The Strategic Management Process Strategic Planning A strategic plan is the company’s plan for how it will match its internal strengths and weaknesses with external opportunities and threats in order to maintain a competitive advantage. The essence of strategic planning is to ask, Where are we now as a business, where do we want to be, and how should we get there? STEP 1: Define the Current Business The logical place to start is by defining ones current business. Specifically, what products do we sell, where do we sell them, and how our products do or services differ from our competitors. For example, Rolex and Casio both sell watches. However, Rolex sells a limited line of expensive watches. Casio sells a variety of relatively inexpensive but innovative specialty watches with features like compasses and altimeters. STEP 2: Perform External and Internal Audits The next step is to ask, are we heading in the right direction? No one is immune to competitive pressures. Managers need to audit both the firm’s environment, and the firm’s strengths and weaknesses. STEP 3: Formulate a New Direction The question now is, based on the environmental scan and SWOT analysis, what should our new business be, in terms of what products we will sell, where we will sell them, and how our products or services will differ from competitors products? Managers sometimes formulate a vision statement to summarize how they see the essence of their business down the road. The vision statement is a general statement of the firms intended direction; it shows, in broad terms, what we want to become. Step 4: Translate the Mission into Strategic Goals Next, Translate the mission into strategic objectives. The company and its managers need strategic goals. At Ford, for example, what exactly did making "Quality Job One" mean for each department in terms of how they would boost quality? The answer is that its managers had to meet strict goals such as "no more than 1 initial defect per 10,000 cars". Step 5: Formulate Strategies to Achieve the Strategic Goals Next, the manager chooses strategies courses of action that will enable the company to achieve its strategic goals. For example, what strategies could Ford pursue to hit its goal of no more than 1 initial defect per 10,000 cars? Perhaps open two new high-tech plants, reduce the number of car lines to better focus on just a few, and put in place new more rigorous employee selection, training, and performance appraisal procedures. Step 6: Implement the Strategies Strategy execution means translating the strategies into action. The company’s managers do this by actually hiring (or firing) people, building (or closing) plants, and adding (or eliminating) products and product lines. Step 7: Evaluate Performance Things don’t always turn out as planned. For example, Ford bought Jaguar and Land Rover as a way to reduce reliance on lower-profit cars. With auto competition brutal, Ford announced in 2009 it was selling Jaguar and Land Rover (to Tata, a company in India).Ford wants to focus its scarce resources on modernizing and turning around its North American operations. Like all companies, Ford continually needs to assess its strategic decisions. Types of Strategies Managers formulate three strategies. 1. Corporate-wide strategic planning, 2. Business unit (or competitive) strategic planning, and 3. Functional (or departmental) strategic planning Corporate Strategy The corporate strategy question is, how many and what kind of businesses should we be in? A company’s corporate-level strategy identifies the portfolio of businesses that, in total, comprise the company and how these businesses relate to each other. Competitive Strategy On what basis will each of our businesses compete? Each of these businesses needs its own business-level/competitive strategy. A competitive strategy identifies how to build and strengthen the business long-term competitive position in the marketplace. Managers endeavor to achieve competitive advantages for each of their businesses. We can define competitive advantages any factors that allow a company to differentiate its product or service from those of its competitors to increase market share. Managers use several standard competitive strategies to achieve competitive advantage. Functional Strategy Finally, what do our competitive choices (such as maintaining the lowest costs) mean for each of the departments that actually must do the work? Each individual business consists of departments such as manufacturing, sales, and human resource management. Functional strategies identify the broad guidelines that each department will follow in order to help the business accomplish its competitive goals. Each department’s functional strategy should make sense in terms of the business/ competitive strategy. Human Resource Strategies and Policies Managers call the specific human resource management policies and practices they use to support their strategic aims human resource strategies. The Shanghai Portman’s human resource strategy aimed to produce the service-oriented employee behaviors the hotel needed to improve significantly the hotels level of service. Its HR policies included installing the Ritz-Carlton Company’s human resource system, having top management personally interview each candidate, and selecting only employees who cared for and respected others.