Introduction to strategic
management
Dr Bryan Mills
Topics
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Definitions
Information
Mission/vision/objectives
Gap analysis
KPI
Multinationals
PLC
Benchmarking
Definitions
• Strategic Planning
– Overall policies and objectives
• Management Control
– Effective and efficient use of resources
• Operational Control
– Specific tasks are effective and efficient
Definitions
•
•
•
•
Planning………………………..
Decision making…………………
Strategic decisions………………..
Control………………….
Information
• Future Uncertainty
– Forecasts and Estimates
– Use of sensitivity analysis
– DCF
• Project evaluation
• Managing cash and operations
• Post implementation review
The issues:
• What makes estimating hard?
– Financial Reporting
– Treatment of overheads
– Neat rather than useful
– Internal focus
– Infelxible
– Historic costs
– Strategic issues
– Complex models
Mission (values)
Vision
(direction)
Goals
(stakeholders)
Objectives
Corporate
appraisal
Gap analysis
Mission versus Vision
• Vision – Where is the business going (to)?
• Mission – What is the business for?
Vision
• What the business is now
• What it could be in an ideal world
• What the ideal world would be like
• Our vision: to become the world's leading
company for automotive products and
services.
• Our mission: we are a global, diverse family
with a proud heritage, passionately
committed to providing outstanding products
and services.
• Our values: We do the right thing for our
people, our environment and our society, but
above all for our customers.
Guess who
1. to organize the world’s information and make it
universally accessible and useful.
2. and:
1.
2.
3.
4.
5.
Leading in our chosen markets
Delivering an outstanding client experience based on excellence
in sales, service and solutions
Achieving a superior, ethically based, long-term return for our
shareholders
Building highly motivated, high-performance teams
Creating a challenging, rewarding and fun work environment
Mission
Elements of mission
Detail
Purpose
Why – for shareholders and satisfy
stakeholders
Strategy
Nature of business; products/services;
competitive position; competence;
competitive advantage
Policies and standards of behaviour
Mission converted to practice
Value and Culture
Basic (unstated?) beliefs
Mission
• Brief, flexible, distinctive and open-ended
• Identity of whom the organisation exist to
benefit
• Nature of the firms business
• Ways of competing (price, etc.)
• Principles of business
• Commitment to customers
Mission and Planning
• Inspires planning
• Screens new plans
• Affects the implementation
Goals and Objectives
• Goals – long term
• Objectives – short-term to achieve goals
• Goals expressed as SMART objectives
– Specific
– Measurable
– Attainable
– Result-oriented
– Time-bound
Goal Congruence
• Across departments – horizontal
• At all levels – vertical
• Over time
Goal types
Goal
Comment
Ideological Goals
Organisation’s mission
Formal Goals
Imposed by individuals/groups
Shared Personal Goals
Individuals reach consensus
System Goals
Independent of mission – derive from
organisations existence as an
organisation
Goal Setting
•
•
•
•
•
Top-down
Bottom-up
By precedent- historic
By diktat
By consensus
Goal Setting
• Political process involving bargaining
– Shareholder – profits
– Employees – salaries
– Managers – power
– Customers – quality
• Conflict between these objectives?
Corporate Objectives
• Corporate – whole
– Profit; market share; growth; cashflow; ROCE;
risk; Customer satisfaction; quality; Industrial
relations; Added value; EPS
• Unit – individual unit
– Commercial – increase number of customers
(sales dept.)
– Public sector – more nursery places (LEA)
– General – resources; market; staff development;
innovation; productivity; technology
Primary and Secondary Obj.
• ‘opportunity cost’ of objectives
• Limit to the number of objectives a manger
can pursue
• Should be one primary core objective
• And other secondary objective
– Primary – growth in profits
– Secondary – sales growth; innovation; quality;
resource management
Secondary
• Financial
• Technology
– Product design and development
– R&D
– Quality
• Product market
–
–
–
–
Market leader
Coverage (range)
Position
Expansion
Ranking objectives and tradeoffs
• Never enough time
• Degrees of achievement
– 15% sales growth; 10% profit growth, £2m
negative cashflow; reduced quality
– 8% sales growth; 5% profit growth, £0.5m
positive cashflow; quality
Department plans and
objectives
• Document the responsibility
• Prepare responsibility charts
– Manager’s main objective
– Programme for achieving that
– Sub-objectives
– Critical assumptions
• Prepare activity schedules
Hierarchy of objectives
Mission
Goals
Objectives (KPIs)
Strategy (Targets)
Tactics
Operational Plans
Social Audit
• Recognise rationale for engaging
• Identify programme which are congruent
with mission
• Determine objectives and priorities
• Specify nature and range of resources
required
• Evaluate company involvement in
programmes past, present and future
Ethics and ethical conduct
• Social responsibilities – general stance
• Ethics – how we (organisations) conduct
ourselves
• Amoral – ACCA – condone any action that
help aim. Definition – right or wrong not valid
• Legalistic – letter of law only
• Responsive – see gain in ethics
• Emerging ethical (ethically engaged) – active
• Ethical organisations – total ethical profile
Impact of corporate code
•
•
•
•
•
Commitment by senior management
Discourage previous behaviour
Staff need to be onboard
Tension between code and performance
Statement of ethical conduct and specific
codes of practice
Gap Analysis
• Gap analysis –compare ultimate objective
with expected performance
– Determine targets
– Establish what would happen if we did nothing
• Planning gap
– Between forecast position from carrying on as
is (NOT where we are now) and forecast
desired
Gap Analysis
M Share
Want
Carry on
as is
Time
Gap and ANSOFF
Target
Profit/
market
share
Market
pen.
