Strategic Management and Business Policy 15 e Global

Learning Objectives (1 of 2) 1. 1 Discuss the benefits of strategic management 1. 2 Explain how globalization, innovation, and environmental sustainability influence strategic management 1. 3 Discuss the differences between theories of organizations 1. 4 Discuss the activities where learning organizations excel Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -2

Learning Objectives (2 of 2) 1. 5 Describe the basic model of strategic management and its components 1. 6 Identify some common triggering events that act as stimuli for strategic change 1. 7 Explain strategic decision-making modes 1. 8 Use the strategic audit as a method of analyzing corporate functions and activities Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -3

Strategy is Important “Without a strategy the organization is like a ship without a rudder, going around in circles. ” Joel Ross and Michael Kami Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

The Study of Strategic Management (1 of 2) • Strategic Management – a set of managerial decisions and actions that determines the long-run performance of a corporation Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -5

The Study of Strategic Management (2 of 2) Strategic management includes: • Internal and external environmental scanning • Strategy formulation • Strategy implementation • Evaluation and control Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -6

Phases of Strategic Management As managers attempt to better deal with their changing world, a firm generally evolves through the following four phases of strategic management: • Phase 1: Basic financial planning • Phase 2: Forecast-based planning • Phase 3: Externally oriented strategic planning • Phase 4: Strategic management Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -7

Benefits of Strategic Management (1 of 2) • The attainment of an appropriate match, or “fit, ” between an organization’s environment and its strategy, structure, and processes has positive effects on the organization’s performance. • Strategic planning becomes increasingly important as the environment becomes more unstable. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -8

Benefits of Strategic Management (2 of 2) • Clearer sense of strategic vision for the firm • Sharper focus on what is strategically important • Improved understanding of a rapidly changing environment Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -9

Impact of Globalization • Globalization – the integrated internationalization of markets and corporations – has changed the way modern corporations do business Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -10

Impact of Innovation • Innovation – describes new products, services, methods, and organizational approaches that allow the business to achieve extraordinary returns • It is the implementation of potential innovations that truly drives businesses to be remarkable. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -11

Impact of Sustainability (1 of 2) • Sustainability – refers to the use of

Impact of Sustainability (2 of 2) The triple bottom line involves: 1. the management of traditional profit/loss 2. the management of the company’s social responsibility 3. the management of its environmental responsibility Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -13

Theories of Organizational Adaptation (1 of 3) • Population ecology • Institution theory – Once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions. – Organizations can and do adapt to changing conditions by imitating other successful organizations. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -14

Theories of Organizational Adaptation (2 of 3) • Strategic choice perspective – not only do organizations adapt to a changing environment, but also have the opportunity and power to reshape their environment Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -15

Theories of Organizational Adaptation (3 of 3) • Organizational learning theory – an organization adjusts defensively to changing environment and uses knowledge offensively to improve fit between itself and its environment Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -16

Creating a Learning Organization (1 of 3) • Strategic flexibility – the ability to shift from one dominant strategy to another – demands long-term commitment to development and nurturing of critical resources – also demands that the company become a learning organization Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -17

Creating a Learning Organization (2 of 3) • Learning organization – an organization skilled at creating, acquiring, and transferring knowledge and at modifying its behavior to reflect new knowledge and insights • Organizational learning is a critical component of competitiveness in a dynamic environment. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -18

Creating a Learning Organization (3 of 3) Learning organizations are skilled at four main activities: 1. Solving problems systematically 2. Experimenting with new approaches 3. Learning from the organization’s own experiences and past history as well as from the experiences of others 4. Transferring knowledge quickly and efficiently throughout the organization Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -19

Basic Model of Strategic Management (1 of 9) Strategic management consists of four basic elements: 1. Environmental scanning 2. Strategy formulation 3. Strategy implementation 4. Evaluation and control Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -20

Figure 1 -1: Basic Elements of the Strategic Management Process Copyright © 2018 Pearson

Figure 1 -2: Strategic Management Model Copyright © 2018 Pearson Education, Ltd. All Rights

Basic Model of Strategic Management (2 of 9) • Environmental Scanning – the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the organization – SWOT analysis: simple way to conduct environmental scanning Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -23

Figure 1 -3: Environmental Variables Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Basic Model of Strategic Management (3 of 9) • Strategy formulation – process of investigation, analysis, and decision -making that provides the company with the criteria for attaining a competitive advantage – includes defining the competitive advantages of the business, crafting the corporate mission, specifying achievable objectives, and setting policy guidelines Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -25

Basic Model of Strategic Management (4 of 9) • Mission – purpose or reason for the organization’s existence • Vision – describes what the organization would like to become • Objectives – results of planned activity Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -26

