing Americans.
Direct & manage the companys international business
as it continues to develop.
Continue the drive for increased margins through
proper inventory management and fewer, better
products.


EXAMPLE: CORPORATE OBJECTIVES
McCORMICK & COMPANY


mprove returns from each of our existing operating
groups.
Dispose of those parts of our businesses which cannot
generate adequate returns or do not fit with our
business strategy.
Achieve a 20% return on equity.
Achieve net sales growth rate of 10% per year.
Maintain an average earnings per share growth rate of
15% per year.
Maintain total debt to total capital at 40% or less.
Pay out 25% to 35% of net income in dividends.


EXAMPLES: STRATEGIC & FINANCIAL
CORPORATE OBJECTIVES

NATIONSBANK
To build the premier financial services
company in the U.S.

FORD MOTOR COMPANY
To satisfy our customers by providing quality cars &
trucks, developing new products, reducing time it
takes to bring new vehicles to market, improving
efficiency of all our plants & processes, & building on
our teamwork with employees, unions, dealers, &
suppliers.

EXAMPLES: STRATEGIC &
FINANCIAL CORPORATE OBJECTIVES

EXXON
Provide shareholders a secure investment
with a superior return.
ALCAN ALUMINUM
To be the lowest cost producer of aluminum
& to outperform the average return on equity
of the Standard and Poors industrial stock
index.


EXAMPLES: STRATEGIC &
FINANCIAL CORPORATE OBJECTIVES

GENERAL ELECTRIC
To become the most competitive enterprise in
the world by being number one or number
two in market share in every business the
company is in.
APPLE COMPUTER
To offer the best possible personal computing
technology, and to put that technology in the
hands of as many people as possible.

EXAMPLES: STRATEGIC &
FINANCIAL CORPORATE OBJECTIVES
ATLAS CORPORATION
To become a low-cost, medium-size gold
producer, producing in excess of 125,000 ounces
of gold a year and building gold reserves of
1,500,000
QUAKER OATS COMPANY
To achieve return on equity at 20% or above,
real earnings growth averaging 5% or better
over time, be a leading marketer of strong
consumer brands, and improve the profitability
of low-return businesses or divest them.

CRAFTING A STRATEGY
Third Task of Strategic Management

Strategy-Making concerns HOW toAchieve
desired strategic & financial objectives
Out-compete rivals & win a competitive
advantage
Respond to changing industry & competitive
conditions
Defend against threats to firms well-being
Grow the business

Strategy as Planned & Reactive to
Changing Circumstances

Planned Strategy



Actual Strategy




Adaptive Reaction



CRAFTING A STRATEGY

Objectives = Targeted results & outcomes
Strategy = HOW to achieve outcomes
A firms actual strategy is a blend of
Deliberate & purposeful actions - intended
strategy
As needed reactions to unanticipated
developments & fresh competitive pressures -
unintended strategy

Understanding Company Strategy --
What to Look For


The Pattern of
Actions that
Define Strategy

Actions to Improve Short
Term Profits
Diversification
Responses to Changing
Conditions
Fresh Offensive to Gain
Market Edge
Product Line, Quality, or
Service
Geographic Coverage
Forward or Backward
Integration
How Key Functions Are
Managed
Defensive Moves
Pursuing New Opportunities


WHAT DOES A FIRMS
STRATEGY CONSIST OF?

How to satisfy customers
How to grow the business
How to respond to changing industry &
market conditions
How to best capitalize on new opportunities
How to manage each functional piece of
business
How to achieve strategic & financial objectives


STRATEGY EXAMPLE: McDONALDS

Strategic & financial objectivesContinued
growth
Providing exceptional customer care
Remaining an efficient & quality producer
Offering high value
Effectively marketing McDonalds brand on a
global scale


KEY ELEMENTS OF
McDONALDS STRATEGY
Adding 700-900 restaurants annually
Using new menu items, low price specials, Extra Value
Meals to promote frequent customer visits
Being highly selective in granting franchises
Choosing sites convenient to customers
Focusing on limited product line & consistent quality
Careful attention to store efficiency
Extensive advertising & use of Mc prefix
Hiring courteous personnel; paying an equitable wage;
& providing good training

CRAFTING STRATEGY IS AN
EXERCISE IN ENTREPRENEURSHIP

Strategy-Making is entrepreneurial
Risk-taking & venturesomeness
Innovation and business creativity
Keen eye for spotting market opportunities
Choosing among alternatives
Strategy-Making challenge is to keep strategy
Fresh
Timely
Responsive to changing conditions
Opportunistic

CHARACTERISTICS OF
ENTREPRENEURIAL MANAGERS

Boldly pursues new strategic opportunities
Emphasizes out-innovating the competition
Leads the way to improve firm performance
Willing to be a first-mover & take risks
Responds quickly & opportunistically to new
developments
Devises trail blazing strategies

WHY GOOD MANAGEMENT
OF STRATEGY MATTERS

Powerful execution of a powerful strategy is a proven
recipe for success
Crafting & implementing strategy are CORE
management functions
To qualify as WELL-MANAGED, a firm should
Have an attractive strategy
Demonstrate proficiency in executing strategy
A good strategy is strong enough to overpower rivals &
flexible enough to overcome obstacles
Without proficient strategy execution, firm cannot
achieve peak performance

WHY IS A FIRMS STRATEGY
CONSTANTLY EVOLVING?

Because firms often need to react toChanging
market conditions
Moves of competitors
New technologies & production capabilities
Evolving customer needs & preferences
Political & regulatory changes
New windows of opportunity
Fresh ideas to improve current strategy
A crisis situation


WHAT IS A STRATEGIC PLAN?

