“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
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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

Approaches to Performing the
Strategy-Making Task
2
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Developing a Vision or Mission
First Direction-Setting Task
 Indicates
the long-term course
management has charted for
the organization -Our future
direction
will be . . .

Business activities to
be pursued

Future market position

Future customer focus

Kind of company to become
3
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Why Have a Mission or
Strategic Vision?
 Power
of a well-conceived
strategic vision

Guides managerial
decision-making

Arouses employee
buy-in and commitment

Prepares a company
for the future
4
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Characteristics of a Strategic Vision
Charts a company’s future strategic course
 Defines the business makeup
in 5 to 10 years
 Company specific, not generic
 Provides a company with its own
special identity and path to follow
 The vision is not to make a profit
 The real mission/vision is
“what will we do to make a profit?”
 Requires the exercise of management foresight

x
5
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Elements of a Strategic Vision
Defines present and future
business make-up of company
Charts a long-term
path to follow
Communicated in an inspiring
and exciting manner
6
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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 used and
functions performed -- HOW
customer needs are satisfied
7
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Business Mission:
McDonald’s
Serving a limited menu of hot, tasty food quickly
in a clean, friendly restaurant for a good value to
a broad base of fast-food customers worldwide.
McDonald’s serves approximately 30 million customers daily
at 20,000-plus restaurants in over 90 countries.
8
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Broad - Narrow Mission Statements?

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
employ broader
business definitions
9
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Definitions: Broad - Narrow Scope
 Broad

Definition
Beverages

Children’s products

Furniture

Global mail delivery

Travel & tourism
 Narrow
Definition

Soft drinks

Toys

Wrought iron lawn
furniture

Overnight package
delivery

Ship cruises in the
Caribbean
10
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Mission Statements for
Functional Departments

Spotlights department’s

Contribution to firm’s
mission/vision/objectives

Role and scope of
activities

Direction which
department needs to
pursue
11
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Decision Time:
What Will the Vision Be?
 Entrepreneurial
challenge - Creatively preparing a
company for the future
 Astute strategists focus on
 Shifting customer needs
 New technologies
 Attractive foreign markets
 Growing or shrinking
opportunities
12
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Intel’s “Strategic Inflection Points”

Pre - mid 1980s
 Business focus was memory chips
 Post - mid 1980s
 Abandon memory chip business
 Adopt new strategic vision
 Become preeminent supplier of
microprocessors to PC industry
 Make PC central appliance in
workplace and home
 Be undisputed leader in driving
PC technology forward
13
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Communicating the Vision
 An
exciting, inspirational vision

Inspires, challenges, and motivates
workforce

Arouses strong sense of
organizational purpose and induces
employee buy-in

Brings workforce together and
galvanizes people to live the business
14
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Managerial Value:
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
15
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Establishing Objectives
Second Direction-Setting Task
 Represent
commitment to
achieve specific performance
targets by a certain time
 Must
be stated in quantifiable
terms and contain a deadline
for achievement
 Spell-out
how much of what
kind of performance by when
16
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Purpose of Objectives

Substitutes results-oriented
decision-making for aimlessness
over what to accomplish

Provides benchmarks for
judging organizational
performance
17
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
Companies whose managers set
objectives for each key result area
and then press forward with actions
aimed directly at achieving these
performance outcomes typically
outperform companies whose
managers exhibit good intentions, try
hard, and hope for the best!
18
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Types of Objectives 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
$
19
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
Every company needs
both strategic and
financial objectives!
20
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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
21
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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
A stronger reputation with customers than rivals
Better customer service than rivals
Recognition as a leader in technology
Wider geographic coverage than rivals
More innovative products than rivals
22
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Corporate Objectives: McDonald’s
To achieve 100 percent total
customer satisfaction . . . everyday
. . . in every restaurant . . . for
every customer.
23
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Corporate Objectives: 3M Corporation
30 percent of the company’s
annual sales must come from
products fewer than four years old.
24
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Corporate Objectives: Anheuser-Busch





To make all our companies leaders in their industries in
quality while exceeding customer expectations.
To achieve a 50% share of the U.S. beer market.
To establish and maintain a dominant leadership
position in the international beer market.
To provide all our employees with challenging and
rewarding work, . . . , and opportunities for personal
development, advancement, and competitive
compensation.
To provide our shareholders with superior
returns by achieving double-digit annual
earnings per share growth, . . .
25
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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
 A firm that consistently passes up opportunities to
strengthen its long-term competitive position
 Risks diluting its competitiveness
 Risks losing momentum in its markets
 Can hurt its ability to fend off rivals’ challenges
26
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
Building a stronger long-term
competitive position benefits
shareholders more lastingly
than improving short-term
profitability!
27
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
The Concept of Strategic Intent
A company exhibits STRATEGIC INTENT
when it relentlessly pursues an ambitious
strategic objective and concentrates its
competitive actions and energies on
achieving that objective!
28
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
The Concept of Strategic Intent
 Indicates
firm’s intent to
stake out a particular
position over the long-term
 Serves
as a rallying cry
for employees to do their
very best
 Signals
deep-seated
commitment to winning
29
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Objectives Are Needed at All Levels
Process is top-down, not bottom-up!
1. First, establish organization-wide
objectives
2. Next, set business and product line
objectives
3. Then, establish functional and
departmental objectives
4. individual objectives come last
30
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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.
31
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Crafting a Strategy
Third Direction-Setting Task