Strategic Mission/Vision Develop a vision and mission § Begins with thinking strategically about ü the firm’s future business map ü where to take the firm § The task is to ü create a roadmap of a company’s future ü decide what future business position to stake out ü provide long-term direction ü give the firm a strong identity Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Strategic Mission/Vision IBM CEO § July, 1993 § “the last thing IBM needs right now is a vision” § March, 1996 § “what IBM needs most right now is a vision” George Newman, The Conference Board § “How can you lead if you don’t know where you are going” Greyhound Corporation CEO § “Management’s job is not to see the company as it is … but as it can become” Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Mission vs. Vision A mission statement: A strategic vision: § Focuses on current business activities business(es) company is in now Ø customer needs currently being served Ø § Concerns a firm’s future business path the kind of company it is trying to become Ø customer needs to be satisfied in the future Ø Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Why Have a Vision Statement Power of a well-conceived strategic vision Guides managerial decision-making v Arouses employee buy-in and commitment v Prepares a company for the future v Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Defining a Strategic Vision 3 factors for a good definition: Customer needs ü § WHAT is being satisfied Customer groups ü § WHO is being satisfied Technologies used functions performed ü § HOW customer needs are satisfied Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Broad vs. Narrow Mission Statements Narrow Definition Broad Definition q Soft drinks q Toys q Overnight package delivery q Ship cruises in the Caribbean q Beverages q Children’s products q Global mail delivery q Travel & tourism Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Example Vision § Our vision is to be the preferred world leader in chemicals. Mission § Our mission is to responsibly provide quality products and services through innovation, learning and operational excellence while sustaining maximum value for our stakeholders. Values § With uncompromising integrity as our foundation we will: Inspire, Engage, Create and Deliver. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Example Vision § To be the consumers’ preferred choice by leading in chosen markets with superior food & beverage products. Mission § To provide quality and nutritious food & beverages that enrich consumers’ lives every day. Values § Adaptable – Sharing – Passionate - Innovative – Respect Excellence Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Example Mission & Purpose § To provide tasty nutritious food bringing health and happiness to consumers, creating value for our people, shareholders and communities. Values & Principles § Nurturing – Accountability – Drive – Excellence Collaboration Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

SMART Objectives Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 36

Examples: Financial Objectives ü Grew earnings/share 15% annually for the next 5 years ü Boost annual return on investment from 15% to 20% by 2025 ü ü Increase annual dividends/share by 5% each year Strive for stock price appreciation equal to or above S&P 500 average by 2023 ü Maintain a positive cash flow ü Maintain an AA bond rating Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Examples: Strategic Objectives Ø Ø Increase firm’s market share to 35% by 2025 Overtake key rivals on quality or customer service or product performance in 2 years Ø Attain lower overall costs than rivals Ø Boost firm’s reputation with customers Ø Attain stronger foothold in international markets Ø Achieve technological superiority Ø Become leader in new product introductions Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Examples: Strategic & Financial Objectives v Domino’s Pizza – To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and a reasonable profit v 3 M – To … have at least 30% of sales come from products introduced in the past four years Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Examples: Strategic & Financial Objectives v General Electric – To become the most competitive enterprise in the world by being #1 or #2 in market share in every business the company is in. v Mc. Donald’s – To achieve 100% total customer satisfaction … everyday … in every restaurant … for every customer Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.

Basic Model of Strategic Management (5 of 9) • Strategy – forms a comprehensive master approach that states how the corporation will achieve its mission and objectives – maximizes competitive advantage and minimizes competitive disadvantage – corporate, business, functional Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -41

Figure 1 -4: Hierarchy of Strategy Copyright © 2018 Pearson Education, Ltd. All Rights

Basic Model of Strategic Management (6 of 9) • Policy – a broad guideline for decision-making that links formulation of a strategy with its implementation Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -43

Basic Model of Strategic Management (7 of 9) • Strategy implementation – process by which strategies and policies are put into action through the development of programs, budgets, and procedures Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -44

Basic Model of Strategic Management (8 of 9) • Evaluation and control – a process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -45

Basic Model of Strategic Management (9 of 9) • Performance – result of activities – includes actual outcomes of the strategic management process • Feedback/learning process – revise or correct decisions based on performance Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -46

Initiation of Strategy: Triggering Events • Triggering event – something that acts as a stimulus for a change in strategy and can include: § new CEO § external intervention § threat of change of ownership § performance gap § strategic inflection point Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -47

Strategic Decision-making • Strategic decisions – deal with the long-term future of an entire organization and have three characteristics: 1. rare 2. consequential 3. directive Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -48

Three Characteristics of Strategic Decisions • Rare – Strategic decisions are unusual and typically have no precedent to follow. • Consequential – Strategic decisions commit substantial resources and demand a great deal of commitment from people at all levels. • Directive – Strategic decisions set precedents for lesser decisions and future actions throughout an organization. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -49

Mintzberg’s Modes of Strategic Decision-making (1 of 2) • Entrepreneurial mode – strategy is made by one powerful individual • Adaptive mode – characterized by reactive solutions to existing problems, rather than a proactive search for new opportunities Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -50

Mintzberg’s Modes of Strategic Decision-making (2 of 2) • Planning mode – involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy • Logical incrementalism – a synthesis of the planning, adaptive, and, to a lesser extent, the entrepreneurial modes Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -51

Strategic Decision-making Process 1. Evaluate current performance results. 2. Review corporate governance. 3. Scan and assess the external environment. 4. Scan and assess the internal corporate environment. 5. Analyze strategic factors. 6. Generate, evaluate, and select the best alternative strategies. 7. Implement selected strategies. 8. Evaluate implemented strategies. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -52

Figure 1 -5: Strategic Decision-Making Process (1 of 2) Copyright © 2018 Pearson Education,

Figure 1 -5: Strategic Decision-making Process (2 of 2) Copyright © 2018 Pearson Education,

The Strategic Audit: Aid to Strategic Decision-making • Strategic audit – provides a checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 1 -55