6

 
    C H A P T E R 

 

 

 

 

 

Strategic Management:

How Star Managers Realize a Grand Design

 

 

6.1 The Dynamics of Strategic Planning.

       A.  Is thinking strategically really necessary?

             1.   In the 1970s and 1980s, Japanese companies learned to perform similar operational effectiveness, learned to perform similar operational activities better than rivals performed them.

             2.   In the 1990s, the gap narrowed in operational effectiveness and they found they had to learn strategic positioning—performing activities that were different from those of their rivals or similar activities performed in different ways.

       B.  Strategy, Strategic Management, and Strategic Planning: What They Are, Why They’re Important.

             1.   Strategy.

a.   A strategy is a large-scale action plan that sets the direction for an organization.

b.   Because of fast-changing conditions, strategy needs to be revised from time to time.

             2.   Strategic Management.

a.   By the 1970s it became apparent that to stay focused and efficient, companies had to take a strategic management approach.

b.   Strategic management is a process that involves managers from all parts of the organization in the formulation and implementation of strategies and strategic goals.

c.   Because middle managers are the ones who will implement the strategies, they should also help to formulate them.

             3.   Strategic planning determines not only the organization’s long-term goals, but also the ways the organization should achieve them.

       C.  Why Strategic Management and Strategic Planning Are Important.

             1.   Providing Direction and Momentum.

a.   Strategic planning can help people focus on the most critical problems, choices, and opportunities.

b.   It can also help create teamwork, promote learning, and build commitment.

c.   A poor plan can send an organization in the wrong direction.

             2.   Encouraging New Ideas.

                   a.    Strategic planning can help encourage new ideas by stressing the importance of innovation in achieving long-range success.

                   b.    Strategy innovation is “the ability to reinvent the basis of competition within existing industries and to invent entirely new industries.”

             3.   Developing a Sustainable Competitive Advantage.

                   a.    Strategic management provides a sustainable competitive advantage, which is the ability to produce goods or services more effectively than its competitors do.

                   b.    Sustainable competitive advantage occurs when an organization is able to get and stay ahead in four areas:

                          (1)   in being responsive to customers;

                          (2)   in innovating;

                          (3)   in quality; and

                          (4)   in effectiveness.

       D.  Does Strategic Management Work for Small as Well as Large Firms?

             1.   Smaller firms account for more than half of total employment and the bulk of employment growth in recent years.

             2.   One analysis found that strategic planning was also appropriate for companies with fewer than 100 employees.

             3.   But the improvement in financial performance was small and may not be worth the effort.

 

MAJOR QUESTION:

Are you really managing if you don’t have a strategy?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PowerPoint 6-6

Strategy

 

 

 

 

 

 

 

Lecture Enhancer 6.1

Strategic Management at CompuDyne

CompuDyne has found a strategy that worksCconcentrating on its core business. (See complete lecture enhancer on page 18 of this manual.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PowerPoint 6-7

Why Strategic Management and Strategic Planning Are Important

 

Example of Developing Competitive Advantage: Swatch Brings Watch-Making Back to Switzerland. Nicolas G. Hyek brought watch-making back to Switzerland by turning out low-cost plastic Swatch watches that were fashion statements as much as timepieces. (Box in text on page 179.)

 

6.2   The Strategic Management Process.

       A.  The Five Steps of the Strategic Management Process.

 

 

 

 

 

 

 

 

 

 

 

 

       B.  Step 1: Establish the Mission and the Vision.

             1.   The mission is the organization’s purpose or reason for being, expressed in a mission statement.

             2.   Mission statements answer questions such as:

                   a.   Who are our customers?

                   b.   What are our major products and services?

                   c.   What are our basic beliefs, values, aspirations, and philosophical priorities?

             3.   Characteristics of a Good Vision Statement.

a.   An organization’s vision is its long-term goal describing what it wants to become.

b.   It is expressed in a vision statement, which describes its long-term direction and strategic intent.

                   c.   A vision statement should:

                          (1)   be appropriate for the organization.

                          (2)   set standards of excellence and reflect high ideals.

                          (3)   inspire enthusiasm and encourage commitment

      C.  Step 2: Establish the Grand Strategy.

             1.   The next step is to translate the broad mission and vision statements into a grand strategy.

                   a.    After an assessment of current organizational performance, a grand strategy then explains how the organization’s mission is to be accomplished.

                   b.    The first part of the process is to make a rigorous analysis of the organization’s present situation to determine where it is presently headed.

                   c.    The second part is to determine where it should be headed in the future.

