Strategic

Management
LEARNING OBJECTIVES

• STRATEGIC MANAGEMENT CONCEPTS

• LEVELS OF STRATEGY
• BENEFITS AND RISKS OF STRATEGIC
MANAGEMENT
• STRATEGIC INTENTS
• STRATEGIC PERFORMANCE CRITERIA
 Strategic Management
• Analysis
• Strategic goals (vision, mission, strategic objectives)
• Internal and external environment of the firm
• Strategic decisions
• What industries should we compete in?
• How should we compete in those industries?
• Actions
• Allocate necessary resources
• Design the organization to bring intended strategies
to reality
 Strategic Management

• Strategic management is the study of

why some firms outperform others
• How to compete in order to create
competitive advantages in the marketplace
• How to create competitive advantages in the
market place
 Unique and valuable
 Difficult for competitors to copy or substitute
Strategic Management Concepts
Definition: Strategic management consists of the
analysis, decisions, and actions an organization
undertakes in order to create and sustain competitive
advantages.
Key attributes of strategic management
• Directs the organization toward overall goals and
objectives.
• Includes multiple stakeholders in decision making
• Needs to incorporate short-term and long-term
perspectives
• Recognizes trade-offs between efficiency and
effectiveness
Three levels of Strategy
Corporate Level Strategies

• by CEO and Board of Directors

• Horizon: long term Corporate

• Focus on domain selection: Business

 What business sectors to Functional

enter/invest ?
 How should the resources be
allocated across the businesses ?
Three levels of Strategy Corporate

Business

Business Level Strategies Functional

• by Business Managers
• Horizon: Medium
• Focus on competitive tactics:
 How to compete in this business sector?
 What markets to concentrate on ?
Three levels of Strategy Corporate

Business

Functional
Functional Level Strategies
• By functional managers, e.g. marketing
manager
• Short Term
• Focus on functional efficiency
 Annual objectives & decisions within functional
areas
 Improving efficiency within functional areas
Benefits of strategic management
• Adaptability: Proactively monitor the
environment
• Motivation: Involvement of employees in
decision making increases their
motivation
• Acceptance: Reduces employees
resistance to changes
• Future Orientation: Forces the company
to think strategically about its actions
Risks of Strategic Management

• Underestimation of today:
Time spent may have a negative
impact on operational responsibilities
• Conflict between planners and doers:
Strategy Formulators may not be
involved in the implementation process
 Strategic Intents

Vision

Winning competitive battles through deciding how to

leverage resources, capabilities, and core
competencies.

Mission

An application of strategic intent in terms of

products to be offered and markets to be served.
 WHAT IS A VISION ?

What an organization should look like once

its has successfully implemented its
strategies and achieved its full potential.
 Corporate Vision Statements
Infosys Technologies
• “ We will be a globally respected corporation”

Aditya Birla Group

• To be a premium global conglomerate
with a clear focus on each business
McDonald’s
• Our vision is to be the world’s best quick service
restaurant.
Disney
• To be the happiest place on earth
 WHAT IS A MISSION?

A declaration of organizational
purpose providing the social
justification for its existence.
WHY Stating the Corporate Mission?

A mission statement provides employees of

the organization with a shared sense of
purpose, direction, and opportunity.

and guides geographically dispersed

employees to work independently and yet
collectively toward realizing the
organization’s goals.
9 Components of a Mission Statement
• Customers
• Products or Services
• Markets
• Technology
• Concern for Survival, Growth, & Profitability
• Philosophy
• Self-Concept
• Concern for Public Image
• Concern for Employees
 9 Phrases of “Our Mission is...
...to serve consumers, industry and government with
high quality...
...our refreshment products include soft drinks, fruit
juices,...
...our markets served include restaurants, hotels,...
...we apply electreonics technology in the production of
hardware...
...to achieve sufficient profit to finance our growth and
survival...
 9 Phrases of “Our Mission is...
...we emphasize the meeting of the needs of
our stakeholders.

...we have a results-oriented and

entrepreneurial corporate culture.

...we are sensitive to our image with our

customers and community.

...we create a sense of mutual trust with our

members.”
 Corporate Mission Statements

Federal Express
• To produce superior financial returns for
our shareholders as we serve our
customers with the highest quality
transportation, logistics, and e-
commerce.
 Corporate Mission Statements
Aditya Birla Group
To deliver superior value to our customers, shareholders, employees and
society at large.

We also look at the eight golden flames depicted in our logo, and are
reminded of the fire that ignites our mission and makes up the heart
and soul of this incredible company.

