CHAPTER 2 THE 3 STRATEGY MAKING TASKS Developing a Mission, Setting Objectives and Forming a Strategy

Chapter Outline Developing a Strategic Vision / Mission Establishing Objectives Crafting a Strategy Linking Strategy With Ethics and Corporate Social Responsibility Tests of a Winning Strategy

WHO we are, WHAT we do and WHERE we are headed” mission statement as a starting point Use the mission statement as a starting point strategic vision Develop a strategic vision that spells out a course to pursue Communicateclear exciting Communicate the vision in a clear and exciting manner

Defines current business activities Highlights boundaries of current business Company specific, not generic — so as to give a company its own identity A company’s mission is not to make a profit ! The real mission is always—“What will we do to make a profit?” Characteristics of a Mission Statement

A good business definition incorporates three factors: Customer needs - WHAT is being satisfied Customer groups - WHO is being satisfied (geographical area, types of buyers) Technologies and competencies employed – HOW customers' needs are satisfied (specialised, fully integrated, partly integrated) This directs management to look outward towards customers and markets as well as inwards.

Mission Statements for Functional Departments Spotlights department’s Role and scope of activities Direction which department needs to pursue Contribution to firm’s overall mission

Questions to Address in Developing a Strategic Vision 1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction? 2. What new or different customer needs should we be moving to satisfy? 3. What new or different buyer segments should we be concentrating on? 4. What new geographic or product markets should we be pursuing? 5. What should the company’s business makeup look like in 5 years? 6. What kind of company should we be trying to become?

Communicating the Vision An exciting, inspirational vision Challenges and motivates workforce Arouses strong sense of organizational purpose Galvanizes people to live the business

Concept of Strategic Intent A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective!

Building a stronger long-term competitive position benefits shareholders more lastingly than improving short-term profitability!

Objective-setting needs to be more of a top- down than a bottom-up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.

Short-Range Versus Long-Range Objectives Short-Range objectives Targets to be achieved soon Serve as stair steps for reaching long-range performance Long-Range objectives Targets to be achieved within 3 to 5 years Prompt actions now that will permit reaching targeted long-range performance later

Objectives Are Needed at All Levels Objective-setting process is top-down, not bottom-up! 1. First, establish organization-wide objectives and performance targets 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives 4. Individual objectives are established last

Figure 2.1: Levels of Strategy-Making in a Diversified Company Corporate Strategy Business Strategies Functional Strategies Operating Strategies Two-Way Influence Corporate-Level Managers Business-Level Managers Operating Managers Functional Managers

Business Strategy Two-Way Influence Functional Strategies Operating Strategies Executive-Level Managers Operating Managers Functional Managers Figure 2-1: Levels of Strategy-Making in a Single-Business Company

Tasks of Corporate Strategy Moves to achieve diversification Actions to boost performance of individual businesses Establishing investment priorities and steering corporate resources into the most attractive businesses Our game plan for running the company will be...

Figure 2.3: Identifying the Components of a Single-Business Company’s Strategy Efforts to build competitive advantage Planned, proactive moves to outcompete rivals Responses to changing conditions Scope of geographic coverage R&D strategy Manufacturing strategy Human resources strategy Finance strategy Business Strategy Functional Strategies Marketing strategy

What Business Strategy Involves Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc. Crafting competitive moves to produce sustainable competitive advantage Building competitively valuable competencies and capabilities Uniting strategic initiatives of functional areas Addressing strategic issues facing the company

Functional Strategies Game plan for a strategically-relevant function, activity, or business process Details how key activities will be managed Provide support for business strategy Specify how functional objectives are to be achieved

Operating Strategies Concern narrower strategies for managing grassroots activities and strategically-relevant operating units Add detail to business and functional strategies

Example: Operating Strategy Boosting Worker Productivity To boost productivity by 10%, managers of firm with low- price, high-volume strategy take following actions: Recruitment manager develops selection process designed to weed out all but best-qualified candidates Information systems manager devises way to use technology to boost productivity of office workers Compensation manager devises improved incentive compensation plan Purchasing manager obtains new efficiency-increasing tools and equipment

Unitising the Strategy making Effort Objectives and strategies that are unified from top to bottom of the strategy-making managerial hierarchy require a team effort!

A Firm’s Ethical Responsibilities to Its Stakeholders Owners/shareholders – Rightfully expect some form of return on their investment Employees - Rightfully expect respect for their worth and devoting their energies to firm Customers - Rightfully expect a seller to provide them with a reliable, safe product or service Suppliers - Rightfully expect to have an equitable relationship with firms they supply Community - Rightfully expect businesses to be good citizens in their community

Corporate Social Responsibility Conducting company activities within bounds of what is considered ethical and in public interest Responding positively to emerging societal priorities and expectations Demonstrating willingness to take needed action ahead of regulatory confrontation Balancing stockholder interests against larger interest of society as a whole Being a “good citizen” in community

Tests of a Winning Strategy GOODNESS OF FIT TEST How well is strategy matched to firm’s situation? COMPETITIVE ADVANTAGE TEST Does strategy lead to sustainable competitive advantage? PERFORMANCE TEST Does strategy boost firm performance?

To be a real winner, a strategy must 1.1. Fit the enterprise’s internal and external situation 2.2. Build sustainable competitive advantage 3.3. Improve company performance