08/25/2005 WELCOME TO Strategy 4357 DR. GARY VAZZANA DOCKERY 400R

Introduction Topic 1 Introduction Topic 1 Business Policy deals with internal company problems.Business Policy deals with internal company problems. Business Strategy deals with internal and external environments at the same time.Business Strategy deals with internal and external environments at the same time. Business Strategy involves long-range planning of how a company, government unit or a non-profit organization is going to attain its objective given its internal and external environments.Business Strategy involves long-range planning of how a company, government unit or a non-profit organization is going to attain its objective given its internal and external environments.

Benefits of Strategic Management Clearer sense of strategic visionClearer sense of strategic vision Sharper focus on what is strategically importantSharper focus on what is strategically important Improved understanding of rapidly changing environmentImproved understanding of rapidly changing environment Improves organizational health and successImproves organizational health and success Firms are more profitableFirms are more profitable When lower level workers are involved in strategic planning it helps motivation, broadens sources of information and helps gain commitment to planWhen lower level workers are involved in strategic planning it helps motivation, broadens sources of information and helps gain commitment to plan

Three Key Strategic Questions the Strategic Management Must Continue To Ask Where is the organization now?Where is the organization now? If no changes are made, where will the organization be in one, two, five or ten years? Are the answers acceptable?If no changes are made, where will the organization be in one, two, five or ten years? Are the answers acceptable? If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?If the answers are not acceptable, what specific actions should management undertake? What are the risks and payoffs involved?

Learning Organization A learning organization is skilled at creating, acquiring, transferring knowledge, and at modifying its behavior to reflect new knowledge and insights A learning organization is skilled at creating, acquiring, transferring knowledge, and at modifying its behavior to reflect new knowledge and insights The external environment is changing so quickly that organizations must work on strategy development yearly to revise plans Strategy implementation is continuous and therefore we must have a Learning Organization.

Composition of Strategic Management Strategic Management is Composed of 1.Environmental scanning 2.Strategy formulation 3.Strategy implementation 4.Evaluation and control See Figure 1.1 in text, the following model is used more often but is almost same model. 8

TM-7 Strategic Management Model Strategy Formulation Strategy Implementation Evaluation and Control Mission Objectives Strategies Feedback/Learning Environmental Scanning Societal Environment General Forces Task Environment Industry Analysis Structure Chain of Command Resources Assets, Skills Competencies, Knowledge Culture Beliefs, Expectations, Values Reason for existence What results to accomplish by when Plan to achieve the mission & objectives Programs Activities needed to accomplish a plan Budgets Cost of the programs Procedures Sequence of steps needed to do the job Process to monitor performance and take corrective action Performance External Internal Go through decision- making process and Determine alternative strategy To select

Environmental Variables Societal Environment Economic Forces Technological Forces Political-Legal Forces Sociocultural Forces Internal Environment Structure Culture Resoures Shareholders Governments Customers Creditors Communities Competitors Employees/ Labor Unions Suppliers Special Interest Groups Trade Associations Task Environment (Industry)

Two Categories of External Environment Societal Environment Composed of general forces in environment 1. Economic 2. Technological 3. Political-Legal 4. Socio-Cultural Many texts such as Marketing text use similar categories.

Give examples of Societal External Environment Low rate of unemploymentLow rate of unemployment Age distribution of populationAge distribution of population Interest ratesInterest rates Federal Regulations for Minimum WageFederal Regulations for Minimum Wage **Note this variables effect most companies in a similar way and therefore are not in the industry environment of the organization.

2nd Major Category of External Environment Task Environment Composed of Groups in environment that directly affect or are affected by the organization’s operationsGroups in environment that directly affect or are affected by the organization’s operations (Often called industry)(Often called industry)

Give an example of task environment at CMSU Discussion of other state schoolsDiscussion of other state schools College age individuals in MissouriCollege age individuals in Missouri Cafeteria supply companiesCafeteria supply companies State government of MissouriState government of Missouri

TM-13 Internal Environment The Internal Environment that we will use in this class is:The Internal Environment that we will use in this class is: a. Organizational Structure and Management,a. Organizational Structure and Management, b. Organizational culture and values, andb. Organizational culture and values, and c. Organizational resources e.g. production, financial, HRM, CIS etc.c. Organizational resources e.g. production, financial, HRM, CIS etc.

a. Organizational Structure is The way a corporation is organized in terms of communication, authority, and workflow.

b. Corporate/Organizational Culture b. Corporate/Organizational Culture Corporate Culture is the Collection of beliefs, expectations, and values learned and shared by members and transmitted from one generation of employees to another. It includes how ethical and socially responsible the company is. It includes how ethical and socially responsible the company is.

c. Internal Resources An asset, competency, process, skill, or knowledge controlled by the corporation ( Examples include marketing skills, financial strength, MIS systems, production facilities.)