             2.   The growth strategy is a grand strategy that involves expansion—as in sales revenues, market share, number of employees, or number or customers by:

                   a.    Improving an existing product or service.

                   b.    Increasing its promotion.

                   c.    Expanding its operations.

                   d.    Expanding into new products or services.

                   e.    Acquiring similar or complementary businesses.

                   f.     Merging with another company.

             3.   The stability strategy is a grand strategy that involves little or no significant change if:

                   a.    A company has found that too-fast growth leads to foul-ups with orders.

                   b.    The company feels it needs a period of consolidation.

             4.   The defensive strategy, or a retrenchment strategy, is a grand strategy that involves reduction in the organization’s efforts by:

                   a.   Reducing costs.

                   b.   Selling off assets.

                   c.   Phasing out product lines.

                   d.   Divesting part of its business.

                   e.   Declaring bankruptcy.

                   f.    Attempting a turnaround.

      D.  Step 3: Formulate Strategic Plans.

             1.   The grand strategy must then be translated into more specific strategic plans which determine what the organization’s long-term goals should be for the next 1-5 years.

             2.   These goals should be SMART—Specific, Measurable, Attainable, Results oriented, and specifying Target dates.

             3.   Strategic formulation is the process of choosing among different strategies and altering them to best fit the organization’s needs.

             4.   Formulating strategic plans is a time-consuming process.

      E.   Step 4: Carry Out the Strategic Plans.

             1.   Putting strategic plans into effect is strategy implementation.

             2.   Strategic planning isn’t effective unless translated into lower-level plans.

             3.   Often implementation means overcoming resistance.

       F.   Step 5: Maintain Strategic Control: The Feedback Loop.

             1.   Strategic control consists of monitoring the execution of strategy and making adjustments, if necessary.

             2.   Managers need control systems to monitor progress.

             3.   Corrective action constitutes a feedback loop.

             4.   Other suggestions:

                   a.   Engage people in clarifying what your group hopes to accomplish.

                   b.   Keep your planning simple.

                   c.   Stay focused toward your vision of the future.

                   d.   Keep moving toward your vision.

MAJOR QUESTION:

What’s the five-step recipe for the strategic management process?

Panel 6.1 The strategic management process: five steps shows that the process has five steps, plus a feedback loop. (Box in text on page 183.)

 
 

 

 

 

 

 

 

 

 

 


PowerPoint 6-8

The Strategic Management Process

 

PowerPoint 6-9

Step 1: Establish the Mission and Vision

 

 

 

Example of a Crisis Leading to the Strategic Management Process: The Video-Disk War—DVD versus Divx.

Every new technology must overcome resistance. And the DVD had some major hurdles. Box in text on page 180)

 
 

 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-10

Step 1 (continued)

 

PowerPoint 6-11

Step 2: Establish the Grand Strategy

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rounded Rectangle: Clickalong 6.1 Example of Grand Strategy: How One Differentiates Itself from Other Internet Hookups. Mindspring En-terprises distinguishes itself from other web-access companies by offering high-intensity customer service. 

 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-2S

Grand Strategy

 

PowerPoint 6-3S

Grand Strategy (continued)

 

 

 

 

 

PowerPoint 6-12

Step 3: Formulate Strategic Plans

 

 

 

 

 

 

 

 

 

 

 

PowerPoint 6-13

Step 4: Carry Out the Strategic Plan

 

 

 

 

 

 

PowerPoint 6-14

Step 5: Maintain Strategic Control

Practical Action Box:

How to Streamline Meetings. Meetings are a fact of management life. This box presents some ways to streamline them. (Box in text on page 187.)

 

6.3 Establishing the Grand Strategy.

      A.   SWOT Analysis.

             1.   SWOT analysis—also known as a situational analysis—is a search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization.

             2.   Inside Matters: Analysis of Internal Strengths and Weaknesses.

                   a.   Organizational strengths are the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission.

                   b.   Organizational weaknesses are the drawbacks that hinder an organization in executing strategies in pursuit of its mission.

             3.   Outside Matters: Analysis of External Opportunities and Threats.

                   a.    Organizational opportunities are environmental factors that the organization may exploit for competitive advantage.

                   b.    Organizational threats are environmental factors that hinder an organization’s achieving a competitive advantage.

