2 CHAPTER McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. The Strategic Management Process

. Part 1 Strategy Analysis 2–2

LO 2-1 Explain the role of vision, mission, and values in the strategic management process. LO 2-2 Describe and evaluate the role of strategic intent in achieving long-term goals. LO 2-3Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5Explain why anchoring a firm in ethical values is essential for long- term success. LO 2-6Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications. 2-3

Chapter Case 2 Teach For America: Inspiring Future Leaders TFA Mission: Eliminate educational inequality  Started by an undergraduate student, Wendy Kopp  Inspiring mission  Provide a meaningful service option for bright young people Make teaching to the neediest high prestige  Over 45,000 applicants for 4,500 jobs TFA Video

Vision, Mission, and Values What are visionary organizations?   Begin with the end in mind   Similar to designing & building a home Frank Lloyd Wright   Vision – what to ultimately accomplish?   Mission – what is the firm about?   Values – how to accomplish goals? 2–5

1–6 STRATEGY HIGHLIGHT 2.1 Winning Through Strategic Intent: The “Pocketable” Radio Small Japanese Company after WWII, founded by Masura Ibuka  Invented an electric rice cooker  Wanted to license the transistor from Bell Labs in U.S.  Japanese Government & Bell Labs both said NO  Persisted with request – Finally,1953 got transistor.  “Beat Bell Labs” to pocket-sized radio  1957 – Launched world’s FIRST pocket radio  1958 – Changed company name to….

LO 2-1 Explain the role of vision, mission, and values in the strategic management process. LO 2-2 Describe and evaluate the role of strategic intent in achieving long- term goals. LO 2-3Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5Explain why anchoring a firm in ethical values is essential for long- term success. LO 2-6Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications. 2-7

Vision, Mission, and Values Customer-Oriented Missions Define the firm in terms of solutions for customers   Disney: "Make People Happy"   Enhanced strategic flexibility   NOT the same as listening to customers Product-Oriented Missions Define the firm in terms of products or services   U.S. Railroads: "Safest… North American railroad”   Missed the opportunity to move into delivery before UPS & Federal Express 2–8

Defining the Business: The Starting Point of Strategy Example: Fall of the Railroads  “  “They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry wrong was because they were railroad oriented instead of transport oriented; they were product oriented instead of customer oriented.” Theodore Levitt “Market Myopia” 2–9

Mission Statements and Competitive Advantage Do mission statements help gain and sustain competitive advantage?   Results are inconclusive   Need strategic commitments to succeed (e.g., Boeing Dreamliner) Positive associations – Visionary firms, like Merck Negative associations – Better World Books No associations – Intel

LO 2-1Explain the role of vision, mission, and values in the strategic management process. LO 2-2Describe and evaluate the role of strategic intent in achieving long- term goals. LO 2-3Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for long-term success. LO 2-6Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications. 2–11

Living the Values Ethical standards and norms that govern behavior. McKesson (health care) – ICARE   Shared principles a framework for daily interactions Dark side of values   Bernard Madoff   Ponzi scheme estimated at $65 billion in fraud   Enron   One of the largest bankruptcies in U.S. history   Over 50,000 jobs lost (Enron and Arthur Andersen)

LO 2-1Explain the role of vision, mission, and values in the strategic management process. LO 2-2Describe and evaluate the role of strategic intent in achieving long- term goals. LO 2-3Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for long term success. LO 2-6Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications. 2–13

Strategy as Strategic Planning Top-down rational planning   Define mission, vision, and goal (strategic intent)   External analysis of opportunities and threats   Internal analysis of strengths and weaknesses   Create strategic fit through SWOT   Formulate appropriate strategy   Implement chosen strategy   Monitor performance and modify if necessary 2–14

Fundamental Question of the Choice of Goals: Planning for what Purpose(s)? Profitability (net profits) Efficiency (low costs) Market Share Growth (e.g., increase in total assets, sales, etc) Shareholder Wealth (dividends plus stock price appreciation) Utilization of Resources (e.g., ROE, ROI) Reputation Contribution to Stakeholders (e.g., employees, society) Survival (avoid bankruptcy)

Strategy as Scenario Planning Scenario planning   Envision different "what-if" plans   Generates a dominant plan   Must implement the most probable option   Keeps other scenarios in the event of changes…   "Arab Spring" impact on the oil industry?   Good example of the AFI framework   Scenario planning at Shell 2–17

EXHIBIT 2.2 Scenario Planning in the AFI Strategy Framework 2–18

1–19 STRATEGY HIGHLIGHT 2.2 Shell’s Future Scenarios Petroleum industry use of scenario planning  Shell made right move in the 1960s  Again in the 1980s  Communism might fall in Soviet Union  Now projecting 20% energy from renewables by 2025

Strategy as Planned Emergence Strategic Initiative   Google 50% of the firm's new products come from the "20% rule" (one day a week on own ideas)   Enron Wind investment by GE Mintzberg Planned Emergence Strategy can come from top or bottom:   Some intended strategies drop off in the process   Allows for new emerging ideas to become realized   Resource allocation process   Serendipity can have dramatic effects 2–20

Strategic Initiatives and Serendipity Japan Railways   Constructing a bullet train through the mountains north of Tokyo, which required many tunnels   Persistent flooding   Complex engineering plans to drain the water   Maintenance worker suggested that the fresh water off the mountains should not be drained, but rather should be bottled   1,000 vending machines on 1,000 railroad platforms in and around Tokyo, and home delivery of water, juices, and coffee followed.   The employee’s proposal had turned this “bottom-up” strategy into a multi-million dollar business. 2–21

EXHIBIT 2.3 Mintzberg’s Planning Framework 2–22

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1–24 STRATEGY HIGHLIGHT 2.3 “It’s Not What We Do!” Starbucks  Autonomous action of mid-level manager  Tenacity and persistence of a store manager in Southern California  Risk of failure  Possible career-limiting action  Organization must be willing to accept new ideas  Frappuccino was born!  Contributing 20% of the $11billion in revenues for Starbucks in 2010.

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