Strategic Management formulation

Denis Manley

The Organisation

Production Finance/

accounting

Sales/

marketing

Human

Resources

Organisational

Problem

Organisational

Level

Strategic

Tactical

Knowledge

Operations

Senior Management

General or Middle

Knowledge or Data

Production Workers

Management

Workers

Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives

Strategic Management – Defined

Strategies for taking the hill won’t necessarily hold it. –Amar Bhide

Strategies in Action

The early bird may get the worm, but the second mouse gets the cheese. – Unknown

Vision & Mission and Objectives

Strategy Formulation

Internal evaluation

External evaluation

Develop Alternative Strategies

Strategy Selection

Strategic formulation

Strategy Implementation

Annual Objectives

Organisational structure

Employee Motivation

Resource Allocation

Strategy Evaluation

Internal Review

External Review

Performance Metrics

Corrective Actions

Vision

“What do we want to become?”

Agreement on the basic vision for which the firm strives to achieve in the long run is critically important to the firm’s success.

Examples of vision statements:

Ryanair wants to become the number one travel choice for all local residents and tourists in Europe.

The Vision of Pepsi To become the leading producer and marketer of food and beverage products in the world

What is our business?”Reveal what an organization wants “will be” and whom it wants to serve (essentially like the aim)

Essential for effectively establishing objectives and formulating strategies

Mission Statements

Mission Elements

CustomersMarkets

Employees

PublicImage

Self-Concept Philosophy

SurvivalGrowthProfit

ProductsServices

Technology

The essential components of a mission statement

• Components and Questions That a Mission Statement Should Answer• 1. Customers: Who are the firm’s customers?• 2. Products or services: What are the firm’s major products?• 3. Markets: Geographically, where does the firm compete?• 4. Technology: Is the firm technologically current?• 5. Concern for survival, growth, and profitability: Is the firm committed

to growth and financial soundness?• 6. Philosophy: What are the basic beliefs, values, aspirations, and

ethical priorities of the firm?• 7. Self-concept: What is the firm’s distinctive competence or major

competitive advantage?• 8. Concern for public image: Is the firm responsive to social,

community, and environmental concerns?• 9. Concern for employees: Are employees a valuable asset of the

firm?

• 2x average return on shareholder’s equity

• Positive relationship to company performance

• 30% higher return on certain financial measures

Benefits of Mission statements

Research results are mixed, however, firms with formal mission statements generally see a:

Ryanair mission statement

• With Ryanair’s new technological planes we hope to please all of our European customers on their travel.(4,3) We hope to serve people of all ages while providing the best service money can buy.(1,2) We will bring our low price travel, with our dedication to helping our community(7,8) and with our marketing plan we hope to grow, while providing the best work experience for our employees. (5,9) We will treat everyone equally and with the upmost respect.

• Objectives are commonly stated in terms such as:– growth in assets,

– profitability,

– market share

– degree and nature of diversification.

• Long-term objectives are needed at the corporate, divisional, and functional levels in an organization.

• Strategies represent actions to accomplish long-term objectives

•

Long-Term Objectives

Long-Term Objectives

Characteristics of objectives --

Measurable

Realistic

Understandable

Challenging

Hierarchical: corporate/ divisional/functional

Financial vs. Strategic Objectives

It is a Trade-Off between both

Maximize short-term financial objectives – harm long-term strategic objectives

Example: Pursue increased market share at the expense of short-term profitability,

Producing Higher product quality will impact on growth on revenues or profit.

Exam Question• Explain how you, a CEO of an

organisation, would set out to formulate a strategy to ensure the organisation competitive advantage. (9 marks)

• Describe three elements associated with an ideal mission statement. (9 marks)

• Explain, using suitable examples, some of the problems associated with deriving long term objectives (12 marks)