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LO1 Examine the framework of strategic management process and identify the context within which strategies are formulated. Examine the importance of mission statements.

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Transcript of Lo1

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LO1

Examine the framework of strategic management process and identify the context within which strategies

are formulated. Examine the importance of mission statements.

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Why do some organizations succeed while others fail?

• Strategic Leadership– Task of most effectively managing a company’s strategy-

making process

• Strategy Formulation– Task of determining and selecting strategies

• Strategy Implementation– Task of putting strategies into action to improve a company’s efficiency

and effectiveness

Competitive Advantage results when a company’s strategies lead to superior performance compared to competitors

Define Strategy: Strategy is a set of related actions that managers take to increase their company’s

performance.

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Superior Performance and Sustainable Competitive Advantage

• Superior Performance– One company’s profitability relative to that of other

companies in the same or similar business or industry– Maximizing shareholder value is the ultimate goal of profit

making companies– When a company’s profitability is greater than the average

of all other companies in the same industry & competing for the same customers

Sustained Competitive AdvantageWhen a company’s strategies enable it to maintain above average profitability for a number of years

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Strategic Managers• Corporate-Level Managers

– Oversee the development of strategies for the whole organization. The CEO is the principle general manager who consults with other senior executives

– Allocating resources among businesses, deciding which businesses if any it needs to get rid of and which new businesses if any it should acquire

• Business-Level Managers– Transfer corporate strategy into concrete strategies for individual

businesses. • Functional-Managers

– Responsible for supervising a particular task or operation (e.g. marketing, operations, accounting, human resources)

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Levels of Strategic ManagementFigure 1.4

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Strategic Leadership

• Vision, eloquence, and consistency• Articulation of the business model• Commitment• Being well informed• Willingness to delegate and empower• The astute use of power• Emotional intelligence: self-awareness, self- regulation,

motivation, empathy, social skills

Good leaders of the strategy-making process have a number of key attributes:

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The Five Steps of the Strategy Making Process

Select the corporate mission and the major corporate goals.

Analyze the external competitive environment to identify opportunities and threats.

Analyze the organization’s internal environment to identify its strengths and weaknesses.

Select strategies that:– Build on the organization’s strengths and correct its weaknesses – in

order to take advantage of external opportunities and counter external threats

– Are consistent with organization’s mission and major goals – Are congruent and constitute a viable business model

Implement the strat strategies.

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Crafting the Organization’s Mission Statement

Provides a framework or context within which strategies are formulated, including: Mission – The reason for existence – what an organization does Vision – A statement of some desired future state Values – A statement of key values that an organization is

committed to Major Goals – The measurable desired future state that an

organization attempts to realize

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The Mission

• What is it that the company does? – Who is being satisfied (what

customer groups)?– What is being satisfied (what

customer needs)?– How customer needs are being satisfied (by what

skills, knowledge, or distinctive competencies)?

The mission is a statement of a company’s reason for existence today.

A company’s mission is best approached from a customer-oriented business definition.

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Abell’s Framework for Defining the Business

Figure 1.6

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

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The vision of Ford is “to become the world’s leading consumer company for automotive products and services.”

The VisionWhat would the company like to achieve?

A good vision is meant to stretch a company by articulating an ambitious but attainable future state.

Nokia is the world’s largest manufacturer of mobile phones and operates with a simple but powerful vision: “If it can go mobile, it will!”

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Values

In high-performance organizations, values respect the interests of key stakeholders.

The values of a company should state: How managers and employees should

conduct themselves How they should do business What kind of organization they need to build

to help achieve the company’s mission Organizational culture

• The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals

• Often seen as an important source of competitive advantage

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Values at Nucor

“Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.”

“Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.”

“Employees have the right to be treated fairly and must believe that they will be.”

“Employees must have an avenue of appeal when they believe they are being treated unfairly.”

At Nucor, values emphasizing pay for performance, job security, and fair treatment for employees help to create an atmosphere that leads to high employee productivity.

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Key characteristics of well-constructed goals:1. Precise and measurable – to provide a yardstick or

standard to judge performance 2. Address crucial issues – with a limited number of key

goals that help to maintain focus3. Challenging but realistic – to provide employees with

incentive for improving4. Specify a time period – to motivate and inject a

sense of urgency into goal attainment

Major GoalsA goal is a precise and measurable desired

future state that a company must realize if it is to attain its vision or mission.

Focus on long-run performance and competitiveness.

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External Analysis requires an assessment of: Industry environment in which company operates

• Competitive structure of industry• Competitive position of the company• Competitiveness and position of major rivals

The country or national environments in which company competes

The wider socioeconomic or macroenvironment that may affect the company and its industry• Social• Governmental

Purpose is to identify the strategic opportunities and threats in the organization’s operating environment

that will affect how it pursues its mission.

• Legal• International

• Technological• Macroeconomic

External Analysis

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Internal analysis includes an assessment of: Quantity and quality of a

company’s resources and capabilities

Ways of building unique skills and company-specific or distinctive competencies

Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior

performance and weaknesses to inferior performance.

Internal Analysis

Building & sustaining a competitive advantage requires a company to achieve superior:

• Efficiency• Quality

• Innovations• Responsiveness to customers

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SWOT analyses help to identify strategies that align a company’s resources and capabilities to its environment – in order to create and sustain a competitive advantage.

Functional strategies should be consistent with and support the company’s business level and global strategies.• Functional-level strategy – directed at operational effectiveness• Business-level strategy – businesses’ overall competitive themes• Global strategy – expand, grow and prosper at a global level• Corporate-level strategy – to maximize profitability and profit growth

Selecting Strategies: SWOT Analysis and Business Model

When taken together, the various strategies pursued by a company must lead to a

viable business model.

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Strategy Implementation

After choosing a set of congruent strategies to achieve competitive advantage, managers must put those strategies into action:• Implementation and execution of the strategic

plans• Design of the best organization structure• Consistency of strategy with company culture• Control systems to measure and monitor progress• Governance systems for legal and ethical

compliance• Consistency with maximizing profit and profit

growth

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⑥The Feedback Loop

Managers must monitor strategy execution: • To determine if strategic goals and objectives are

being achieved • To evaluate to what extent competitive advantage is

being created and sustained Managers must monitor and reevaluate for

the next round of strategy formulation and implementation

Strategic planning is ongoing.

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Group Assignment 1

• Craft a mission statement for a company your group agrees on (assume you are the executives) (i.e. could be the company you work in), which includes:– The reason for existence – what an organization

does – A statement of some desired future state (vision)– A statement of key values that an organization is

committed to (values) – The measurable desired future goals (goals)