Product
dev.
Improve
existing
Forecast
min
http://seekingalpha.com/article/128370-tesco-a-look-at-britain-s-top-retailer
Strategic choice
• Strategic Options Generation
– Creative
• Strategic Options Evaluation
–
–
–
–
Acceptable
Sustainable
Feasible
Environmentally fit
• Strategic Selection
– Competitive strategy
• How to
– Market strategy
• Where to
– Institutional strategy
• Method (relationship with other organisations)
Assessment
Assess the internal
environment,
Strengths and
Weaknesses
Assess external environment,
Opportunities and Threats,
Political, Economic, Social and
Technological
Mission
Develop mission statement, or if one already exists
establish how it relates to the above assessment
Objectives
Develop objectives using mission and assessment
Evaluate
Create
Corporate
Plan
Consider alternative ways of achieving these
objectives
Develop a corporate plan featuring the above
objectives and mission.
What do you think are the
differences between Strategic and
Operational?
Discuss
•
•
•
•
Unrealistic plans
Inconsistent goals
Poor communication
Inadequate performance measurement
Not everything that counts can be
counted, and not everything that
can be counted counts
• False alarms
– Disproportionate focus on direct costs
– Efficiency v effectiveness
– Machine standard hour irrelevant as long as
capacity exists
• Gaps missed
– New products
– Customer satisfaction
– Employee involvment
Strategic control
linkages
Time-lag
Influencers
Source of
comp. adv.
risks
Critical Success Factors
• Money: positive cash flow, revenue growth, and profit
margins.
• Your future: Acquiring new customers and/or distributors.
• Customer satisfaction: How happy are they?
• Quality: How good is your product and service?
• Product or service development: What's new that will
increase business with existing customers and attract
new ones?
• Intellectual capital: Increasing what you know that's
profitable.
• Strategic relationships: New sources of business,
products and outside revenue.
• Employee attraction and retention: Your ability to do
extend your reach.
• Sustainability: Your personal ability to keep it all going.
• Four basic types of CSFs according to Rockart:
– Industry CSFs resulting from specific industry
characteristics;
– Strategy CSFs resulting from the chosen competitive
strategy of the business;
– Environmental CSFs resulting from economic or
technological changes; and
– Temporal CSFs resulting from internal organizational
needs and changes.
•
http://www.e-competitors.com/Strategy/SBUPlanning/SBUPositioning/SBU_Critical.htm
Strategic Performance Measures
• Desirable Features
– Focus on long run
– Identify and communicate drivers of success
– Support organisational learning
– Basis for reward
• Characteristics
– Measurable; Meaningful; Defined by Srtat.;
Consistent; Re-evaluated Regularly;
Acceptable
http://utdallas.edu/~vxc054000/ba3365/img/fig6.jpg
But
PLC
Intro.
Growth
Financial
CSF
High risk
Time to
Launch
High risk
Medium
Market
Retention
share/comp
. Adv
Low
Timely exit
Info
Research
Market
share
Costs
Exit
Control
Milestones
DCF
ROI
Free cash
flow
Cash
User
User
Generator
Generator
Not Imp.
Vital
Important
New Uses
Important
Negative
Ret on Cap Not Imp.
Growth
Vital
Maturity
Decline
Multinationals
• Central headquarters in one country and
subsidiaries on others
– Extend PLCycle
– Less competition
– High growth
– Reduce risk
Competitive Strategy
(multinational)
• Cost Leadership – economies of scale
• Differentiation – new product for
overseas
• Focus – core segment of customers
• Pre-empt competition from overseas
Can you think of some other
reasons/problems?
Control and Structure
Global
Opportunities
High Global
Product
structure
Global
hierarchy
Global
Matrix
Low International
Division
(single division)
Global
geographic
structure
(multiple)
Low
Multidomestic Opportunities
High
Protectionism
• Tariffs – tax on import. %of value (ad
valorem) or per unit (specific)
• Quota – limit on quantity
• Minimum local content rules
• Minimum prices – anti-dumping
• Embargos
• Subsidies for domestic
• Bureaucracy
• Exchange Controls and Policy
Benchmarking
•
•
•
•
Internal
Functional – regardless of industry
Competitive- direct competition
Strategic – action and change
Stages of Benchmarking
1.
2.
3.
4.
5.
6.
7.
Set objectives
KPI
Select organisations
Measure
Comapre
Design improvements
Monitor
Risk and Uncertainty
Physical
Economic
Business
PLC
Political
Financial
Where next?
GE McKinsey Matrix
http://www.emeraldinsight.com/content_images/fig/3300080110004.png
http://www.softducks.com/image/icon/B/BCG-Growth-Share-Matrix-Software-90495.gif
http://theexecutiveperspective.com/2010/06/01/igor-ansoffs-strategy-development-process/
http://www.vectorstudy.com/management_theories/img/porters_competitive_strategies.gif