A Strategic Plan maps out
Where firm is headed
Short and long range performance targets
Actions of management to achieve outcomes
A Strategic Plan consists of
A strategic vision & business mission
Strategic & financial performance objectives
Comprehensive strategy for achieving the
objectives


IMPLEMENTING STRATEGY
Fourth Task of Strategic Management


Implementing strategy involves Creating fits
between way things are done & what it takes for
effective strategy execution
Executing strategy proficiently & efficiently
Producing excellent results in timely manner
Most important FITS are between strategy AND
Organizational capabilities
Reward structure
Internal support systems
Organizational culture

Strategy Implementation

Strategy implementation is an
internal, operations-driven
activity involving organizing,
budgeting, motivating, culture-
building, supervising, and
leading to make the strategy
work as intended!


WHAT DOES STRATEGY IMPLEMENTATION
INCLUDE?

Building a firm capable of carrying out strategy
successfully
Allocating ample resources to strategy-critical activities
Establishing strategy-supportive policies
Instituting best practices & programs for continuous
improvement
Installing support systems
Tying reward structure to achievement of results
Creating a strategy-supportive corporate culture
Exerting strategic leadership


EVALUATING PERFORMANCE
Fifth Task of Strategic Management

None of the tasks of strategic management are a
one-time only exercise
Times & conditions change
Events unfold
Better ways to do things become evident
New managers with different ideas take over
Managers must
Constantly evaluate performance
Monitor situation & decide how well things are going
Make necessary adjustments

EVALUATING PERFORMANCE

Corrective adjustments can entailAltering
firms long-term direction
Redefining the business
Raising or lowering performance objectives
Modifying the strategy
Improving strategy execution



CHARACTERISTICS OF STRATEGIC
MANAGEMENT PROCESS


Need to perform tasks never goes away because
changes occur regularly
Boundaries among tasks are blurry
Doing the 5 tasks is not isolated from other
managerial activities
Time required to do tasks comes in lumps &
spurts
Pushing to get best strategy-supportive
performance from each employee, perfecting
current strategy, & improving strategy execution


WHO PERFORMS THE FIVE
STRATEGIC MANAGEMENT TASKS?

Chief Executive Officer & Other Senior
Corporate Level Executives
Managers of Subsidiary Business Units
Functional Area Managers Within a Subsidiary
Business Unit
Managers of Major Operating Departments &
Geographic Units


ROLE OF STRATEGIC PLANNERS
WARNING!
Planners should NOT make strategic decisions or do strategic thinking
for line managers

COLLECT INFORMATION needed by strategy
managers
Conduct BACKGROUND ANALYSES as needed
Establish & administer an ANNUAL STRATEGY
REVIEW CYCLE
COORDINATE review & approval process of
strategic plans
ASSIST all managers to focus on strategic issues


WHY PLANNERS SHOULD NOT
BE STRATEGY MAKERS

Planners know less about situation, placing
them in weaker position than line managers to
devise workable action plan
Separates responsibility & accountability for
strategy-making from implementing
A MAJOR FLAW!
Allows managers to toss decisions to planners
& avoid doing own strategic thinking
Implementers have no buy in to strategy

STRATEGIC MANAGEMENT PRINCIPLE

Strategy-making is NOT a proper task for
strategic planners!


STRATEGIC ROLES OF A
BOARD OF DIRECTORS

See that five strategic management tasks are
performed adequately
Review important strategic moves & officially
approve strategic plans
Ensure strategic proposals are adequately
analyzed & superior to alternatives
Evaluate caliber of top managements
strategy-making & implementing skills
STRATEGIC MANAGEMENT PRINCIPLE

A board of directors role in the strategic
management process is to critically appraise
and ultimately approve strategic action plans,
but RARELY, if ever, to participate directly in
the details of strategy making!


BENEFITS OF STRATEGIC
APPROACH TO MANAGING

Guides entire firm regarding what it is we are trying to
do & to achieve
Lowers managements threshold to change
Provides basis for evaluating competing budget
requests & steering resources to strategy-supportive,
results-producing areas
Unites numerous strategy-related decisions of
managers at all organizational levels
Creates a PROACTIVE, rather than REACTIVE,
atmosphere
Enhances LONG-RANGE performance



RECAP OF IMPORTANT TERMS
Strategic Vision
Organization Mission


A view of an organizations future direction and
business course; a guiding concept for what the
organization is trying to do and to
become.Represents managements customized
answer to the question what is our business and
what will it be. A mission statement broadly
outlines the organizations future direction and
serves as a guiding concept for what the
organization is to do and to become.


RECAP OF IMPORTANT TERMS
Performance Objectives
Financial Objectives
Strategic Objectives

Organizations targets for achievement; both
short and long range objectives are needed.
Financial performance targets a company
wants to achieve. Targets relating to
strengthening a companys overall market
position and competitive viability.



RECAP OF IMPORTANT TERMS
Long-Range Objectives
Short-Range Objectives


Achievement levels to be reached within the
next three to five years.Near-term
performance targets; they establish the pace
for achieving the long-range objectives.

RECAP OF IMPORTANT TERMS
Strategy
Strategic Plan

Managerial action plan for achieving organizational
objectives; strategy is mirrored in the PATTERN of
moves and approaches devised by management to
produce the desired performance. Strategy is the HOW
of pursuing an organizations mission and reaching
target objectives.Statement outlining an organizations
mission and future direction, near-term and long-term
performance targets, and strategy, in light of
organizations external and internal situation.

RECAP OF IMPORTANT TERMS
Strategy Formulation
Strategy Implementation

Refers to the entire direction-setting
management function -- conceptualizing an
organizations mission, setting specific
performance objectives, and forming a strategy.
The end product of strategy formulation is a
strategic plan. Includes the full range of
managerial activities associated with putting the
chosen strategy into place, supervising its pursuit,
and achieving the targeted results.