Management A Practical Introduction Third Edition Angelo Kinicki & Brian K Williams Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Chapter 6: Strategic Management How Star Managers Realize a Grand Design The Dynamics of Strategic Planning The Strategic Management Process Establishing the Grand Strategy Formulating Strategy Execution Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Manager’s Toolbox Lesson #1: in an era of management fads, strategic planning is still tops Lesson #2: a manager’s most valuable character trait: be willing to make large, painful decisions to suddenly alter strategy McGraw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.1 The Dynamics Of Strategic Planning WHY IS IT IMPORTANT TO HAVE A STRATEGY? Organizations need to know where they are going and how they will get there A large scale action plan that sets the direction for an organization is a strategy - it is an educated guess about what the organization has to to survive The process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals is strategic management Strategic planning determines the organization’s long term goals and how the organization should achieve them Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Strategy, Strategic Management, Strategic Planning Strategy: is a large scale action plan that sets the direction for the organization Strategic Management: is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals (Middle managers) Strategic Planning: determines not only the organization’s long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them McGraw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.1 The Dynamics Of Strategic Planning There are three reasons to adopt strategic management and strategic planning: Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Why Strategic Management and Strategic Planning are Important 1) 2) Providing direction & momentum 1) Focuses on most critical problems, choices, & opportunities 2) Creates teamwork, promotes learning, & builds commitment Encouraging new ideas 1) 3) Stresses importance of innovation Developing a sustainable competitive advantage 1) Ability to produce goods and services more effectively than competitors 2) Sustainable competitive advantage is staying ahead in: McGraw-Hill/Irwin 1) Being responsive to customers 2) Innovating 3) Quality 4) Effectiveness Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.1 The Dynamics Of Strategic Planning WHAT IS AN EFFECTIVE STRATEGY? Michael Porter argues strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.1 The Dynamics Of Strategic Planning There are three key principles of strategic positioning: An organization’s strategic position comes from serving few needs to many customers like Jiffy Lube, serving broad needs of a few customers like Bessemer Trust, or serving broad needs of many customers Companies have to choose what strategy to follow and also what strategy not to follow – they have to make trade-offs Creating a “fit” among activities is important - a company’s activities should interact and reinforce one another Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Does Strategic Management Work for Small as Well as Large? 1) Also appropriate for companies with fewer than 100 employees 2) Improvement in financial performance for these companies was small and may not be worth the effort McGraw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.4 Formulating Strategy HOW IS STRATEGY FORMULATED? Organizations can use many techniques to formulate strategy including Porter’s five competitive forces, Porter’s four competitive strategies, the product life cycle, diversification and synergy, and competitive intelligence Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy Porter’s Five Competitive Forces include: The threat of new entrants • New competitors can shake-up an industry virtually overnight The bargaining power of suppliers • Companies that rely on a single supplier are vulnerable Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy The bargaining power of buyers • Major customers, and customers that shop around can negotiate better prices The threat of substitute products or services • When there are substitute products or services available, firms have less power Rivalry among competitors • Intense rivalry is a threat to companies Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy Porter’s four competitive strategies or generic strategies include: The cost leadership strategy - involves trying to keep costs and prices below those of competitors and targeting a wide market Examples of companies with this strategy include Bic, Home Depot, and Dell The differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a wide market Examples of companies using a differentiation strategy include Ritz-Carlton Hotels Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy The cost-focus strategy - keep costs and prices below those of competitors and target a narrow market Examples of companies with a cost-focus strategy include regional gas stations The focused-differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a narrow market Examples of companies with this strategy include Ferrari and Lamborghini Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin The Product Life Cycle Stage Introduction Stage Growth Stage Maturity Formulate the strategic plans (using e.g Porter) McGraw-Hill/Irwin Stage Decline Carry out the strategic plan Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.4 Formulating Strategy The four stages a product or service goes through over its life are known as the product life cycle In the introduction stage, the product is introduced to the marketplace In the growth stage, customer demand increases, sales grow, and competitors may enter the market In the maturity stage, the product starts to fall out of favor and sales and profits drop In the decline stage, the product falls out of favor and is withdrawn from the marketplace Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy A company that makes and sells only one product in its market follows a single-product strategy This strategy has both benefits (the firm can focus on just one product) and risks (the firm is vulnerable to competitors) The diversification strategy involves operating several businesses in order to spread the risk There are two kinds of diversification: unrelated (operating several businesses that are not related to each other) and related (operating several businesses that are related) Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy There are three advantages to related diversification: reduced risk because the firm sells more than one product management efficiencies because administration is spread over several businesses synergy because the economic value of separate, related companies operating under one roof is greater than the companies are worth separately Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.4 Formulating Strategy When companies gain information about their competitors so that they can anticipate their moves and react appropriately, the companies are practicing competitive intelligence Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin Competitive Intelligence Gaining Competitive Intelligence: Public and print advertising Investor information Informal sources McGraw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights rese 6.5 Implementing & Controlling Strategy: Execution WHY IS EFFECTIVE EXECUTION IMPORTANT? The execution stage of strategy involves getting things done Execution is a central part of strategy that consists of using questioning, analysis, and follow-through to mesh strategy with reality, align people with goals, and achieve promised results Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.5 Implementing & Controlling Strategy: Execution There are three building blocks underlying effective execution: Develop seven essential behaviors Effective leaders: know their people and their business insist on realism set clear goals and priorities follow through reward the doers expand people’s capabilities know themselves Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.5 Implementing & Controlling Strategy: Execution The three building blocks are the foundation for the three core processes of execution The First Core Process: People Effective leaders evaluate talent using specific milestones, develop future leaders, and deal with non-performers—they get the people part right The Second Core Process: Strategy A good strategic plan considers the “how” of execution Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 6.5 Implementing & Controlling Strategy: Execution The Third Core Process: Operations Strategy defines where the organization wants to go, the people process assigns responsibility for getting there, and the operating plan shows how to get there The success of strategy execution depends on how well leaders manage the three processes of strategy, people, and operations Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin ... competitive advantage Organizational threats include environmental factors that hinder an organization’s achieving a competitive advantage Kinicki/Williams, Management: A Practical Introduction 3e... Lesson #2: a manager’s most valuable character trait: be willing to make large, painful decisions to suddenly alter strategy McGraw-Hill/Irwin Kinicki/Williams, Management: A Practical Introduction. .. Michael Porter argues strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company Kinicki/Williams, Management: A Practical Introduction