Chapter SixStrategic Management: How Star Managers Realize a Grand Design

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.Strategic Planning: determines not only the organizations long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them E6-1

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Strategy, Strategic Management, Strategic Planning

Providing direction & momentumEncouraging new ideasDeveloping a sustainable competitive advantage

E6-2

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Why Strategic Management and Strategic Planning are Important

E6-3Panel 6-1

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.The Five Steps of the Strategic Management Process2. Establish the grand strategy (using SWOT and forecasting)3. Formulate the strategic plans (using e.g. Porter)4. Carry out the strategic plan5. Maintain strategic controlFeedback: Revise actions, if necessary, based on feedback

Example of mission & visionLimited Brands (2002)Mission Sustained growth of shareholder value by focusing its time, talent, and capital on the highest return opportunities.Vision family of the worlds best fashion brands.

America Red CrossMission - The American Red Cross, a humanitarian organization led by volunteers and guided by its Congressional Charter and the Fundamental Principles of the International Red Cross Movement, will provide relief to victims of disasters and help people prevent, prepare for, and respond to emergencies.Vision - May we touch every household, workplace and organization with highly-skilled and impassioned professionals. May we always be the trusted pacesetter and organization of choice in readiness and response. May we exceed the expectations of our culturally diverse community.

Does your companys 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?

E6-4Panel 6.2

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Mission Statements

Does your companys 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 its able to achieve?It is ambitious?

E6-5Panel 6.2

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Vision Statements

Grand Strategies

Growth strategy - involves expansion in sales revenues, market share, number of employees or number of customers. Stability strategy -involves little or no significant change.Defensive strategy -involves reduction in the organizations efforts.

Growth StrategyIt can improve an existing product or service to attract more buyersIt can increase its promotion and marketing efforts to try to expand its market shareIt can expand its operations, as in taking over distribution or manufacturing previously handled by someone elseIt can expand into new products or servicesIt can acquire similar or complementary businesses It can merge with another company to form a larger company

E6-6Panel 6.3

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.How Companies Can Implement Grand Strategies

Stability StrategyIt can go for a no-change strategyIt can go for a little-change strategyDefensive StrategyIt can reduce costsIt can sell off assets It can gradually phase out product lines or servicesIt can divest part of its businessIt can declare bankruptcyIt can attempt a turnaround E6-7Panel 6.3

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.How Companies Can Implement Grand Strategies (Cont.)

E6-9Panel 6.4

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.SWOT Analysis3. Formulate the strategic plans (using e.g. Porter)4. Carry out the strategic planInside Matters: analysis of internal strengths & weaknessesSStrengths: inside mattersWWeaknesses: inside mattersOOpportunities: outside mattersTThreats: outside mattersOutside Matters: analysis of external Opportunities & Threats

SWOT Analysis

Forecasting: is a vision or projection of the futuretwo types:

E6-11

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.ForecastingTrend Analysis: is a hypothetical extension of a past series of events into the future

Contingency Planning: also known as scenario planning & scenario analysis is the creation of alternative hypothetical but equally likely future conditions

E6-12Panel 6.5

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Porters Four Competitive Strategies3. Formulate the strategic plans (using e.g. Porter)4. Carry out the strategic planNarrowWideStrategy

Cost-leadership strategySelling products at a very low per-unit cost for customers who are price sensitive.Target - large/wide markets/customers.This puts pressure on R&D managers to develop products that can be created cheaply.

Differentiation strategyOffer products or services that are unique and directed at consumers who are price insensitive.Managers may have to spend more on R&D, marketing and customer service.Target - large/wide markets/customers.Companies use the strategy of differentiation to create a brand - they hope will differentiate them from their competitors.

Cost-focus strategySelling products at a very low per-unit cost for customers who are price sensitive.Target - small/narrow markets/customers.

Focused-differentiation strategyOffer products or services that are unique and directed at consumers who are price insensitive. Target - small/narrow markets/customers.

E6-13Panel 6.6

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.The Product Life Cycle3. Formulate the strategic plans (using e.g. Porter)4. Carry out the strategic planStage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline

Single Product Strategy: a company makes and sells only one product within its market.

E6-14

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Single-Product Strategy versus Diversification StrategyDiversification Strategy: operating several businesses in order to spread the risk.The benefit: making just one product allows you to focus your manufacturing and marketing efforts just on that product.The risk: problems with the only product can destroy the entire firm.advantages:- reduced risk with more than one product

Competitive Intelligence: means gaining information about ones competitors activities so that you can anticipate their moves and react appropriately.Sources of competitive intelligence: Public and print advertisingInvestor informationInformal sources E6-15

McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved.Competitive Intelligence

Strengths and Weaknesses are an internal assessment. Opportunities and Threats are an external environment assessment.

Discussion/Team Activity:Perform a SWOT analysis for companies within the same industry. How could you use this information if you worked for a particular company or for a competitive company?