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Lecture Outline

Developing a Strategic Vision / Mission

Establishing Financial and Strategic Objectives

Crafting a Strategy

Factors Shaping a Company's Strategy

Linking Strategy With Ethics

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Developing a Strategic Vision

Entails management efforts to create a future-oriented roadmap for a company that spells out “where we are headed”

Buyer needs we are moving to satisfy

Buyer groups and markets we are going to target

Kind of company we are trying to become

First Direction-Setting Task

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Characteristics of a Mission Statement

Defines current business activities Highlights boundaries of current business Conveys

Who we are, What we do, and Where we are now

Company specific, not generic —so as to give a company its own identity

A company’s mission is not to make a profit !The real mission is always—“What will we do

to make a profit?”

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Defining a Company’s Business

A good business definition incorporates three factors Customer needs -- What is

being satisfied Customer groups -- Who is

being satisfied Technologies and competencies

employed -- How value is delivered to customers to satisfy their needs

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Narrow enough to specify real arena of interest

Serve as Boundary for what to do and not do Beacon of where top management intends

to take firm Diversified companies

have broader business definitions than single-business enterprises

Broad or Narrow Mission Statements?

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Definitions: Broad vs. Narrow Scope

Broad Definition

Furniture

Telecommunications

Beverages

Global mail delivery

Travel & tourism

Narrow Definition Wrought-iron lawn

furniture Long-distance

telephone service Soft drinks Overnight package

delivery Caribbean cruises

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Example: Mission Statement

Pfizer is a research-based, global pharmaceutical company.

We discover and develop innovative, value-added products that improve the quality of life of people

around the world and help them enjoy longer, healthier, and more productive lives.

The company has three business segments: health care, animal health and consumer health care. Our products are available in more than 150 countries.

Pfizer Inc.

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The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission.

We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm,

relaxed yet refined ambiance.

The Ritz-Carlton experiences enlivens the senses, instills well-being, and fulfills even the unexpressed

wishes and needs of our guests.

Ritz-Carlton Hotels

Example: Mission Statement

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Example: Mission Statement

The Gillette Company is a globally focused consumer products company that seeks competitive advantage in

quality, value-added personal care and personal use products. We compete in four large, worldwide businesses:

personal grooming products, consumer portable power products, stationery products and small electrical

appliances.

As a company, we share skills and resources among business units to optimize performance. We are committed

to a plan of sustained sales and profit growth that recognizes and balances both short- and long-term

objectives.

The Gillette Company

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Example: Mission Statement

Our mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which we

choose to compete. Current core categories are: Male grooming products - blades and razors, electric shavers,

shaving preparations and deodorants . . . Female grooming products - wet shaving products, hair removal

and hair care appliances and deodorants . . . Alkaline and specialty batteries and cells. Writing instruments and correction products. Certain areas of the oral care market - toothbrushes . . . Selected areas of the high-quality small household appliance

business - coffeemakers . . .

The Gillette Company

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Characteristics of a Strategic Vision

Charts a company’s future strategic course

Defines the business makeup for 5 years (or more)

Specifies future technology-product-customer focus

Indicates capabilities to be developed

Requires managers to exercise foresight

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Questions to Address inDeveloping a Strategic Vision

1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction?

2. What new or different customer needs should we be moving to satisfy?

3. What new or different buyer segments should we be concentrating on?

4. What new geographic or product markets should we be pursuing?

5. What should the company’s business makeup look like in 5 years?

6. What kind of company should we be trying to become?

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Managerial Value of a Well-Conceived Strategic Vision and Mission

Crystallizes long-term direction

Reduces risk of rudderless decision-making

Conveys organizational purpose and identity

Keeps direction-related actions of lower-level managers on common path

Helps organization prepare for the future

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Establishing Objectives

Represent commitment to achieve specific performance targets by a certain time

Should be stated in quantifiable terms and contain a deadline for achievement

Spell-out how much of what kind of performance by when

Second Direction-Setting Task

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Purpose of Objective-Setting