Definition of Strategy Formulation Strategy Formulation is The process of developing long-range plans to deal effectively with environmental opportunities and threats in light of corporate strengths and weaknesses. Composed of Mission Mission Objectives Objectives Strategies Strategies

1 st let us look at Mission Companies should have a mission whether they write it down or not. Mission The purpose or reason for the corporation’s existence. It may be narrow or broad in scope. NarrowBroad RailroadTransportation InsuranceFinancial Services

2 nd Objectives Once companies know their Mission they can come up with their objectives. Objectives The end results of planned activity. They state WHAT is to be accomplished by WHEN. They should be quantified, if possible.

Some Areas in Which to Set Objectives Profitability (10% profit over next 5 years)Profitability (10% profit over next 5 years) Growth ( have 40% growth by 4 years from now)Growth ( have 40% growth by 4 years from now) Shareholder wealth (increase stock price by $10 in 3 years)Shareholder wealth (increase stock price by $10 in 3 years) Utilization of resourcesUtilization of resources ReputationReputation Contributions to employeesContributions to employees Contributions to societyContributions to society Market leadership (continue to be #1 in market share)Market leadership (continue to be #1 in market share) SurvivalSurvival Personal needs of managementPersonal needs of management

3rd Strategy Strategies can be set once your objectives and mission are set. A Strategy is a A comprehensive master plan stating HOW the corporation will achieve its mission and objectives A Strategy tells us HOW organization aligns itself with its external and internal environment.

TM-22 Strategies are set a three levels in corporate conglomerates. Strategic or Corporate levelStrategic or Corporate level Divisional Level (also called Strategic Business Unit (SBU) StrategyDivisional Level (also called Strategic Business Unit (SBU) Strategy Functional/Departmental levelFunctional/Departmental level Each level supports the other level.

Hierarchy of Strategy Functional Strategy Business (Division Level) Strategy Corporate Strategy Manufacturing Finance Marketing Research and Development Human Resources Strategic Business Unit Strategic Business Unit Strategic Business Unit Corporate Headquarters

Definition of Strategy Implementation Strategy Implementation The process of putting strategies into action through the development of Programs Programs Budgets Budgets Procedures Procedures

Definition of Program Program A statement of activities or steps needed to accomplish a single-use plan, e.g. a marketing program for a chosen strategy or a finance program for a chosen strategy. Definition of Budget Budget A statement of a corporation’s program in dollar terms or numerical term such as in units, days, # of employees, etc. A marketing budget for next year might be 5-8 % of net sales. A Finance budget for our strategy might be issue $10.000,000 In stock to finance our strategy.

Definition of Procedures Procedures A system of sequential steps or techniques that describe in detail how to perform a particular task or job. ( We will not do procedures in our cases because it becomes too detailed.) A marketing procedure might be how to buy advertising space step-by-step A finance procedure might be how to issue stock step-by-step.

Definition of Evaluation and Control Evaluation and Control The process of monitoring corporate activities and performance results so that actual performance can be compared with desired performance and initiating changes when necessary. Our objectives will probably be what we will use for control Profitability (10% profit over next 5 years) Growth ( have 40% growth by 4 years from now)Growth ( have 40% growth by 4 years from now) Shareholder wealth (increase stock price by $10 in 3 years)Shareholder wealth (increase stock price by $10 in 3 years)

Triggering Events for Strategic Change New CEONew CEO External interventionExternal intervention Threat of a change in ownershipThreat of a change in ownership Performance gapPerformance gap Strategic decisions are rare, consequential, andStrategic decisions are rare, consequential, and set direction for an organization. set direction for an organization.

