Management a practical introduction 3rd kinicky chapter 06

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin 2 Chapter 6: Strategic Management How Star Managers Realize a Grand Design  The Dynamics of Strategic

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin

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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

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

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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 do 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

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

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6.1 The Dynamics Of Strategic Planning

There are three reasons to adopt strategic management and strategic planning:

Why Strategic Management and Strategic Planning are Important

1) Providing direction & momentum

1) Focuses on most critical problems, choices, & opportunities

2) Creates teamwork, promotes learning, & builds commitment

2) Encouraging new ideas

1) Stresses importance of innovation

3) Developing a sustainable competitive advantage

1) Ability to produce goods and services more effectively than

competitors

2) Sustainable competitive advantage is staying ahead in:

1) Being responsive to customers

2) Innovating

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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

6.1 The Dynamics Of Strategic Planning

There are three key principles of strategic positioning:

1 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

2 Companies have to choose what strategy to follow and also what strategy not to follow – they have to make trade-offs

3 Creating a “fit” among activities is important - a company’s activities should interact and reinforce one another

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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

The Five Steps of the Strategic Management Process

1 Establish

the mission

and vision

2 Establish the grand strategy (using SWOT and

forecasting)

3 Formulate the strategic plans (using e.g Porter)

4 Carry out the strategic plan

5 Maintain strategic control

Feedback: Revise actions, if necessary, based on feedback

WHAT IS THE STRATEGIC MANAGEMENT PROCESS?

The strategic management process has five steps plus a

feedback loop

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6.2 The Strategic-Management Process

Step 1 : Establish The Mission & The Vision

 A good mission statement expresses the

organization’s purpose or reason for being

 A good vision statement describes the term goal of what the organization wants to become

long-Mission Statements

 Does your company’s mission statement answer the following

questions?

 Who are our customers?

 What are our major products and services?

 In what geographical areas do we compete?

 What is our basic technology?

 What is our commitment to economic objectives?

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

 What are our major strengths and competitive advantages?

 What are our public responsibilities?

 What is our attitude toward our employees?

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Vision Statements

 Does your company’s vision statement answer “yes” to

the following questions?

 Is it appropriate for the organization and for the times?

 Does it set standards of excellence that reflect high ideals?

 Does it clarify purpose and direction?

 Does it inspire enthusiasm and encourage commitment?

 Is it well articulated and easily understood?

 Does it reflect the uniqueness of the organization, its distinctive

competence, what it stands for, what it’s able to achieve?

 It is ambitious?

6.2 The Strategic-Management Process

Step 2 : Establish The Grand Strategy

 The grand strategy explains how the organization’s mission is to be accomplished

 Three common grand strategies are growth

(involves expansion of sales revenue, market share, number of employees, or number of customers

served), stability (involves little or no significant

change), and defensive (involves reduction in the

organization’s efforts)

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How Companies Can Implement Grand Strategies

 Growth Strategy

 It can improve an existing product or service to attract more

buyers

 It can increase its promotion and marketing efforts to try to

expand its market share

 It can expand its operations, as in taking over distribution or

manufacturing previously handled by someone else

 It can expand into new products or services

 It can acquire similar or complementary businesses

 It can merge with another company to form a larger company

How Companies Can Implement Grand Strategies (Cont.)

 It can go for a no-change strategy

 It can go for a little-change strategy

 It can reduce costs

 It can sell off assets

 It can gradually phase out product lines or services

 It can divest part of its business

 It can declare bankruptcy

 It can attempt a turnaround

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6.2 The Strategic-Management Process

Step 3 : Formulate Strategic Plans

The process of choosing among different strategies and

altering them to best fit the organization’s needs is strategy

formulation

The strategy formulation process can be completed using techniques like Porter’s competitive forces and strategies, and product life cycles

Step 4: Carry Out The Strategic Plan

Strategy implementation involves putting strategic plans into effect

Managers need to ensure that the right people and control systems are in place to execute the plans

6.2 The Strategic-Management Process

Step 5 : Maintain Strategic Control: The Feedback

Loop

 Monitoring the execution of strategy and making

necessary adjustments is strategic control

 To keep strategic plans on track, managers need to encourage people, keep planning simple, stay

focused, and keep moving

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6.3 Establishing The Grand Strategy

HOW CAN A SWOT ANALYSIS HELP WITH

STRATEGY?

 The starting point for a grand analysis is the SWOT analysis (a search for the Strengths, Weaknesses,

Opportunities, and Threats affecting an organization)

 A SWOT analysis provides managers with a

realistic understanding of where the organization is relative to its internal and external environments

6.3 Establishing The Grand Strategy

Organizational strengths include the skills and capabilities that give the organization special competencies and

competitive advantages in executing strategies in pursuit of its mission

Organizational weaknesses include the drawbacks that

hinder an organization in executing strategies in pursuit of its mission

Organizational opportunities include environmental factors

that the organization may exploit for competitive advantage

Organizational threats include environmental factors that

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6.3 Establishing The Grand Strategy

Figure 6.2: SWOT Analysis

6.3 Establishing The Grand Strategy

 After completing the SWOT analysis, managers

need to make forecasts (visions or projections of the future)

There are two types of forecasts:

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

 The creation of alternative hypothetical but equally likely future conditions is contingency planning or

scenario planning

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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

6.4 Formulating Strategy

Porter’s Five Competitive Forces include:

1 The threat of new entrants

• New competitors can shake-up an industry virtually

overnight

2 The bargaining power of suppliers

• Companies that rely on a single supplier are vulnerable

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6.4 Formulating Strategy

3 The bargaining power of buyers

• Major customers, and customers that shop around can

negotiate better prices

4 The threat of substitute products or services

• When there are substitute products or services available,

firms have less power

5 Rivalry among competitors

• Intense rivalry is a threat to companies

6.4 Formulating Strategy

Porter’s four competitive strategies or generic

strategies include:

1 The cost leadership strategy - involves trying to keep costs

and prices below those of competitors and targeting a wide

competitors, and sell to a wide market

Examples of companies using a differentiation strategy

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6.4 Formulating Strategy

3 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

4 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

The Product Life Cycle

3 Formulate the strategic plans (using e.g Porter)

4 Carry out the strategic plan

Stage 1 Introduction Stage 2 Growth Stage 3 Maturity Stage 4 Decline

Kinicki/Williams, Management: A Practical Introduction 3e ©2008, McGraw-Hill/Irwin

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

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

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6.4 Formulating Strategy

There are three advantages to related diversification:

1 reduced risk because the firm sells more than

one product

2 management efficiencies because administration

is spread over several businesses

3 synergy because the economic value of

separate, related companies operating under one roof is greater than the companies are worth

separately

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

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Competitive Intelligence

 Gaining Competitive Intelligence:

 Public and print advertising

 Investor information

 Informal sources

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

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6.5 Implementing & Controlling

Strategy: Execution

There are three building blocks underlying effective execution:

1 Develop seven essential behaviors

5 reward the doers

6 expand people’s capabilities

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

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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