      B.   Forecasting: Predicting the Future.

             1.   A forecast is a vision or projecting of the future.

             2.   A trend analysis is a hypothetical extension of a past series of events into the future.

                   a.    The basic assumption is that the picture of the present can be projected into the future.

                   b.    An example is a time-series forecast, which predicts future data based on patterns of historical data.

             3.   Contingency Planning: Predicting Alternative Futures.

                   a.    Contingency planning, also known as scenario planning and scenario analysis is the creation of alternative hypothetical but equally likely future conditions.

                   b.    Because scenarios try to peer far into the future, they are written in rather general terms.

 

MAJOR QUESTION:

How can SWOT and forecasting help you establish your strategy?

 

PowerPoint 6-15

SWOT Analysis

 

PowerPoint 6-16

SWOT Analysis

 

PowerPoint 6-17

SWOT Analysis (continued)

 

Panel 6.2 A SWOT analysis diagrams how inside matters and outside matters affect an organization’s strengths, weaknesses, opportunities, and threats. (Illustration in text on page 188)

 
 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-18

Strategic Planning Tools and Techniques

 

Lecture Enhancer 6.2

Developing Opportunities: Diversifying Brunswick

Over its long history, Brunswick has changed its core strategy many times to adapt to changing customer tastes. (See complete lecture enhancer on page 19 of this manual.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Example of Contingency Planning: Royal Dutch/ Shell Beat Competitors by Preparing for a Price Collapse. Scenarios, said a Royal Dutch/Shell’s group planning coordinator, are there “to condition the organization to think.” They enable managers in the Anglo‑Dutch multinational oil company to be better prepared for “future shocks.”  (Box in text on page 191)

 

6.4 Formulating Strategy.

      A.   Porter’s Four Competitive Strategies.

             1.   Harvard Business School professor Michael Porter is a leading authority on competitive strategy.

                   a.    Porter’s work during the 1980s suggested that five forces affect industry competition:

                          (1)   Threats of new entrants.

                          (2)   Bargaining power of suppliers.

                          (3)   Bargaining power of buyers.

                          (4)   Threats of substitute products or services.

                          (5)   Rivalry among industry firms.

                   b.    An organization should do a SWOT analysis that examines these five forces.

                   c.    Porter’s four competitive strategies (also called four generic strategies) are (1) cost-leadership, (2) differentiation, (3) cost-focus, and (4) focused-differentiation.

             2.   Cost-Leadership Strategy: Keeping Costs and Prices Low for a Wide Market.

                   a.    The cost-leadership strategy is to keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market.

                   b.    This puts pressure on R&D managers to develop products that can be created cheaply.

                   c.    An example is car maker Volkswagen.

             3.   Differentiation Strategy: Offering Unique and Superior Value for a Wide Market.

                   a.    The differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a wide market.

                   b.    Managers may have to spend more on R&D, marketing, and customer service.

                   c.    An example of this strategy is the maker of Lexus automobiles.

                   d.    Differentiation is also the strategy followed by companies to create a brand—a distinctive image—that they hope will differentiate them from their competitors.

                   e.    An example of this strategy is the brand PepsiCola.

             4.   Cost-Focused Strategy: Keeping Costs and Prices Low for a Narrow Market.

                   a.    The cost-focus strategy is to keep the costs, and hence, prices, of a product or service below those of competitors and to target a narrow market.

                   b.    This is the strategy executed with low-end products sold in discount stores, such as low-cost cigarettes.

             5.   Focused Differentiation Strategy: Offering Unique and Superior Value for a Narrow Market.

                   a.    The focused-differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a narrow market.

                   b.    Examples of this strategy are makers of expensive luxury cars.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       B.  The Product Life Cycle: Different Stages Require Different Strategies.

             1.   A product life cycle is a model that graphs the four stages that a product or service goes through during the “life” of its marketability: (1) introduction, (2) growth, (3) maturity, and (4) decline.

                   a.    Some products have a life cycle of only months.

                   b.    Others have a life cycle equivalent to a human generation.

             2.   Stage 1: Introduction.

                   a.    The introduction stage is the stage in the product life cycle in which a new product is introduced into the market place.

                   b.    There are heavy start-up costs during this stage.

                   c.    Sales are usually low, and the product may be losing money for the company.

                   d.    During this stage a differentiation or a focus strategy may be appropriate.

