Foundations in Strategic Management, 2e. 1

2 Learning Objectives Understand the: The leadership responsibilities of executive managers The responsibilities of boards of directors The importance of organizational culture in the management of organizations The characteristics of resources and capabilities that create a foundation for competitive advantage The usefulness of the Value Chain in understanding sources of competitive advantage The process of establishing strategic direction

Foundations in Strategic Management, 2e. 3 StrategicDirection Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Internal and External Analysis

Foundations in Strategic Management, 2e. 4 Four Primary Responsibilities of Leaders Design organizational purpose, vision and core values Develop policies, strategies and structure Create an environment for organizational learning Serve as a steward for the organization Design organizational purpose, vision and core values Develop policies, strategies and structure Create an environment for organizational learning Serve as a steward for the organization

Foundations in Strategic Management, 2e. 5 Corporate Governance Shareholders Board of Directors Board of Directors Chief Executive Officer (CEO) Top Manage- Ment Team Top Manage- Ment Team VP-Legal VP-FinancialVP-MarketingVP-Human Res.

Foundations in Strategic Management, 2e. 6 Agency Theory Agents--managers with a fiduciary duty to act in the best interests of owners Agency problem--managers maximize their own self-interests at the expense of owners –High salaries of CEOs –Short-term risk vs. long-term benefits –Empire building for status –CEO duality Agents--managers with a fiduciary duty to act in the best interests of owners Agency problem--managers maximize their own self-interests at the expense of owners –High salaries of CEOs –Short-term risk vs. long-term benefits –Empire building for status –CEO duality

Foundations in Strategic Management, 2e. 7 Governance Trends

Foundations in Strategic Management, 2e. 8 Boards of Directors of High Performing Companies Active in governance processes Include BOTH insiders and outsiders Interlocking directorates Active in governance processes Include BOTH insiders and outsiders Interlocking directorates

Foundations in Strategic Management, 2e. 9 Employees and Culture Employees and the way they are managed can be important sources of competitive advantage. An organization’s culture, the system of shared values that guides employee beliefs and behavior, is another important component of the internal environment.

Foundations in Strategic Management, 2e. 10 Resources Leading to Sustainable Competitive Advantage Organizational Resources and Capabilities Financial Physical Human Organizational VALUABLE? UNIQUE? Competitive Advantage DIFFICULT OR COSTLY TO IMITATE? Sustainable Competitive Advantage APPLIED TO MULTIPLE BUSINESSES? Core Competency or Capability

Foundations in Strategic Management, 2e. 11 The Value Chain Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Activities that Support the Primary Activities Administration Technology Development Human Resource Development Procurement Primary Activities Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Activities that Support the Primary Activities Administration Technology Development Human Resource Development Procurement

Foundations in Strategic Management, 2e. 12 Use of Finance in Strategic Management Identify Strengths and Weaknesses Diagnose Problems –Declining Profitability –Insufficient Liquidity –Leverage Too High or Too Low –Internal Mismanagement Determine Ability to Finance Future Plans –Ability to Borrow –Stock vs. Debt Identify Strengths and Weaknesses Diagnose Problems –Declining Profitability –Insufficient Liquidity –Leverage Too High or Too Low –Internal Mismanagement Determine Ability to Finance Future Plans –Ability to Borrow –Stock vs. Debt

Foundations in Strategic Management, 2e. 13 Some Commonly Used Ratios Profitability –Gross Profit Margin –Net Profit Margin –ROA –ROE Liquidity –Current –Quick Leverage –Debt to Equity –Total Debt to Total Assets (Asset Ratio) Activity –Asset TurnoverAverage Collection Period –Accounts Receivable TurnoverInventory Turnover Profitability –Gross Profit Margin –Net Profit Margin –ROA –ROE Liquidity –Current –Quick Leverage –Debt to Equity –Total Debt to Total Assets (Asset Ratio) Activity –Asset TurnoverAverage Collection Period –Accounts Receivable TurnoverInventory Turnover

Foundations in Strategic Management, 2e. 14 StrategicDirection Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Internal and External Analysis

Foundations in Strategic Management, 2e. 15 John W. Teets, CEO Greyhound Corp. John W. Teets, CEO Greyhound Corp. “ Management’s job is not to see the company as it is... but as it can become.”

Foundations in Strategic Management, 2e. 16 Strategic Direction Direction is defined by mission, business definition, vision and enterprise strategyDirection is defined by mission, business definition, vision and enterprise strategy Mission: Organizational purpose, what it does, and why it exists.Mission: Organizational purpose, what it does, and why it exists. Business definition: Part of mission, defines products, markets, functions served, and resource conversion processes.Business definition: Part of mission, defines products, markets, functions served, and resource conversion processes. Vision: What the organization wants to be in the future.Vision: What the organization wants to be in the future. Enterprise Strategy--Link between mission, vision, and values. What should the organization be? down but they still exist, even if by defaultEnterprise Strategy--Link between mission, vision, and values. What should the organization be? down but they still exist, even if by default Direction is defined by mission, business definition, vision and enterprise strategyDirection is defined by mission, business definition, vision and enterprise strategy Mission: Organizational purpose, what it does, and why it exists.Mission: Organizational purpose, what it does, and why it exists. Business definition: Part of mission, defines products, markets, functions served, and resource conversion processes.Business definition: Part of mission, defines products, markets, functions served, and resource conversion processes. Vision: What the organization wants to be in the future.Vision: What the organization wants to be in the future. Enterprise Strategy--Link between mission, vision, and values. What should the organization be? down but they still exist, even if by defaultEnterprise Strategy--Link between mission, vision, and values. What should the organization be? down but they still exist, even if by default

Foundations in Strategic Management, 2e. 17 Business Definition What is our product or service? Who are our customers? (markets and distribution channels) What do we do for them or provide for them? (functions served by our products or services) How do we produce the service or do it? (What are our resource conversion processes, technologies) What is our product or service? Who are our customers? (markets and distribution channels) What do we do for them or provide for them? (functions served by our products or services) How do we produce the service or do it? (What are our resource conversion processes, technologies)

Foundations in Strategic Management, 2e. 18 Business Definition for Toys ‘R’ Us Markets - Children, grandparents, parents Functions served (by the stores) - Availability, selection, low prices, easy access Resource conversion processes - Buying, inventorying, distributing, limited service, promotion and advertising Products/services - Toys and games, clothing and furniture for children Markets - Children, grandparents, parents Functions served (by the stores) - Availability, selection, low prices, easy access Resource conversion processes - Buying, inventorying, distributing, limited service, promotion and advertising Products/services - Toys and games, clothing and furniture for children

Foundations in Strategic Management, 2e. 19 Mission and Vision of MateriaLink Mission - MateriaLink provides an electronic marketplace that allows buyers in Engine Procurement, and Construction (EPC) companies worldwide to source, procure and dispose of surplus and new materials in the most efficient manner possible. Vision - MateriaLink is the premier electronic marketplace for project surplus, new and EPC industry information. We will be the preferred provider for all EPC and new materials transactions. We are committed to continuing to provide a site functionality that will enhance profitability and cut costs for our users.