An organization’s strategy deals with

How to make management’s strategic
vision a reality

The game plan for

Moving the company into an attractive
business position

Building a sustainable competitive
advantage
32
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategizing Is HOW To . . .
 Achieve
performance targets
 Out-compete
rivals
 Achieve
sustainable
competitive advantage
Our game plan
for running the
company will
be . . .
 Strengthen
firm’s long-term
competitive position
 Make
the strategic vision
a reality
33
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Fig. 2-1(a): Levels of Strategy-Making:
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
Operating Strategies
34
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Levels of Strategy-Making:
A Single-Business Company
Executive-Level
Managers
Business
Strategy
Two-Way Influence
Functional
Managers
Functional Strategies
Two-Way Influence
Operating
Managers
Operating Strategies
35
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Corporate Strategy for
a Diversified Company
Kind of Diversification
How Much
Diversification
Approach to
Capital Allocation
Responses to
Changing Conditions
Corporate
Strategy
Moves to Divest
Weak Units
Moves to
Add New Businesses
Efforts to Build
Competitive
Advantage Via
Diversification
Moves to Strengthen
Positions and Profits
in Present Businesses
36
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Tasks of Corporate Strategy

Moves to achieve diversification

Actions to boost performance of
individual businesses

Capturing synergy among business units
2 + 2 = 5 effects!

Establishing investment priorities and
steering corporate resources into the
most attractive business units
37
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategy Components of
a Single-Business Company
Responses to Changing Conditions
Strategic Alliances
and Collaborative
Partnerships
Manufacturing
Strategy
Basic Competitive
Approach
Business
Strategy
Marketing
Strategy
R&D
Strategy
Human Resources
Strategy
Finance Strategy
Moves to
Secure
Competitive
Advantage
Geographic coverage;
approach to vertical
integration
38
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
What Business Strategy Involves

Forming responses to changes in industry and
competitive conditions, buyer needs and
preferences, economy, regulations, etc.

Crafting competitive moves leading
to sustainable competitive advantage

Building competitively valuable
competencies and capabilities

Uniting strategic initiatives of functional areas

Addressing strategic issues facing the
company
39
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
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
40
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Operating Strategies
 Concern
narrower
strategies for managing
grassroots activities and
strategically-relevant
operating units
 Add
detail to business
and functional strategies
but of lesser scope
41
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Example: Operating Strategy
Boosting Worker Productivity
To boost productivity by 10%, managers of firm with lowprice, 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 efficiencyincreasing tools and equipment
42
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Example: Operating Strategy
Improving Delivery & Order-Filling
Manufacturer of plumbing equipment emphasizes
quick delivery and accurate order-filling as
keystones of its customer service approach.
Warehouse manager took following approaches:

Inventory stocking strategy allowing 99% of all
orders to be completely filled without
backordering any item

Staffing strategy of maintaining workforce
capability to ship any order within 24 hours
43
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Networking of Missions,
Objectives, and Strategies
Level 1
Corporate-Level
Managers
Level 2
Business-Level
Managers
Level 3
Functional
Managers
Overall Scope
and Strategic
Vision
Corporate
Level
Objectives
Corporate
Level
Strategy
Two-Way Influence
Two-Way Influence
Two-Way Influence
Business
Level
Strategic Vision
Business
Level
Objectives
Business
Level
Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Functional
Missions
Functional
Objectives
Functional
Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Operating
Operating
Objectives
Operating
Strategies
Level 4
Plant Managers,
Missions
Lower-Level Supervisors
44
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Factors Shaping the
Choice of Company Strategy
Societal,
Political,
Regulatory
Factors
Competitive
Conditions &
Industry
Attractiveness
Company
Opportunities
&
Threats
Company’s Strategic Situation
Resource
Strengths
&
Weaknesses
Influences
of Key
Executives
Shared Values
&
Culture
External Factors
Determine
Relevance
of Internal
&
External
Factors
Identify
&
Evaluate
Alternatives
Craft
the
Strategy
Internal Factors
45
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Social, Political, Regulatory,
and Citizenship 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
Recessionary economic conditions
Trade restrictions, tariffs, and import quotas
46
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Corporate Social Responsibility

Conduct company activities within bounds of
what is considered ethical and in public interest

Respond positively to emerging societal
priorities and expectations

Demonstrate willingness to take needed action
ahead of regulatory confrontation

Balance stockholder interests against larger
interest of society as a whole

Be a “good citizen” in community
47
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Competitive Conditions and
Industry 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
48
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
A company’s strategy can’t
produce real market success
unless it is well-matched to
industry and competitive
conditions!
49
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Company Opportunities and Threats
 For
strategy to be
successful, it has to be
well matched to

A company’s best
opportunities

Threats to the
company’s well-being
50
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Company Strengths, Competencies,
and Competitive Capabilities

A company must have or be able to
acquire the resources, competencies,
and competitive capabilities needed to
execute the chosen strategy

Resource deficiencies, gaps in skills,
and weaknesses in competitive
position make pursuit of certain
strategies risky or altogether unwise
51
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
A company’s strategy ought to be
grounded in its resource strengths and in
what it is good at doing (its competencies
and competitive capabilities); it is perilous
to craft a strategy whose success is
dependent on resources and capabilities
that a company lacks!
52
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Ethical Responsibilities
of Firm to Stakeholders

Owners/shareholders - Expect some form
of return on their investment

Employees - Expect respect for their worth
and devoting their energies to firm

Customers - Expect reliable, safe product or
service

Suppliers - Expect equitable relationship with
firm

Community - Expect businesses to be good
citizens in their community
53
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Tests of a Winning Strategy

GOODNESS OF FIT TEST


COMPETITIVE ADVANTAGE TEST


How well is strategy matched
to firm’s situation?
Does strategy lead to sustainable
competitive advantage?
PERFORMANCE TEST

Does strategy boost firm performance?
54
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998
Strategic Management Principle
To be a real winner, a strategy must
(1) Fit the enterprise’s situation
(2) Build sustainable competitive
advantage
(3) Improve company performance
55
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 1998