Substitutes results-oriented decision-making for aimlessness over what to accomplish

Provides a set of benchmarks for judging organizational performance

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Two Types of Objectives Are Required

Outcomes that improve a firm’s financial

performance

Outcomes that strengthen a firm’s

competitiveness and long-term market

position

Financial Objectives Strategic Objectives

$

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Examples: Financial Objectives

Achieve revenue growth of 10% per year Increase earnings by 15% annually Increase dividends per share by 5% per year Increase net profit margins from 2% to 4% Attractive EVA performance Stronger bond and credit ratings A rising stock price (outperform the S&P 500) Attractive increases in MVA Recognition as a “blue chip” company A more diversified revenue base

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Examples: Strategic Objectives

A bigger market share Quicker design-to-market times than rivals Higher product quality than rivals Lower costs relative to key competitors Broader product line than rivals Better e-commerce and Internet sales capabilities

than rivals Better customer service than rivals Recognition as a leader in technology Wider geographic coverage than rivals

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Example: Corporate Objectives

Extend our market leadership and position Exodus as the leading brand name in the category.

Enhance our systems and network management and Internet technology services.

Accelerate our domestic and international growth. Leverage our technical expertise to address new

market opportunities in e-commerce.

Exodus Communications (strategic objectives)

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Example: Corporate Objectives

Self-funding revenue growth of 15% annually.

An average return on assets of 13 to 15%.

An average return on shareholders’ equity investment of 16 to 18%.

A strong balance sheet.

Motorola (financial objectives)

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Example: Corporate Objectives

To achieve a 20% return on equity. To achieve a net sales growth rate of 10% per year. To maintain an average earnings per share growth rate

of 15% per year. To maintain total debt-to-total capital at 40% or less. To pay out 25% to 35% of net income in dividends. To make selective acquisitions which complement our

current businesses and can enhance our overall returns. To dispose of those parts of our businesses which do

not or cannot generate adequate returns or do not fit with our business strategy.

McCormick & Company(financial objectives)

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Strategic or Financial Objectives --Which Take Precedence?

Pressures for better short-term financial performance become pronounced when

Firm is struggling financially Resource commitments for new strategic initiatives

may hurt bottom-line for several years Proposed strategic moves are risky

Otherwise strategic objectives merit top priority—a firm that consistently passes up opportunities to strengthen its long-term competitive position

Risks diluting its competitiveness Risks losing momentum in its markets Hurts its ability to fend off rivals’ challenges

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Short-Range VersusLong-Range Objectives

Short-Range objectives

Targets to be achieved soon

Serve as stair steps for reaching long-range performance

Long-Range objectives

Targets to be achieved within 3 to 5 years

Prompt actions now that will permit reaching targeted long-range performance later

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Objectives Are Needed at All Levels

Objective-setting process is top-down, not bottom-up!

1. First, establish organization-wide objectives and performance targets

2. Next, set business and product line objectives

3. Then, establish functional and departmental objectives

4. Individual objectives are established last

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Strategy Formulation

An organization’s strategy deals with How to make the strategic vision a reality

and achieve target objectives The plan for

Pleasing customers Conducting operations Building a sustainable competitive

advantage Strategy constitutes management’s business

model for producing good profitability

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Strategizing Involves HOW To . . .

Achieve performance targets

Out-compete rivals and achieve a sustainable competitive advantage

Respond to changing market conditions and new customer requirements

Make the strategic vision a reality

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Characteristics of Strategy-Making

Strategy is action-oriented

Strategy evolves over time

Strategy-making is a never-ending, ongoing task

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Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Business-Level Managers

OperatingManagers

Functional Managers

Figure 2.1: Levels of Strategy-Making in a Diversified Company

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Figure 2-1: Levels of Strategy-Making in a Single-Business Company

Business Strategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

OperatingManagers

Functional Managers

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Figure 2.2: Corporate Strategy fora Diversified Company

CorporateStrategy

Approach tocapital allocation

Narrow or broad-based diversification

Scope ofgeographicoperations

Moves to add newnew businesses

Moves to build positionsin new industries

Efforts to capturecross-businessstrategic fits

Moves to divestweak business units

Is diversificationrelated, unrelatedor a mix?

