STRATEGIC MANAGEMENT THIRD EDITION Alex Miller © The McGraw-Hill Companies, Inc., 1998

Chapter Two The Process of Strategic Management © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-1

The Realized Strategy is Usually Both More and Less than the Strategy That Was Originally Intended Intended Strategy Realized Strategy Emergent Strategy Unrealized Strategy Deliberate Strategy © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-2 Exh. 2.1

The Strategic Ends Pursued by an Organization Can be Organized as a Hierarchy of Strategic Intent Plans Objectives Goals Mission Vision Most Integrative Fewest in Number Most Specific Greatest in Number © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-3 Exh. 2.4

Example of a Mission Statement ROLM Corporation ROLM Corporation was founded with four goals: To Make a Profit To Grow To Offer Quality Products and Customer Support To Create a Great Place to Work The four goals are closely interrelated. One cannot exist without the others. In order for ROLM to profit, it must offer quality products and customer support. In order to grow, it must profit. And, in order to develop quality products and customer support, ROLM must maintain a work environment conducive to creativity and productivity. © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-4 Exh. 2.5

Key Elements of a Mission Statement OBLIGATIONS TO STOCKHOLDERS SCOPE OF THE BUSINESS SOURCES OF COMPETITIVE ADVANTAGE FUNDAMENTALINTENTIONS Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Slide 2-5Exh. 2.6 VIEW OF THE FUTURE

Examples of Strategic Goals Financial Goals Reynolds Aluminum: “To be an industry leader in profitability and growth and to achieve an average return on equity of 20 percent.” Boeing: “Profitability as measured against our ability to achieve and then maintain a 20 percent average annual return on stockholder’s equity.” Boeing: “Growth over the plan period as measured against a goal to achieve: greater than 5 percent average annual real sales growth from 1988 base.” © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-6 Exh. 2.7a

Examples of Strategic Goals (cont.) Nonfinancial Goals Boeing: “Integrity, in the broadest sense, must pervade our actions in all relationships, including those with our customers, suppliers, and each other. This is a commitment to uncompromising values and conduct. It includes compliance with all laws and regulations.” General Electric: “We will run only businesses that are number one or number two in their global markets.” General Electric: “We will be a more contemporary, more accessible, more responsive company, in touch with our customers, firmly in control of our own destiny, driven by more fulfilled people in control of theirs.” © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-7 Exh. 2.7b

A Generic Model of Strategic Programming Identification of Mission Derivation of Objectives Identification of Alternative Strategies Evaluation of Alternatives Selection of Preferred Alternatives Creation of Master Plan/Program Creation of Medium- Run Plans/Programs Creation of Short-Term Plans/Programs Evaluation of Results FEEDBACK LOOP Establish Master Budget Establish Medium-Run Operating Budgets Establish Short-Term Tactical Budgets STRATEGY FORMULATION STRATEGY IMPLEMENTATION © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-8 Exh. 2.8

A Typical Formal Strategic Planning Process 1. Evaluate performance in light of goals and identify gaps. 2. Relate gaps to environmental conditions. 3. Relate gaps to organizational capabilities. 4. Identify future goals, given understanding of gaps. 5. Describe broad action plans aimed at meeting goals. 6. Identify resources required by each function to implement plans. 7. Aggregate needs by function into overall needs of business. 8. Allocate resources across multiple business units. 9. Reallocate resources within functions. 10. Deploy resources within functions. 11. Monitor use of resources within functions. 12. Monitor use of resources across businesses. © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-9 Exh. 2.9

Conditions That Encourage a Strategic Programming Approach to Implementation USE OF STRATEGICPROGRAMMING APPROACH TO IMPLEMENTATION 1. Stability 2. Simplicity 3. Industry Maturity 4. Capital Intensity 5. Tightly Coupled Operations 6. External Control Necessary Conditions Motivating Conditions © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-10 Exh. 2.10

A Comparison of Mechanistic and Organic Organizations Traditional Mechanistic Organization Emerging Organic Organization Internally focused on pleasing supervisor Periodically fixed targets Vertical, up and down the hierarchy Tall and static Expected to comply to direction Command and control Externally focused on pleasing supervisor Continuous improvement Horizontal, across functions Flat and responsive Empowered to decide and act Visionary and enabling Employee focus Performance standard standard Basis of relationship Organizational structure structureEmployees’ expectations expectations Dominant form of leadership leadership © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-11 Exh. 2.11

A Continuum of Approaches to Strategy Implementation Relatively unstable Relatively stable Relatively simple Relatively complex Dynamism Complexity Emphasis on Deliberate Strategy and Strategic Programming Emphasis on Emergent Strategy and Organizational Learning © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill Slide 2-12 Exh. 2.12