Establishing Company Direction
Chapter 2
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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“Management’s job is not to see the
company as it is….but as it can
become.”
John W. Teets
“A strategy is a commitment to
undertake one set of actions
rather than another.”
“Quote”
Sharon M. Oster
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 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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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 in
Developing 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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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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Broad or Narrow Mission Statements?
 Narrow enough to specify real arena of
interest
 Serve as
 Boundary for what to do and not do
 Indication of where top management
intends to take firm
 Diversified companies
have broader business
definitions than single-business
enterprises
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Establishing Objectives
Second Direction-Setting Task
 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
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Two Types of Objectives Are Required
Financial Objectives
Strategic Objectives
Outcomes that improve
a firm’s financial
performance
Outcomes that
strengthen a firm’s
competitiveness and
long-term market
position
$
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Strategic Management Principle
Objective-setting needs to be more of a
top-down than a bottom-up process in
order to guide lower-level managers and
organizational units toward outcomes
that support the achievement of overall
business and company objectives.
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Crafting a Strategy
Third Direction-Setting Task
 An organization’s strategy deals with
 How to make the strategic vision a reality
and achieve target objectives
 The game plan for
 Pleasing customers
 Conducting operations
 Building a sustainable competitive
advantage
 How to produce good profitability
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Strategizing Involves HOW To . . .
 Achieve performance targets
 Out-compete rivals and
achieve a sustainable
competitive advantage
Our game plan
for running the
company will
be . . .
 Respond to changing market
conditions and new customer
requirements
 Make the strategic vision
a reality
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Levels of Strategy
 What is firm diversification?
 What is the definition of synergy ?
 What are the four levels of strategy for a diversified
firm?
 How do the goals/objectives of each level of
strategy differ?
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Levels of Strategy
 ______ level of strategy focuses on what
businesses a firm should be in.
 At what strategy level does competition take place?
 All levels of strategy are concerned with how to
manage the array of business units.
True False
 An effective _____ strategy means that the value
of the sum of the stand-alone business units is
(equal, less, more) than the combined firm.
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Levels of Strategy
 A firm that has businesses that can
True False
share products technology, or
distribution links is following an
unrelated diversification strategy.
 A firm that has a single or dominant
True False
business is pursuing a broad business
strategy.
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Figure 2.1: Levels of Strategy-Making in
a Diversified Company
Corporate-Level
Managers
Corporate
Strategy
Two-Way Influence
Business-Level
Managers
Business Strategies
Two-Way Influence
Functional
Managers
Functional Strategies
Two-Way Influence
Operating
Managers
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Operating Strategies
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Figure 2-1: Levels of Strategy-Making in
a Single-Business Company
Executive-Level
Managers
Business
Strategy
Two-Way Influence
Functional
Managers
Functional Strategies
Two-Way Influence
Operating
Managers
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Operating Strategies
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Figure 2.2: Corporate Strategy for
a Diversified Company
Narrow or broad-based diversification
Is diversification
related, unrelated
or a mix?
Approach to
capital allocation
Efforts to capture
cross-business
strategic fits
Corporate
Strategy
Moves to divest
weak business units
Scope of
geographic
operations
Moves to add new
new businesses
Moves to build positions
in new industries
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Example of Corporate Level Strategy
 Maintain overall annual Corporate profit growth of
3%
 Acquire firms that are achieving high growth
 Sell off under-performing business units
 Diversify in multiple industries to balance the
cyclical nature of certain industries
 Take initiatives to have business units share
facilities to lower costs.
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Figure 2.3: Identifying the Components of
a Single-Business Company’s Strategy
Planned, proactive moves to outcompete rivals
Responses to
changing
conditions
Efforts to build
competitive
advantage
Business
Strategy
R&D strategy
Supply chain
management
strategy
Manufacturing
strategy
Marketing
strategy
Scope of
geographic
coverage
Collaborative
partnerships and
strategic alliances
Finance strategy
Human
resources strategy
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Example of Business Level Strategy
 Offer a differentiated product in the marketplace
 Marketing hold focus groups to anticipate
customer preferences
 Increase R&D spending to develop better
product attributes
 Manufacturing change operations
 Sales force to provide customer service
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Business Level Strategy
 What is a distinctive competence?
 What is a Sustainable Competitive
Advantage?
 What are above average returns?
 How does a firm achieve above average
returns?
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Example: Operating Strategy
Boosting Worker Productivity
To boost productivity by 10%, managers of firm with
low-price, high-volume strategy take following actions:
 Recruitment manager develops selection process
designed to weed out all but best-qualified
candidates
 Information systems manager devises way to use
technology to boost productivity of office workers
 Compensation manager devises improved
incentive compensation plan
 Purchasing manager obtains new
efficiency-increasing tools and equipment
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Uniting the Company’s Strategy-Making Effort
 A company’s strategy is a collection
of strategies and initiatives being
acted on by managers at various
organizational levels
 Separate levels of strategy must be
unified into a cohesive, companywide action plan
 Pieces of strategy should fit together
like the pieces of a puzzle
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Figure 2.5: Factors Shaping the
Choice of Company Strategy
Social,
political,
regulatory
and
community
factors
Competitive
conditions
and industry
attractiveness
Company
opportunities
and threats to
company’s
well-being
Company’s Strategic Situation
Resource
strengths,
capabilities,
and
weaknesses
McGraw-Hill/Irwin
Influences of
key
executives
Shared values
and company
culture
 External Factors
Determine
relevance
of internal
and
external
factors
Identify
and
evaluate
alternatives
Craft
the
strategy
 Internal 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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A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders – Rightfully expect some
form of return on their investment
Employees - 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 service
Suppliers - Rightfully expect to have an equitable
relationship with firms they supply
Community - Rightfully expect businesses to be
good citizens in their community
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Business Level Strategy
 What are the external conditions that help a firm
achieve strategic competitiveness?
 What are the external constraints that should be
considered when developing a business level
strategy?
 How would you measure the effectiveness of a
business level strategy?
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Factors Contributing to Business
Level Strategy
Business
Level
Strategy
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Strategic Management Principle
To be a real winner, a strategy must
1. Fit the enterprise’s internal and
external situation
2. Build sustainable competitive
advantage
3. Improve company performance
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