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Tasks of Corporate Strategy

Moves to achieve diversification

Actions to boost performance of individual businesses

Capturing valuable cross-business strategic fits that result in 1 + 1 = 3 effects!

Establishing investment priorities and steering corporate resources into the most attractive businesses

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Figure 2.3: Identifying the Components ofa Single-Business Company’s Strategy

Efforts to buildcompetitiveadvantage

Planned, proactive moves to outcompete rivals

Responses to changingconditions

Scope ofgeographiccoverage

Collaborativepartnerships andstrategic alliances

R&D strategy

Supply chain management strategy

Manufacturing strategy

Humanresources strategy

Finance strategy

BusinessStrategyFunctional Strategies

Marketingstrategy

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What Business Strategy Involves

Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc.

Designing competitive moves to produce sustainable competitive advantage

Building competitively valuable competencies and capabilities

Uniting strategic initiatives of functional areas Addressing strategic issues facing the

company

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Functional Strategies

Game plan for a strategically-relevant function, activity, or business process

Details how key activities will be managed

Provide support for business strategy

Specify how functional objectives are to be achieved

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Figure 2.5: Factors Shaping theChoice of Company Strategy

Company’s Strategic SituationCraftthe

strategy

External Factors

Internal Factors

Social, political,

regulatory and

community factors

Competitive conditions

and industry attractiveness

Company opportunities and threats to

company’s well-being

Resource strengths,

capabilities, and

weaknesses

Influences of key

executives

Shared values and company

culture

Identify and

evaluate alternatives

Determine relevance of internal

and external factors

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Social, Political, Regulatory,and Community Factors

Pressures from special interest groups Glare of investigative reporting Health and nutrition concerns Concerns about alcohol and drug abuse Sexual harassment Corporate downsizing Impact of plant closings on communities Rising/falling interest rates Economic conditions (good or bad) Trade restrictions, tariffs, and import quotas

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What Do We Mean by“Corporate Social Responsibility?”

Conducting company activities within bounds of what is considered ethical and in public interest

Responding positively to emerging societal priorities and expectations

Demonstrating willingness to take needed action ahead of regulatory confrontation

Balancing stockholder interests against larger interest of society as a whole

Being a “good citizen” in community

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Competitive Conditions andIndustry Attractiveness

A company’s strategy has to be responsive to

Fresh moves of rival competitors

Changes in industry’s price-cost-profit economics

Shifting buyer needs and expectations

New technological developments

Pace of market growth

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Ambitions, Philosophies, and Ethics of Key Executives

Managers generally stamp strategies they craft with their own personal

Ambitions

Values

Business philosophies

Attitudes toward risk

Ethical beliefs

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Shared Values and Company Culture

Values and culture often shapethe strategic moves a company will Consider Reject

It is generally unwise for a company to undertake strategic moves which conflict with: Its culture Values widely shared by managers and

employees

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Linking Strategy With Ethics

Ethical and moral standards go beyond

Prohibitions of law and

Language of “thou shalt not”

Ethical and moral standards involve

Issues of duty and

Language of “should and should not do”

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A Firm’s Ethical Responsibilitiesto Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investmentOwners/shareholders – Rightfully expect some form of return on their investment

Employees - Rightfully expect respect for their worth and devoting their energies to firmEmployees - Rightfully expect respect for their worth and devoting their energies to firm

Customers - Rightfully expect a seller to provide them with a reliable, safe product or serviceCustomers - Rightfully expect a seller to provide them with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable relationship with firms they supplySuppliers - Rightfully expect to have an equitable relationship with firms they supply

Community - Rightfully expect businesses to be good citizens in their communityCommunity - Rightfully expect businesses to be good citizens in their community