Understanding Business Strategy Part I Vision Chapter 1

Understanding Business Strategy Part I: Vision Chapter 1: The Foundations of Strategic Management This is the introduction to the next 3 chapters 1

Chapter 1: The Foundations of Strategic Management Reading and studying this chapter should enable you to: 1. Define strategic management. 2. Discuss why firms use the industrial organization model to analyze their external environment. 3. Discuss why firms use the resource-based view of the firm model to analyze their internal environment. 4. Define stakeholders and understand their importance. 5. Explain the work of strategic leaders. 2

What is Strategic Management? the ongoing process companies use to (1) form a vision, (2 a) analyze their external environment and (2 b)their internal environment, and (3) select one or more strategies to use to create value for customers and other stakeholders, especially shareholders 3

Mission and Vision Why do you exist? What does success look like in your future? Next year? 5 years? 10 years? 50 years?

Strategic Management- Vision The vision contains at least two components a mission that describes the firm’s DNA and… …the “picture” of the firm as it hopes to exist in a future time period. The mission defines the firm’s core intent and the business or businesses in which it intends to operate. In short: Mission- Why we exist Vision- Where we are going 5

Strategic Management- Strategy and External Environment A strategy is an action plan designed to move an organization toward achievement of its vision. The external environment is a set of conditions outside the firm that affect the firm’s performance. 6

Strategic Management- Internal Environment The internal environment is the set of conditions (such as strengths, resources, capabilities, and so forth) inside the firm affecting the choice and use of strategies. Strengths are resources and capabilities that allow the firm to complete important tasks Resources are the tangible and intangible assets held by the firm. 7

Strategic Management-Capabilities and Core Competencies Capabilities result when the firm integrates several different resources to complete a task or a series of related tasks. Base competencies- what your competitors, partners or suppliers do as well as you. Core competencies are capabilities the firm emphasizes and performs especially well while pursuing its vision. Distinctive Competencies- activities you do better than anyone; often where value is created. 8

Strategic Management- Competitive Advantage when the firm’s core competencies allow it to create value for customers by performing a key activity better than competitors or when a distinctive competence allows it to perform an activity that creates value for customers that competitors can’t perform This is what creates value for our stakeholders 9

Key Characteristics of Strategic Management Strategic management is: • Performance oriented • Ongoing in nature • Dynamic rather than static • Oriented to the present and the future • Concerned with conditions both outside and inside the firm • Concerned with performing well and satisfying stakeholders 10

Examples VISION STATEMENTS Mc. Donald’s To give each customer, every time, an experience that sets new standards in value, service, friendliness, and quality. NASDAQ To build the world’s first truly global securities market. . . A worldwide market of markets built on a worldwide network of networks. . . linking pools of liquidity and connecting investors from all over the world. . . assuring the best possible price for securities at the lowest possible cost. 11

Examples Petsmart To be the premier organization in nurturing and enriching the bond between people and animals. Wachovia’s vision is to be the best, most trusted and admired fi nancial services company. 12

Examples MISSION STATEMENTS Bristol-Myers Squibb Our mission is to extend and enhance human life by providing the highest-quality pharmaceuticals and health care products. Glaxo. Smith. Kline GSK’s mission is to improve the quality of human life by enabling people to do more, feel better and live longer. 13

Examples Merck The mission of Merck is to provide society with superior products and services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of return. Wipro The mission is to be a full-service, global outsourcing company. 14

What is Strategy? Strategy implementation is the set of actions firms take to use a strategy after it has been selected. Tactics are use to execute (executive) strategy: Often assigned to managerial leaders: This is what we are going to do Go figure out how to do it Execution Tools: Measurement Visibility Clear RAAs (Roles, Accountability, Authority) Project management principles (e. g. , WBS) Consistent and transparent communication 15

Industrial-Organizational Model Firms use the I/O model to identify opportunities and threats. Opportunities are conditions in the firm’s external environment that may help the firm reach its vision. Threats are conditions in the firm’s external environment that may prevent the firm from reaching its vision. 16

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Resource Based View of the Firm Model While the I/O model focuses on the external environment the resource based view of the firm (RBV) describes what firms do to analyze their internal environment. These models are complementary, one dealing with the external environment, the other dealing with the internal environment. 18

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Stakeholders individuals and groups who have an interest in a firm’s performance and an ability to influence its actions Interest in performance coupled with ability to influence the firm through their decision to support the firm or not – companies have important relationships with their stakeholders. 20

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Strategic Leaders (deep dive in Chapter 2) Individuals who practice strategic leadership – making sure that decisions are made that will ensure their firm’s success. Example: Steve Jobs & Apple The CEO The Board of Directors Both are responsible for setting the organizational culture. 22

Strategic Leaders though many different people may be involved, the final responsibility for effective use of the strategic management process rests with the firm’s top-level strategic leaders (i. e. , the chief executive officer and the top management team). In addition, it is important to note that the best strategic leaders as well as all others throughout the firm also act ethically. 23

Strategic Leaders Practically speaking, why are we ethical? What do we think about people who: Look at pornography vs. those that don’t? Drink in excess vs. those that don’t? Dress in revealing attire vs. those that don’t? Swear vs. those that don’t? Gossip vs. those that don’t? Smoke pot vs. those that don’t? Bully direct reports vs. those that don’t?

TRUST Social Lubricant that Makes Transactions Faster (more later- main premise, integrity is not for Wall Street alone)

Organizational Culture Organizational culture is the set of values and beliefs that are shared throughout the firm. Values reflect what is important, while beliefs speak to how things should be done. Intangible in nature, culture can’t be touched or seen, but its presence is felt throughout every organization. 26

Organizational Culture Ethics are concerned with the standards for deciding what is good or bad, right or wrong. In an organizational context, ethics reveal a value system that has been widely adopted by the firm’s employees and that other stakeholders recognize as an important driver of decisions and actions. Three theoretical or empirical studies on ethics in business: 1. 2. 3. Monkey see money do Perpetuation and acceptance of corrupt behavior in organizations Folks and Whang (2003) experiment 27

What’s wrong with this picture? 28

In “real life”… Who are we? (mission) Where do we want to go that will create value for our stakeholders? (vision) What will impact arriving at this future state? (SWOT analyses and multiple levels) Identify and prioritize Os and Ts Identify Ss (competencies) and Ws How will be use resources in this internal and external environments to create value? (strategy) EXECUTION

Practically Speaking… What if TMT members don’t believe in the mission? Authenticity Transparency Sustainability How do we get employees to buy-in to the mission? Realistic Job Previews Empowerment and voice in what the mission “means to me”. Upward communication systems (employee voice)

Practically Speaking… What if a company wants to change the mission? Inclusion of multiple stakeholders Dangers of “New Exec, New Plan” syndrome Example- 3 M’s Mc. Nerney after Stonecipher What if a BOD wants to change the vision? CEO and TMT shake up likely

Practically Speaking… Putting it together: Vision- Who we are and what we will look like Make it clear, attractive collective inclusion aligned with existing employee’s values build understanding of it, articulate dramatically first to influential people for support Use symbols and metaphors. Strategy- how we will look like that vision Tactics (not in text)- practical steps to execute strategy. This phase is all about execution

Strategy Formation Page 21 Discuss Questions