Contemporary Management NEW ERA OF MANAGEMENT LECTURE5 Dr. Mohamed Hesham Mansour

Strategy Formulation and Implementation Chapter 8

Copyright © All rights reserved. 3 Strategic Planning Strategic planning has taken on new importance in today’s world of globalization, deregulation, advancing technology, and changing demographics, and lifestyles

Copyright © All rights reserved. 4 Thinking Strategically Answers to the following define an overall direction for the organization's grand strategy  Where is the organization now?  Where does the organization want to be?  What changes are among competitors?  What courses of action will help us achieve our goals?

Copyright © All rights reserved. 5 Strategic Management Set of decisions and actions used to implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals Responsibility = top managers & chief executive

Copyright © All rights reserved. 6 Strategic Management Managers ask such questions as...  What changes and trends are occurring?  Who are our customers?  What products or services should we offer?  How can we offer these products or services most efficiently?

Copyright © All rights reserved. 7 Strategic Management Model

Pr e nt ic e H all, In c. © Environmental Scanning

Pr e nt ic e H all, In c. © Variables in Societal Environment

Copyright © All rights reserved. 10 Checklist for Analyzing Organizational Strengths and Weaknesses Management and Organization Management quality Staff quality Degree of centralization Organization charts Planning, information, control systems Finance Profit margin Debt-equity ratio Inventory ratio Return on investment Credit rating Marketing Distribution channels Market share Advertising efficiency Customer satisfaction Product quality Service reputation Sales force turnover Production Plant location Machinery obsolescence Purchasing system Quality control Productivity/efficiency Human Resources Employee experience, education Union status Turnover, absenteeism Work satisfaction Grievances Research and Development Basic applied research Laboratory capabilities Research programs New-product innovations Technology innovations

Pr e nt ic e H all, In c. © Issues Priority Matrix

Pr e nt ic e H all, In c. © EFAS

Pr e nt ic e H all, In c. © IFAS

Pr e nt ic e H all, In c. © SFAS

Pr e nt ic e H all, In c. © TOWS MATRIX

Strategy Formulation Strategy formulation is the development of long-range plans for the effective management of environmental opportunities and threats, in light of corporate strength and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies, and setting policy guidelines.

Strategy Formulation  Mission An organization ’ s mission is the purpose or reason for the organization ’ s existence. It tells what the company is providing to society – either a service like housecleaning or a product like automobiles. A well-conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company ’ s operations in terms of products (including services) offered and markets served. It may also include the firm ’ s philosophy about how it does business and treats its employees.

Mission It puts into words not only what the company is now, but what it wants to become – management ’ s strategic vision of the firm ’ s future. (some people like to consider vision and mission as two different concepts: a mission statement describes what the organization is now; a vision statement describes what the organization would like to become. We prefer to combine these ideas into a single mission statement.) the mission statement promotes a sense of shared expectations in employees and communicates a public image to important stakeholder groups in the company ’ s task environment. It tells who we are and what we do as well as what we ’ d like to become..

Copyright © All rights reserved. 19 Bristol-Myers Squibb Mission Statement Our company’s mission is to extend and enhance human life by providing the highest-quality pharmaceutical and related health care products.

Strategy Formulation  Objectives Objectives are the end results of planned activity. They state what is to be accomplished by when and should be quantified if possible. The achievement of corporate objectives should result in the fulfillment of a corporation ’ s mission.

Strategy Formulation  Strategies A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. The typical business firm usually considers three types of strategy: corporate, business, and functional.

Strategy Formulation 1.Corporate strategy describes a company ’ s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines. Corporate strategies typically fit within the three main categories of stability, growth, and retrenchment.

Strategy Formulation 2.Business strategy usually occurs at the business unit or product level, and it emphasizes improvement of the competitive position of a corporation ’ s products or services in the specific industry or market segment served by that business unit. Business strategies may fit within the two overall categories of competitive or cooperative strategies.

Strategy Formulation 3.Functional strategy is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resources productivity. It is concerned with developing and nurturing a distinctive competence to provide a company or business unit with a competitive advantage..

Strategy Formulation  Policies A policy is a broad guidelines for decision making that links the formulation of strategy with its implementation. Companies use polices to make sure that employees throughout the firm make decisions and take actions that support the corporation's mission, objectives, and strategies.

Strategy Implementation Strategy implementation is the process by which strategies and polices are put into action through the development of programs, budgets, and procedures. This process might involve changes within the overall culture, structure, and/or management system of the entire organization. Except when such drastic corporate wide changes are needed, however, the implementation of strategy is typically conducted by middle and lower level managers with review by top management. Sometimes referred to as operational planning, strategy implementation often involves day-to-day decisions in resource allocation..

Strategy Implementation A program is a statement of the activities or steps needed to accomplish a single-use plan. It makes the strategy action- oriented. It may involve restructuring the corporation, changing the company ’ s internal culture, or beginning a new research effort.

Strategy Implementation A budget is a statement of a corporation ’ s programs in terms of dollars. Used in planning and control, a budget lists the detailed cost of each program. Many corporations demand a certain percentage return on investment, often called a “ hurdle rate, ” before management will approve a new program. This ensures that the new program will significantly add to the corporation ’ s profit performance and thus build shareholder value. The budget thus not only serves as a detailed plan of the new strategy in action, it also specifies through pro forma financial statements the expected impact on the firm ’ s financial future.

Strategy Implementation Procedures, sometimes termed Standard Operating Procedures (SOP), are a system of sequential steps or techniques that describe in detail how a particular task or job is to be done. They typically detail the various activities that must be carried out in order to complete the corporation ’ s program.

