1. Establishing Company Direction
Chapter 2

2. “Management’s job is not to see the company as it is…
“Management’s job is not to see the company as it is….but as it can become.”
John W. Teets
“A strategy is a commitment to undertake one set of actions rather than another.”
“Quote”
Sharon M. Oster
McGraw-Hill/Irwin
Copyright
2001 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter Outline Developing a Strategic Vision / Mission
Establishing Financial and Strategic Objectives
Crafting a Strategy
Factors Shaping a Company's Strategy
Linking Strategy With Ethics

4. Characteristics of a Strategic Vision
Charts a company’s future strategic course
Defines the business makeup for 5 years (or more)
Specifies future technology-product-customer focus
Indicates capabilities to be developed
Requires managers to exercise foresight

5. 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?

6. Defining a Company’s Business
A good business definition incorporates three factors
Customer needs -- What is being satisfied
Customer groups -- Who is being satisfied
Technologies and competencies employed -- How value is delivered to customers to satisfy their needs

7. Broad or Narrow Mission Statements?
Narrow enough to specify real arena of interest
Serve as
Boundary for what to do and not do
Indication of where top management intends to take firm
Diversified companies have broader business definitions than single-business enterprises

8. Establishing Objectives
Second Direction-Setting Task
Represent commitment to achieve specific performance targets by a certain time
Should be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when

9. Two Types of Objectives Are Required
Financial Objectives
Strategic Objectives
Outcomes that improve a firm’s financial performance
Outcomes that strengthen a firm’s competitiveness and long-term market position $

10. Strategic Management Principle
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.

11. Third Direction-Setting Task
Crafting a Strategy
Third Direction-Setting Task
An organization’s strategy deals with
How to make the strategic vision a reality and achieve target objectives
The game plan for
Pleasing customers
Conducting operations
Building a sustainable competitive advantage
How to produce good profitability

12. Strategizing Involves HOW To . . .
Achieve performance targets
Out-compete rivals and achieve a sustainable competitive advantage
Respond to changing market conditions and new customer requirements
Make the strategic vision a reality
Our game plan for running the company will be . . .

13. Levels of Strategy What is firm diversification?
What is the definition of synergy ?
What are the four levels of strategy for a diversified firm?
How do the goals/objectives of each level of strategy differ?

14. Levels of Strategy
______ level of strategy focuses on what businesses a firm should be in.
At what strategy level does competition take place?
All levels of strategy are concerned with how to manage the array of business units. True False
An effective _____ strategy means that the value of the sum of the stand-alone business units is (equal, less, more) than the combined firm.

15. Levels of Strategy
A firm that has businesses that can True False share products technology, or distribution links is following an unrelated diversification strategy.
A firm that has a single or dominant True False business is pursuing a broad business strategy.

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

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

18. Figure 2.2: Corporate Strategy for a Diversified Company
Narrow or broad-based diversification
Is diversification
related, unrelated
or a mix?
Approach to
capital allocation
Corporate
Strategy
Scope of
geographic
operations
Efforts to capture
cross-business
strategic fits
Moves to divest
weak business units
Moves to add new
new businesses
Moves to build positions
in new industries

19. Example of Corporate Level Strategy
Maintain overall annual Corporate profit growth of 3%
Acquire firms that are achieving high growth
Sell off under-performing business units
Diversify in multiple industries to balance the cyclical nature of certain industries
Take initiatives to have business units share facilities to lower costs.

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

21. Example of Business Level Strategy
Offer a differentiated product in the marketplace
Marketing hold focus groups to anticipate customer preferences
Increase R&D spending to develop better product attributes
Manufacturing change operations
Sales force to provide customer service

22. Business Level Strategy
What is a distinctive competence?
What is a Sustainable Competitive Advantage?
What are above average returns?
How does a firm achieve above average returns?

23. 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

24. Uniting the Company’s Strategy-Making Effort
A company’s strategy is a collection of strategies and initiatives being acted on by managers at various organizational levels
Separate levels of strategy must be unified into a cohesive, company- wide action plan
Pieces of strategy should fit together like the pieces of a puzzle

25. Figure 2.5: Factors Shaping the Choice of Company Strategy
Social, political, regulatory and community factors
Competitive conditions and industry attractiveness
Company opportunities and threats to company’s well-being
 External Factors
Determine relevance of internal and external factors
Identify and evaluate alternatives
Craft
the
strategy
Company’s Strategic Situation
Resource strengths, capabilities, and weaknesses
Influences of key executives
Shared values and company culture
 Internal Factors

26. Social, Political, Regulatory, and Community Factors
Pressures from special interest groups
Glare of investigative reporting
Health and nutrition concerns
Concerns about alcohol and drug abuse
Sexual harassment
Corporate downsizing
Impact of plant closings on communities
Rising/falling interest rates
Economic conditions (good or bad)
Trade restrictions, tariffs, and import quotas

27. 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

28. Business Level Strategy
What are the external conditions that help a firm achieve strategic competitiveness?
What are the external constraints that should be considered when developing a business level strategy?
How would you measure the effectiveness of a business level strategy?

30. Strategic Management Principle
To be a real winner, a strategy must
Fit the enterprise’s internal and external situation
Build sustainable competitive advantage
Improve company performance