Introduction to Strategic Management and strategic making process ( part 1 )

Prepared for class discussion by Prof S.Suryanarayanan

Dictionary meaning
strategy noun, plural strategies. 1. Also, strategic. the science or art of combining and employing the means of war in planning and directing large military movements and operations. 2. the use or an instance of using this science or art. 3. skillful use of a stratagem: The salesperson's strategy was to seem always to agree with the customer. 4. a plan, method, or series of maneuvers or stratagems for obtaining a specific goal or result: a strategy for getting ahead in the world.

In military usage, a distinction is made between strategy and tactics. Strategy is the utilization, during both peace and war, of all of a nation's forces, through large-scale, long-range planning and development, to ensure security or victory. Tactics deals with the use and deployment of troops in actual combat. In Business, strategy means a set of related actions that mangers take to increase their companys performance.

Why do some organizations succeed while

others fail?
Strategy is a set of related actions that managers take to increase their companys performance. o Strategic Leadership Task of most effectively managing a companys strategy-making process o Strategy Formulation Task of determining and selecting strategies o Strategy Implementation Task of putting strategies into action to improve a companys efficiency and effectiveness Competitive Advantage Results when a companys strategies lead to superior performance compared to competitors

Superior Performance and Sustainable

Competitive Advantage
Superior Performance o One companys profitability relative to that of other companies in the same or similar business or industry o Maximizing shareholder value is the ultimate goal of profit making companies ROIC (Profitability) = Return On Invested Capital o = Net profit = Net income after tax Capital invested Equity + Debt to creditors Competitive Advantage o When a companys profitability is greater than the average of all other companies in the same industry & competing for the same customers. Sustainable Competitive Advantage When a companys strategies enable it to maintain above average profitability for a number of years

Companys Business Model

Managements model of how strategy will allow the company to gain competitive advantage and achieve superior profitability A business model encompasses how the company will: Select its customers Define and differentiate its product offerings Create value for its customers Acquire and keep customers Produce goods or services Deliver those goods and services to the market Organize activities within the company Configure its resources Achieve and sustain a high level of profitability Grow the business over time

Levels of Strategic Management

The Five Steps of the Strategy Making Process

Select the corporate vision, mission, and values and the major
corporate goals and objectives.

Analyze the external competitive environment to identify opportunities

and threats.

Analyze the organizations internal environment to identify its strengths

and weaknesses. Select strategies that: o Build on the organizations strengths and correct its weaknesses in order to take advantage of external opportunities and counter external threats o Are consistent with organizations vision, mission, and values and major goals and objectives o Are congruent and constitute a viable business model Implement the strategies.

Main Components of the Strategy- Making Process

 Crafting the Organizations 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

The Mission
The mission is a statement of a companys raison detre, its reason for existence today. What is it that the company does? What is the companies business? o Who is being satisfied (what customer groups)? o What is being satisfied (what customer needs)? o How customer needs are being satisfied? (by what skills, knowledge, or distinctive competencies)? A companys mission is best approached from a customer-oriented business definition.

The Mission : Customer-Oriented Examples

The mission of Kodak is to provide customers with the solutions they need to capture, store, process, output, and communicate images anywhere, anytime.

Ford Motor Company describes itself as a company that is passionately committed to providing personal mobility for people around the world.We anticipate consumer need and deliver outstanding produces and services that improve peoples lives.

The Vision
What would the company like to achieve? A good vision is meant to stretch a company by articulating an ambitious but attainable future state.

The vision of Ford is to become the worlds leading consumer company for automotive products and services.

Nokia is the worlds largest manufacturer of mobile phones and operates with a simple but powerful vision: If it can go mobile, it will!
1 .

Values
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 companys mission Organizational culture o The set of values, norms, and standards that control how employees work to achieve an organizations mission and goals o Often seen as an important source of competitive advantage

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

Major Goals
A goal is a precise and measurable desired future state that a company must realize if it is to attain its vision or mission. 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 focus 3. Challenging but realistic to provide employees with incentive for improving 4. Specify a time period to motivate and inject a sense of urgency into goal attainment

5.

Focus on long-run performance and competitiveness.

 This power point presentation is based on the text book: Strategic Managementan integrative approach by Charles W.L Hill and Gareth R.Jones Suggested further readings: Concepts in Strategic Management and Business Ploicy by Thomas L Wheelan and J David Hunger Strategy Safari by H Mintzberg Competitive Strategy by Michael Porter.