             3.   Stage 2: Growth—Demand Increases.

                   a.    The growth stage, which is the most profitable stage, is the period in which customer demand increases, the product’s sales grow, and later competitors may enter the market.

                   b.    Managers need to worry about getting sufficient product into distribution, maintaining quality, and expanding sales.

                   c.    During this stage, managers would probably continue the strategy begun during Stage 1.

             4.   Stage 3: Maturity—Growth Slows.

                   a.    The maturity stage is the period in which the product starts to fall out of favor and sales and profits to fall off.

                   b.    Sales start to fall as competition makes inroads.

                   c.    Managers need to concentrate on tightening expenses, reducing costs, and instituting efficiencies to maintain the product’s profitability.

                   d.    During this stage, managers would become more defensive, perhaps using a cost-leadership or focus strategy.

             5.   Stage 4: Decline—Withdrawing from the Market.

                   a.    The decline stage is the period in which the product falls out of favor, and the organization withdraws from the marketplace.

                   b.    Managers begin scaling down inventory and personnel.

 

MAJOR QUESTION:

How can two techniques—Porter’s competitive strategies and the product life cycle—help you formulate strategy?

 

PowerPoint 6-19

Porter’s Four Competitive Strategies

Panel 6.3 Porter’s four competitive strategies characterizes these four generic strategies by type of market targeted. The first two focus on wide markets, the last two on narrow markets. (Illustration in text on page 192)

 
 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-20

Porter’s Four Competitive Strategies

Rounded Rectangle: Clickalong 6.2 Two Other Strategy Formulations: Driving Force Analysis and Strategies for New Venture Firms. Driving force analysis involves de-termining an organization’s decisive strategies. There are also nine strategic areas that may affect the direction of an organization.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-4S

Other Strategy Formulation

 

PowerPoint 6-5S

Strategic Areas

 

PowerPoint 6-6S

The Driving Force

 

PowerPoint 6-7S

The Driving Force

 

 

 

 

 

 

 

PowerPoint 6-8S

Strategies for New Venture Firms

 

PowerPoint 6-9S

Strategy Composites

 

PowerPoint 6-10S

Characteristic Strategies of New Ventures

 

PowerPoint 6-21

The Product Life Cycle

 

 

 

 

 

Panel 6.4 The product life cycle shows the four stage “life cycle” of a product or service from introduction through decline. (Illustration in text on page 194)

 
 

 

 

 

 

 

 

 

 


PowerPoint 6-22

The Product Life Cycle

 

PowerPoint 6-23

The Product Life Cycle

 

 

6.5 Carrying Out and Controlling Strategy.

      A.   The Balanced Scorecard.

             1.   Robert Kaplan and David Norton developed the balanced scorecard.

                   a.    The balanced scorecard gives top managers a fast but comprehensive view of the organization via four indicators:

                          (1)   Customer satisfaction.

                          (2)   Internal processes.

                          (3)   The organization’s innovation and improvement activities.

                          (4)   Financial measures.

                   b.    The balanced scorecard establishes (a) goals and (b) performance measures according to four “perspectives” or areas—financial, innovation and learning, customer, and internal business.

             2.   Financial Perspective: “How Do We Look to Shareholders?”

                   a.    Typical financial goals have to do with profitability, growth, and shareholder values.

                   b.    Financial measures have been criticized as being short-sighted.

                   c.    However, “if improved [operational] performance fails to be reflected in the bottom line, executives should reexamine the basic assumptions of their strategy and mission.”

             3.   Innovation and Learning Perspective: “Can We Continue to Improve and Create Value?”

                   a.    Because of global competition companies must:

                          (1)   Make continual improvements to their existing products.

                          (2)   Introduce new products.

             4.   Customer Perspective: “How Do Customer See Us?”

                   a.    Many organizations make taking care of the customer a high priority.

                   b.    Examples of customer measures are mean-time response to a service call and third-party surveys.

             5.   Internal Business Perspective: “What Must We Excel At?”

                   a.    This part translates what the company must do internally to meet customer expectations.

                   b.    These are business processes such as quality, employee skills, and productivity.

      B.   Measurement Management.

             1.   One survey identified two types of organizations: measurement-managed and non-measurement-managed.

                   a.    The measurement-managed companies were those in which senior management agreed on measurable criteria for determining strategic success.

                   b.    A higher percentage of these companies were identified as industry leaders.

             2.   Why Measurement-Managed Firms Succeed.

                   a.    Top executives agree on strategy.

                   b.    Communication is clear.

                   c.    There is better focus and alignments.

                   d.    The organizational culture emphasizes teamwork and allows risk taking.