Strategy Implementation Evaluation and control is the process in which corporate activities and performance results are monitored so that actual performance an be compared with desired performance. Managers at all levels use the resulting information to take corrective action and resolve problems. Although evaluation and control is the final major element of strategic management, it also can pinpoint weaknesses in previously implemented strategic plans and thus stimulate the entire process to begin again.

Copyright © All rights reserved. 31 Three Levels of Strategy in Organizations Corporate-Level Strategy: What business are we in? Corporation Business-Level Strategy: How do we compete? Textiles UnitChemicals Unit Auto Parts Unit Functional-Level Strategy: How do we support the business-level strategy ? Finance R&D ManufacturingMarketing

Copyright © All rights reserved. 32 Corporate Strategy The level of strategy concerned with the question “What business are we in?” Dealing with three key issues facing the corporation as a whole: Directional strategy: overall orientation toward growth, stability or retrenchment Portfolio strategy: the industries or markets in which the organization competes through its products and business units Parenting strategy: the manner in which the organization coordinates activities, transfers resources and cultivates capabilities among product lines and business units.

Copyright © All rights reserved. 33 Grand Strategy/ Corporate Strategy General plan of major action to achieve long-term goals Falls into three general categories 1. Growth 2. Stability 3. Retrenchment A separate grand strategy can be defined for global operations

Copyright © All rights reserved. Directional Strategies 34

Copyright © All rights reserved. 35 Directional Strategy: Growth Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions - Internal growth = can include development of new or changed products - External growth = typically involves diversification – businesses related to current product lines or into new areas

Copyright © All rights reserved. 36 Directional Strategy: Stability Stability, sometimes called a pause strategy, means that the organization wants – to remain the same size or – to grow slowly and in a controlled fashion

Copyright © All rights reserved. 37 Directional Strategy: Retrenchment Retrenchment = the organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses Liquidation = selling off a business unit for the cash value of the assets, thus terminating its existence Divestiture = involves selling off of businesses that no longer seem central to the corporation

Copyright © All rights reserved. 38 Portfolio Strategy Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage BCG Matrix

Copyright © All rights reserved. 39 Parenting Strategy The parenting fit matrix is based on the analysis of two things 1. the company’s core competencies 2. the Critical Success Factors needed for each suggested SBU The next step will be looking at the Critical Success Factors of each suggested SBU, then we have to answer the following basic questions Is there a room for performance improvement in each SBU? What is the value offered to the existing SBUs from our competencies? Is there a good fit between the company’s skills and resources and the needs and the opportunities of the SBU?

Copyright © All rights reserved. 40 Business Strategy The level of the strategy concerned with the question “How do we compete?” The business strategy focuses on improving the competitive position of the organization in general and its business unit's products in a specific industry. Business strategy can be: Competitive (battling against all competitors for advantage) and / or Cooperative (working with one or more competitors to gain advantage against other competitors)

Copyright © All rights reserved. 41 Formulating Business-Level Strategy

Pr e nt ic e H all, In c. © Analyzing the Task Environment

Copyright © All rights reserved. 43 Competitive Edge Through Competitive Strategies Differentiation = attempt to distinguish products or services from that of competitors Cost leadership = aggressively seeks efficient facilities, pursues cost reductions, and uses tight cost controls to produce products more efficiently than competitors Focus = concentrates on a specific regional market or buyer group

Pr e nt ic e H all, In c. © Porter’s Competitive Strategies

Copyright © All rights reserved. 45 Continuum of Partnership Strategies Organizational Combination Strategic Alliances Preferred Supplier Arrangements Strategic Business Partnering Mergers Acquisitions Low High Joint Ventures Degree of Collaboration

Copyright © All rights reserved. 46 Functional Strategy The level of strategy concerned with the question “How do we support the business level strategy?” Pertains to all the organization’s major departments

Copyright © All rights reserved. 47 Global Corporate Strategies Need for National Responsiveness High Low High Transnational Strategy Seeks to balance global efficiencies and local responsiveness Combines standardization and customization for product/advertising strategies Globalization Strategy Treats world as a single global market Standardizes global products/advertising strategies Multi-domestic Strategy Handles markets independently for each country Adapts product/advertising to local tastes and needs Need for Global Integration Export Strategy Domestically focused Exports a few domestically produced products to selected countries

Copyright © All rights reserved. 48 Global Strategy Globalization = product design and advertising strategies are standardized around the world Multi-domestic = adapt product and promotion for each country Transnational = combine global coordination with flexibility to meet specific needs in various countries

Copyright © All rights reserved. 49 Purpose of Strategy The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals Strategies focus on: ● Core competencies ● Developing synergy ● Creating value for customers

Copyright © All rights reserved. 50 Strategy Formulation vs. Implementation Strategy Formulation = stage of strategic management that involves planning and decision making that lead to the establishment of the organization’s goals and of a specific strategic plan Strategy Implementation = stage of strategic management that involves the use of managerial and organizational tools to direct resources toward achieving strategic outcomes Experiential Exercise: Developing Strategy for a Small Business

Copyright © All rights reserved. 51 Implementing Strategy Tools Leadership Structural design Information and control systems Human resources

Copyright © All rights reserved. 52 Tools for Putting Strategy into Action Environment Organization Strategy Performance Leadership Persuasion Motivation Culture/values Structural Design Organization Chart Teams Centralization Decentralization, Facilities, task design Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recalls Information and Control Systems Pay, reward system Budget allocations Information systems Rules/procedures