1. Management A Practical Introduction Third Edition
Angelo Kinicki &
Brian K. Williams

2. Chapter 6: Strategic Management
How Star Managers Realize
a Grand Design
The Dynamics of Strategic Planning
The Strategic Management Process
Establishing the Grand Strategy
Formulating Strategy
Execution
The Management Toolbox: What Does the Successful Top Manager Do to Stay Successful?
Summary:
Some management tools and techniques come and go in popularity, but other management strategies are more long-term.
Specifically:
In an era of management fads, strategic planning is still tops
A manager’s most valuable character trait is to be willing to make large, painful decisions to suddenly alter strategy.
For Discussion: It’s important, whatever management technique might be in vogue, not to overlook the truth of what’s going on the organization. Consider how managers can develop this type of mindset.

3. Manager’s Toolbox
Lesson #1: in an era of management fads, strategic planning is still tops
Lesson #2: a manager’s most valuable character trait: be willing to make large, painful decisions to suddenly alter strategy
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4. 6.1 The Dynamics Of Strategic Planning
WHY IS IT IMPORTANT TO HAVE A STRATEGY?
Organizations need to know where they are going and how they will get there
A large scale action plan that sets the direction for an organization is a strategy - it is an educated guess about what the organization has to do to survive
The process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals is strategic management
Strategic planning determines the organization’s long term goals and how the organization should achieve them

5. Strategy, Strategic Management, Strategic Planning
Strategy: is a large scale action plan that sets the direction for the organization.
Strategic Management: is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals. (Middle managers)
Strategic Planning: determines not only the organization’s long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them
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6. 6.1 The Dynamics Of Strategic Planning
There are three reasons to adopt strategic management and strategic planning:

7. Why Strategic Management and Strategic Planning are Important
Providing direction & momentum
Focuses on most critical problems, choices, & opportunities
Creates teamwork, promotes learning, & builds commitment
Encouraging new ideas
Stresses importance of innovation
Developing a sustainable competitive advantage
Ability to produce goods and services more effectively than competitors
Sustainable competitive advantage is staying ahead in:
Being responsive to customers
Innovating
Quality
Effectiveness
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8. 6.1 The Dynamics Of Strategic Planning
WHAT IS AN EFFECTIVE STRATEGY?
Michael Porter argues strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

9. 6.1 The Dynamics Of Strategic Planning
There are three key principles of strategic positioning:
1. An organization’s strategic position comes from serving few needs to many customers like Jiffy Lube, serving broad needs of a few customers like Bessemer Trust, or serving broad needs of many customers
2. Companies have to choose what strategy to follow and also what strategy not to follow – they have to make trade-offs
3. Creating a “fit” among activities is important - a company’s activities should interact and reinforce one another

10. Does Strategic Management Work for Small as Well as Large?
Also appropriate for companies with fewer than 100 employees
Improvement in financial performance for these companies was small and may not be worth the effort
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11. The Five Steps of the Strategic Management Process
WHAT IS THE STRATEGIC MANAGEMENT PROCESS?
The strategic management process has five steps plus a feedback loop
2. Establish the grand strategy (using SWOT and forecasting)
3. Formulate the strategic plans (using e.g. Porter)
4. Carry out the strategic plan
5. Maintain strategic control
Establish
the mission
and vision
Feedback: Revise actions, if necessary, based on feedback
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

12. 6.2 The Strategic-Management Process
Figure 6.1: The Strategic-Management Process

13. 6.2 The Strategic-Management Process
Step 1: Establish The Mission & The Vision
A good mission statement expresses the organization’s purpose or reason for being
A good vision statement describes the long-term goal of what the organization wants to become

14. Mission Statements
Does your company’s mission statement answer the following questions?
Who are our customers?
What are our major products and services?
In what geographical areas do we compete?
What is our basic technology?
What is our commitment to economic objectives?
What are our basic beliefs, values, aspirations, and philosophical priorities?
What are our major strengths and competitive advantages?
What are our public responsibilities?
What is our attitude toward our employees?
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© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. Vision Statements
Does your company’s vision statement answer “yes” to the following questions?
Is it appropriate for the organization and for the times?
Does it set standards of excellence that reflect high ideals?
Does it clarify purpose and direction?
Does it inspire enthusiasm and encourage commitment?
Is it well articulated and easily understood?
Does it reflect the uniqueness of the organization, its distinctive competence, what it stands for, what it’s able to achieve?
It is ambitious?
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16. 6.2 The Strategic-Management Process
Step 2: Establish The Grand Strategy
The grand strategy explains how the organization’s mission is to be accomplished
Three common grand strategies are growth (involves expansion of sales revenue, market share, number of employees, or number of customers served), stability (involves little or no significant change), and defensive (involves reduction in the organization’s efforts)