These flames are: Customers, Team, Concepts, Culture,

Partners, Community and Shareholders. As keeper of these
flames, we will continue to build on our strengths and work
together to be the best in the business.
 SOME SAMPLE STRATEGIC INTENTS

FORD Motor Company

Our Vision: to become the world's leading
company for automotive products and services.
Our Mission: we are a global, diverse family with
a proud heritage, passionately committed to
providing outstanding products and services.
Our Values: We do the right thing for our people,
our environment and our society, but above all
for our customers.
 SOME SAMPLE STRATEGIC INTENTS

TOYOTA MOTOR Corporation

Slogan: New Thinking New Possibilities.
Vision: Toyota aims to achieve long-term, stable
growth in harmony with the environment, the
global economy, the local communities it
serves, and its stakeholders.
Mission: Toyota seeks to create a more
prosperous society through automotive
manufacturing.
 SOME SAMPLE STRATEGIC INTENTS

HONDA MOTOR Company

Let’s go! We have dreams to pursue!
Since our foundation, Honda has been powered by dreams.
Our initial and ongoing dream is to provide genuine
satisfaction to people everywhere. Providing products of the
highest quality at a reasonable price, we are realizing that
dream one step at a time.
Our mission: is to offer products, technologies and services
that contribute to society and make people’s lives better.
That’s why we’re always ahead of the curve, coming up with
technologies that make mobility safer and more
environmentally sustainable. We see challenges ahead and
are facing them squarely, determined to build a brighter
future.
8 Dimensions of Strategic Goals
• Profitability
• Productivity
• Physical & Financial Resources
• Managerial Performance & Development
• Worker Performance & Attitude
• Innovation
• Market Standing
• Social Responsibility
 Some Strategic Objectives: Financial Goals

Proctor and Gamble

Increase sales growth 6% to 8% and accelerate core
net earnings growth to 13% to 15% per share in
each of the next five years.

Automation
Generate Internet-related revenue of $1.5 billion

Federal Express
Capitalize on e-commerce
5 Characteristics of 5 Dimensions of
Strategic Goals Operational Strategies

• Specific • Flexibility
• Measurable • Innovation
• Attainable • Speed
• Realistic • Cost
• Timely • Quality
 Comparisons of Competitiveness

• Comparison with past performance

• Trend analysis – Where are you relative to
the past.
• Stages of Industry Evolution
 Emergence, Growth, Maturity and Decline
 Strengths or competencies needed at each stage
are different
• Benchmarking with the competitors
 Key competitors
 Best practices irrespective of industry
Competing for Superior Performance

• Business firms as associations of productive

assets try to outperform their rivals in the
game of trying to make assets available
better and before them
• If actual value (AV) < expected value (EV),
productive assets shift to more profitable
firms.
Actual Value (AV) vs. Expected Value (EV)

Firm A Firm B Firm C

Hire “A” level Hire “A” level Hire “B” level
engineers, pay them engineers, pay them engineers, pay them
“A” wages, generate “A” wages, generate “B” wages, generate
“B” performance. “A” performance. “A” performance.
AV > EV
AV < EV
AV = EV Above Normal
Below Normal
Normal Economic Economic
Economic
Performance Performance
Performance
(Economic Rent).
Competitive Competitive
Competitive Parity
Disadvantage Advantage
Assumptions:
(1) Only productive asset is engineers
(2) A > B in terms of wages and skills.
Measuring Firm Performance

• Survival as a Measure
• Accounting Measures
• Tobin’s q
Survival as a Performance Measure
• Firm survival over an extended period
indicates that it is generating at least normal
economic returns.
• Strength: Easy to Use.
• Weaknesses:
• When does survival end -- after a takeover,
bankruptcy, or changes in businesses?
• Death can occur slowly
• Death or just a setback?
• Tells nothing about above normal performance
Accounting Measures: Categories

• Profitability Ratios (e.g. ROA, ROE, ROS)

• Profit relative to size
• Liquidity Ratios (e.g. Current Ratio)
• Meeting short-term financial obligations
• Leverage Ratios (e.g. Debts / Assets, Debts / Equity)
• Indebtedness / Capital Structure
• Activity Effectiveness Ratios (e.g. Sales / Assets)
• Level of activity in a business
Limitations of Accounting Measures

• Managerial discretion over accounting

methods.
• Incentives to distort: Bonuses, violations
of debt covenants, antitrust issues, etc.

• Many intangibles not recognized.

 Tobin’s q
q= a firm’s market value
a firm’s replacement cost
• Firm’s market value = market value of its
present assets
• Limitation: it is difficult to determine the
replacement cost of a firm’s assets
• q=1 Normal Performance
• q>1 Above normal performance
• q<1 Below normal performance