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

Contemporary ManagementNEW ERA OF MANAGEMENT

LECTURE5

Dr. Mohamed Hesham Mansour

Strategy Formulation and Implementation

Cha

pter

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Copyright © 2008. All rights reserved.

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Strategic Planning

Strategic planning has taken on new

importance in today’s world of

globalization, deregulation, advancing

technology, and changing demographics,

and lifestyles


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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?


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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


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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?


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Strategic Management Model

Prentice Hall, Inc. © 2008

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Environmental Scanning


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Variables in Societal Environment


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Checklist for AnalyzingOrganizational Strengths and Weaknesses

Management and Organization

Management qualityStaff 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


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Issues Priority Matrix


6-12

EFAS


6-13

IFAS


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SFAS


6-15

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.


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.

.


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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.


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.


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.


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.


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.


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..


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. .


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.


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.


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.


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.


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Three Levels of Strategy in OrganizationsCorporate-Level Strategy: What business are we in?

Corporation

Business-Level Strategy: How do we compete?

Textiles Unit Chemicals Unit Auto Parts Unit

Functional-Level Strategy: How do we support the business-level strategy?

Finance R&D Manufacturing Marketing


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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.


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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


Directional Strategies

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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


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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


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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


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Portfolio Strategy

Mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage

BCG Matrix


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Parenting Strategy

The parenting fit matrix is based on the analysis of two things1. the company’s core competencies2. 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?


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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)


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Formulating Business-Level Strategy


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Analyzing the Task Environment


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Competitive Edge ThroughCompetitive 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


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Porter’s Competitive Strategies


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Continuum of Partnership StrategiesOrganizational Combination

Strategic Alliances

Preferred Supplier Arrangements

Strategic Business Partnering

Mergers

Acquisitions

Low High

Joint Ventures

Degree of Collaboration

De g

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of C

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ti on


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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


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Global Corporate Strategies

Need for National Responsiveness HighLow

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 needsN

eed

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ExportStrategy

•Domestically focused

•Exports a few domestically produced products to selected countries


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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


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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


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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


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Implementing Strategy Tools

Leadership Structural design Information and control systems Human resources


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Tools for Putting Strategy into Action

Environment

Organization

Strategy Performance

Leadership Persuasion Motivation Culture/values

Structural Design Organization Chart Teams CentralizationDecentralization, Facilities, task design

Human Resources Recruitment/selection Transfers/promotions Training Layoffs/recallsInformation and Control Systems

Pay, reward system Budget allocations Information systems Rules/procedures

Documents

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