             3.   The Barriers to Effective Management.

                   a.    Objectives are fuzzy.

                   b.    Managers put too much trust in informal feedback systems.

                   c.    Employees resist new measurement systems.

                   d.    Companies focus too much on measuring activities instead of results.

                   c.    Throughout the process there is a feedback loop so that when problems are found managers can return to earlier stages to take corrective action.

MAJOR QUESTION:

How can two techniques—balanced scorecard and measurement management—help you carry out and control strategy?

 

PowerPoint 6-24

The Balanced Scorecard

Panel 6.5 The balanced scorecard: four perspectives. The balanced scorecard establishes (a) goals and (b) performance measures according to four “perspectives” or areas—financial, innovation and learning, customer, and internal business. (Illustration in text on page 197)

 
 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-25

The Balanced Scorecard

 

 

Rounded Rectangle: Clickalong 6.3 Examples of the Balanced Score-card: Cigna HealthCare Measures Its Success. Cigna uses the balanced scorecard approach that considers both financial and nonfinancial measures.
 

 

 

 

 

 

 

 

 

 

 

 


PowerPoint 6-11S

Example of Balanced Scorecard: Cigna HealthCare

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PowerPoint 6-26

Successful Measurement-Managed Firms

 

PowerPoint 6-27

Barriers to Effective Management

Rounded Rectangle: Clickalong 6.4 Taking Something Practical Away from this Chapter: The Business Plan—Strategic Planning for the Small-Business En-trepreneur.  Entrepreneurs can have rewards such as sense of control, recognition, and sense of competence.
 

 

 

 

 

 

 

 

 

 


PowerPoint 6-28

Key Terms

The balanced scorecard gives top managers a fast but comprehensive view of the organization via four indicators: (1) customer satisfaction, (2) internal processes, (3) the organization’s innovation and improvement activities, and (4) financial measures.

Contingency planning, also known as scenario planning and scenario analysis is the creation of alternative hypothetical but equally likely future conditions.

The cost-focus strategy is to keep the costs, and hence, prices, of a product or service below those of competitors and to target a narrow market.

The cost-leadership strategy is to keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market.

The decline stage is the period in which the product falls out of favor, and the organization withdraws from the marketplace.

The defensive strategy, or a retrenchment strategy, is a grand strategy that involves reduction in the organization’s efforts.

The differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a wide market.

The focused-differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a narrow market.

A forecast is a vision or projecting of the future.

Grand strategy. After an assessment of current organizational performance, a grand strategy then explains how the organization’s mission is to be accomplished.

The growth stage, which is the most profitable stage, is the period in which customer demand increases, the product’s sales grow, and later competitors may enter the market.

The growth strategy is a grand strategy that involves expansion—as in sales revenues, market share, number of employees, or number or customers.

The introduction stage is the stage in the product life cycle in which a new product is introduced into the market place.

The maturity stage is the period in which the product starts to fall out of favor and sales and profits to fall off.

Organizational opportunities are environmental factors that the organization may exploit for competitive advantage.

Organizational strengths are the skills and capabilities that give the organization special competencies and competitive.

Organizational threats are environmental factors that hinder an organization’s achieving a competitive advantage.

Organizational weaknesses are the drawbacks that hinder an organization in executing strategies in pursuit of its mission.

Porter’s four competitive strategies (also called four generic strategies) are (1) cost-leadership, (2) differentiation, (3) cost-focus, and (4) focused-differentiation.

A product life cycle is a model that graphs the four stages that a product or service goes through during the “life” of its marketability: (1) introduction, (2) growth, (3) maturity, and (4) decline.

The stability strategy is a grand strategy that involves little or no significant change.

Strategic control consists of monitoring the execution of strategy and making adjustments, if necessary.

Strategic management is a process that involves managers from all parts of the organization in the formulation and implementation of strategies and strategic goals.

Strategic planning determines not only the organization’s long-term goals, but also the ways the organization should achieve them.

A strategy is a large-scale action plan that sets the direction for an organization.

Strategy formulation is the process of choosing among different strategies and altering them to best fit the organization’s needs.

Strategy implementation. Putting strategic plans into effect is strategy implementation.

SWOT analysis—also known as a situational analysis—is a search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization.

A trend analysis is a hypothetical extension of a past series of events into the future.