17. How Companies Can Implement Grand Strategies
Growth Strategy
It can improve an existing product or service to attract more buyers
It can increase its promotion and marketing efforts to try to expand its market share
It can expand its operations, as in taking over distribution or manufacturing previously handled by someone else
It can expand into new products or services
It can acquire similar or complementary businesses
It can merge with another company to form a larger company
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18. How Companies Can Implement Grand Strategies (Cont.)
Stability Strategy
It can go for a no-change strategy
It can go for a little-change strategy
Defensive Strategy
It can reduce costs
It can sell off assets
It can gradually phase out product lines or services
It can divest part of its business
It can declare bankruptcy
It can attempt a turnaround
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19. Chapter 6: Strategic Management
CLASSROOM PERFORMANCE SYSTEM
A grand strategy that involves little or no significant change is a _____ strategy.
A) stability
B) defensive
C) reactive
D) growth
The answer is A.

20. 6.2 The Strategic-Management Process
Step 3: Formulate Strategic Plans
The process of choosing among different strategies and altering them to best fit the organization’s needs is strategy formulation
The strategy formulation process can be completed using techniques like Porter’s competitive forces and strategies, and product life cycles
Step 4: Carry Out The Strategic Plan
Strategy implementation involves putting strategic plans into effect
Managers need to ensure that the right people and control systems are in place to execute the plans

21. 6.2 The Strategic-Management Process
Step 5: Maintain Strategic Control: The Feedback Loop
Monitoring the execution of strategy and making necessary adjustments is strategic control
To keep strategic plans on track, managers need to encourage people, keep planning simple, stay focused, and keep moving

22. Chapter 6: Strategic Management
CLASSROOM PERFORMANCE SYSTEM
The process of choosing among different strategies and altering them to best fit the organization’s needs is called
A) strategy implementation
B) strategy formulation
C) the grand strategy
D) mission development
The answer is B.

23. 6.3 Establishing The Grand Strategy
HOW CAN A SWOT ANALYSIS HELP WITH STRATEGY?
The starting point for a grand analysis is the SWOT analysis (a search for the Strengths, Weaknesses, Opportunities, and Threats affecting an organization)
A SWOT analysis provides managers with a realistic understanding of where the organization is relative to its internal and external environments
Practical Action: How to Streamline Meetings
This Practical Action warns of the dangers of making the planning process too complicated and time consuming. The process can be streamlined by:
eliminating unnecessary meetings & meeting attendance
distributing an action agenda in advance
staying in control of the meeting
doing follow-up afterwards.

24. 6.3 Establishing The Grand Strategy
Organizational strengths include the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission
Organizational weaknesses include the drawbacks that hinder an organization in executing strategies in pursuit of its mission
Organizational opportunities include environmental factors that the organization may exploit for competitive advantage
Organizational threats include environmental factors that hinder an organization’s achieving a competitive advantage

25. 6.3 Establishing The Grand Strategy
Figure 6.2: SWOT Analysis

26. Chapter 6: Strategic Management
CLASSROOM PERFORMANCE SYSTEM
Outdated facilities and obsolete technology are examples of
A) organizational strengths
B) organizational weaknesses
C) organizational opportunities
D) organizational threats
The answer is B.

27. 6.3 Establishing The Grand Strategy
After completing the SWOT analysis, managers need to make forecasts (visions or projections of the future)
There are two types of forecasts:
A hypothetical extension of a past series of events into the future is a trend analysis
The creation of alternative hypothetical but equally likely future conditions is contingency planning or scenario planning

28. 6.4 Formulating Strategy HOW IS STRATEGY FORMULATED?
Organizations can use many techniques to formulate strategy including Porter’s five competitive forces, Porter’s four competitive strategies, the product life cycle, diversification and synergy, and competitive intelligence

29. 6.4 Formulating Strategy Porter’s Five Competitive Forces include:
1. The threat of new entrants
New competitors can shake-up an industry virtually overnight
2. The bargaining power of suppliers
Companies that rely on a single supplier are vulnerable