Strategic Managment Process at Maytag Corporation : Mission & Objectives Strategy Formulation Mission Broad: To serve the best interests of shareowners, customers, and employeesBroad: To serve the best interests of shareowners, customers, and employees Narrow: To become a full-line globally-oriented major home appliance manufacturer and marketerNarrow: To become a full-line globally-oriented major home appliance manufacturer and marketerObjectives Increased profitabilityIncreased profitability Number one in customer satisfaction next 3 yearsNumber one in customer satisfaction next 3 years Number three in North American unit salesNumber three in North American unit sales

Strategic Management Process at Maytag Corporation: Strategies & Policies Strategies To grow horizontally where the corporation is not yet well represented through external acquisition or joint venturesTo grow horizontally where the corporation is not yet well represented through external acquisition or joint ventures To grow horizontally internally by improving efficiency and quality of acquired companies and by using one business unit’s expertise in one acquired are to introduce quality products from a business unit in another areaTo grow horizontally internally by improving efficiency and quality of acquired companies and by using one business unit’s expertise in one acquired are to introduce quality products from a business unit in another area Policies Policies No cost reduction proposal will be approved if it reduces product quality in any wayNo cost reduction proposal will be approved if it reduces product quality in any way Every product, from the least expensive to the highest priced, should be superior to the competition in overall quality and performanceEvery product, from the least expensive to the highest priced, should be superior to the competition in overall quality and performance The corporation must not emphasize market share at the expense of profitabilityThe corporation must not emphasize market share at the expense of profitability Business units must be managed for synergies, while simultaneously the specialized expertise among those units must be allowed to flourishBusiness units must be managed for synergies, while simultaneously the specialized expertise among those units must be allowed to flourish

Strategic Management Process at Maytag Corporation: Programs & Budgets Programs Work with Bosch-Siemens to develop joint marketing and supplier agreements for Hoover appliancesWork with Bosch-Siemens to develop joint marketing and supplier agreements for Hoover appliances Analyze and develop Asian markets through current distributors and licensees and through joint venturesAnalyze and develop Asian markets through current distributors and licensees and through joint ventures Develop new appliances for continental EuropeDevelop new appliances for continental Europe Develop TV advertising for Jenn-Air and Magic ChefDevelop TV advertising for Jenn-Air and Magic Chef Consolidate production of washers and dryers in dedicated plantsConsolidate production of washers and dryers in dedicated plantsBudgets Prepare budgets for each planned programPrepare budgets for each planned program

Strategic Management Process at Maytag Corporation: Procedures Procedures Develop procedures for joint purchasing and joint marketing of Bosch-Siemens with HooverDevelop procedures for joint purchasing and joint marketing of Bosch-Siemens with Hoover Coordinate marketing, manufacturing, and purchasing activities of business units through committeesCoordinate marketing, manufacturing, and purchasing activities of business units through committees Research and development takes place in unit housing each product lineResearch and development takes place in unit housing each product line Consolidate all advertising under one agency, but establish internal advertising for each brand categoryConsolidate all advertising under one agency, but establish internal advertising for each brand category

Strategic Management Process at Maytag Corporation: Evaluation & Control Evaluation & Control Require all business units to provide annual reports giving operating revenues, costs, and expenses as well as identifiable assets in dollars, plus property additions and deletions. Compare these against your objectives.Require all business units to provide annual reports giving operating revenues, costs, and expenses as well as identifiable assets in dollars, plus property additions and deletions. Compare these against your objectives. Require all business units to provide quarterly assessments of competitive activity and overall trends affecting each of their product linesRequire all business units to provide quarterly assessments of competitive activity and overall trends affecting each of their product lines Require all business units to inform corporate headquarters before proceeding on any financially risky planRequire all business units to inform corporate headquarters before proceeding on any financially risky plan

Questions to Answer What is Strategic Management? ANSWER: STRATEGIC MANAGEMENT STRATEGIC MANAGEMENT That set of managerial decisions and actions that determines the long-run performance of a corporationThat set of managerial decisions and actions that determines the long-run performance of a corporation

Student Fill in Yourself What are the basic elements of the Strategic Management Process? (Put processes in correct sequence.) What processes supercede each other?

Answer-in appropriate order Evaluation and Control Strategy Implementation Environmental Scanning Strategy Formulation

What does it mean when author says Mission can be wide or narrow? Remember a mission should include at least a general idea what products the organization offers, its geographical scope, its view of customers and the general environment.Remember a mission should include at least a general idea what products the organization offers, its geographical scope, its view of customers and the general environment. Give an example of a mission for DisneyGive an example of a mission for Disney Give an example of a mission for CMSUGive an example of a mission for CMSU Give an example of a mission for BudweiserGive an example of a mission for Budweiser

What are the key words describing an objective? What is the key word describing a strategy?