30. 6.4 Formulating Strategy 3. The bargaining power of buyers
Major customers, and customers that shop around can negotiate better prices
4. The threat of substitute products or services
When there are substitute products or services available, firms have less power
5. Rivalry among competitors
Intense rivalry is a threat to companies

31. 6.4 Formulating Strategy
Porter’s four competitive strategies or generic strategies include:
1. The cost leadership strategy - involves trying to keep costs and prices below those of competitors and targeting a wide market
Examples of companies with this strategy include Bic, Home Depot, and Dell
2. The differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a wide market
Examples of companies using a differentiation strategy include Ritz-Carlton Hotels

32. 6.4 Formulating Strategy
3. The cost-focus strategy - keep costs and prices below those of competitors and target a narrow market
Examples of companies with a cost-focus strategy include regional gas stations
4. The focused-differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a narrow market
Examples of companies with this strategy include Ferrari and Lamborghini

33. Chapter 6: Strategic Management
CLASSROOM PERFORMANCE SYSTEM
Which of the following is not one of Porter’s four competitive strategies?
A) cost leadership
B) diversification
C) cost-focus
D) focused-differentiation
The answer is B.

34. The Product Life Cycle
Stage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline
3. Formulate the strategic plans (using e.g. Porter)
4. Carry out the strategic plan
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35. 6.4 Formulating Strategy
The four stages a product or service goes through over its life are known as the product life cycle
In the introduction stage, the product is introduced to the marketplace
In the growth stage, customer demand increases, sales grow, and competitors may enter the market
In the maturity stage, the product starts to fall out of favor and sales and profits drop
In the decline stage, the product falls out of favor and is withdrawn from the marketplace

36. 6.4 Formulating Strategy
A company that makes and sells only one product in its market follows a single-product strategy
This strategy has both benefits (the firm can focus on just one product) and risks (the firm is vulnerable to competitors)
The diversification strategy involves operating several businesses in order to spread the risk
There are two kinds of diversification: unrelated (operating several businesses that are not related to each other) and related (operating several businesses that are related)

37. 6.4 Formulating Strategy
There are three advantages to related diversification:
reduced risk because the firm sells more than one product
management efficiencies because administration is spread over several businesses
synergy because the economic value of separate, related companies operating under one roof is greater than the companies are worth separately

38. 6.4 Formulating Strategy
When companies gain information about their competitors so that they can anticipate their moves and react appropriately, the companies are practicing competitive intelligence

39. Competitive Intelligence
Gaining Competitive Intelligence:
Public and print advertising
Investor information
Informal sources
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40. Chapter 6: Strategic Management
CLASSROOM PERFORMANCE SYSTEM
Which of the following is not a good source of competitive intelligence?
A) press release
B) investor information
C) trade shows
D) text books
The answer is D.

41. 6.5 Implementing & Controlling Strategy: Execution
WHY IS EFFECTIVE EXECUTION IMPORTANT?
The execution stage of strategy involves getting things done
Execution is a central part of strategy that consists of using questioning, analysis, and follow-through to mesh strategy with reality, align people with goals, and achieve promised results

42. 6.5 Implementing & Controlling Strategy: Execution
There are three building blocks underlying effective execution:
1. Develop seven essential behaviors
Effective leaders:
know their people and their business
insist on realism
set clear goals and priorities
follow through
reward the doers
expand people’s capabilities
know themselves

43. 6.5 Implementing & Controlling Strategy: Execution
2. Create a framework for cultural change
Leaders must understand how to change the behavior and beliefs of people who are directly linked to bottom-line results
To do this, tell people what results are necessary, how to get the results, and what the reward is for achieving the results
3. Select & evaluate people
Leaders should personally select the right people to get the job done

44. 6.5 Implementing & Controlling Strategy: Execution
The three building blocks are the foundation for the three core processes of execution
The First Core Process: People
Effective leaders evaluate talent using specific milestones, develop future leaders, and deal with non-performers—they get the people part right
The Second Core Process: Strategy
A good strategic plan considers the “how” of execution

45. 6.5 Implementing & Controlling Strategy: Execution
The Third Core Process: Operations
Strategy defines where the organization wants to go, the people process assigns responsibility for getting there, and the operating plan shows how to get there
The success of strategy execution depends on how well leaders manage the three processes of strategy, people, and operations