1. Strategic Management and Planning in a Global Environment Chapter 4 Part 2Planning Challenges in the 21st Century

2.

Define strategic management and describe its purpose.

Explain the four stages of the strategic management process.

Identify and explain the components of strategic analysis, as well as explain the value of conducting this analysis.

Explain how an organization can develop a competitive advantage.

Explain the purpose of strategy formulation and describe the two levels of strategic alternatives.

LEARNING OBJECTIVES When you have finished studying this chapter, you should be able to: 3.

Explain the role of strategy implementation.

Explain the importance of evaluation and control of strategy and its implementation.

Discuss the importance of strategic planning.

LEARNING OBJECTIVES(contd) When you have finished studying this chapter, you should be able to: 4. Strategic Planning

Strategic Planning

• The process by which an organization makes decisions and takes actions that affect its long-run performance.

• Strategic plan:the output of the strategic planning process that provides direction by defining its strategic approach to business.

Competitive Advantage

• Is a central concept of strategic planning.

• Can only be sustained if an organization continues to out innovate competitors.

5. Figure 4.1 The Strategic Management Process 6. Key Terms

Strategic Management

• Overall, long-run management.

Strategic Planning

• The process of making plans and decisions that are focused on long-run performance.

Strategic Plan

• A comprehensive plan that provides overall direction for the organization.

7. Key Terms (contd)

Strategic Analysis

• An assessment of the external and internal environments of an organization.

Strategy Formulation

• Establishing strategy and tactics necessary to achieve the mission of the organization.

8. Benefits of Strategic Planning

Economic

• Organizations that plan strategically outperform those that do not.

Behavioral

• Identification of organizational and environmental conditions that may create problems in the long run.

• Better decisions as a result of the group decision-making process.

• Participation in the planning process increases participants understanding of how the plan is to be implemented and their willingness to change.

9. Strategic Analysis: Assessment in a Global Environment

The purpose of strategic analysis is to evaluate the present situation of the organization.

• Analysis requires three primary activities:

• • Assessing the mission of the organization

• • Internal environmental analysis

• • External environmental analysis

10. Figure 4. 2The Components of Strategic Analysis 11. SWOT Analysis

The combined internal and external strategic analysis is referred to as aSWOTanalysis.

• S trengths

• W eaknesses

• O pportunities

• T hreats

12. Assessing the Mission of an Organization

The mission of an organization reflects its fundamental reasons for existence.

Though mission statements vary greatly, every mission statement should describe three primary aspects of an organization:

• The organizations primary products or services.

• The organizations primary target markets.

• The organizations overall strategy for ensuring long-term success.

13. Key Terms

Strategic Direction

• Direction of the organization toward success in the long run.

Vision

• The ability to predict opportunities and threats in the future.

• • A vision statement is intended to guide the organization in the future, what the organization wants to become or where it wants to be.

• • Vision is derived from a careful analysis of the external and internal environments

14. Table 4. 1Ford Motor Companys Mission Statement Ford Motor Company Our Vision To become the worlds leading consumer company for automotive products and services. Our Mission We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve peoples lives. Our Values Our business is driven by our consumer focus, creativity, resourcefulness, and entrepreneurial spirit. We are an inspired, diverse team. We respect and value everyones contribution. The health and safety of our people are paramount. We are a leader in environmental responsibility. Our integrity is never compromised and we make a positive contribution to society. We constantly strive to improve in everything we do. Guided by these values, we provide superior returns to our shareholders. Source:Ford Motor Co. website (http://www.ford.com), 30 June 2005. 15. External Analysis

Purpose of External Analysis

• To identify aspects of the external environment that represent either anopportunityfor or athreatto the organization.

• Opportunities:

• • Those environmental trends on which the organization can capitalize and improve its competitive position.

• Threats

• • Conditions that jeopardize the organizations ability to prosper and its competitive position in the long term.

16. External Analysis Factors

General Environment

• Includes environmental forces that are beyond the influence of the organization and over which it has no (or little) control.

Task Environment

• Includes environmental forces that are within the organizations operating environment and may be influenced to some degree.

Economic Environment

• The economic components of the general environment.

17. Figure 4. 3Dimensions of the Global External Environment 18. Table 4.2 Sample Issues in the General Environment Economic Inflation rates Unemployment rates Wage rates Exchange rates Stock market fluctuations Per capita income GDP trends Economic development Sociocultural Norms and values Demographic trends Age groups Regional shifts in population Household composition Diversity Ecological awareness Life expectancy Technological Spending on research and development Internet availability Availability of information technology Production technology trends Productivity improvements Telecommunications infrastructure PoliticalLegal Tax laws Environmental protection International trade regulation Antitrust regulation Federal Reserve policy Intellectual property and patent laws 19. External Environment

General Environment

• Economic factors

• Technological factors

• Socio-cultural factors

• Political-legal factors

Task Environment

• Customer Profiles

• Competitive Structure

• Resource Availability

20. Figure 4. 4Five Forces Model of Industry Analysis Source:Adapted from Michael E. Porter, How Competitive Forces Shape Strategy,Harvard Business Review57, no. 2 (March/April 1979): 137145. 21. Internal Analysis

Purpose of Internal Analysis

• To identify the assets, resources, skills, and processes that represent eitherstrengthsorweaknessesfor the organization.

• Strengths

• • Aspects of the organizations operations that represent potentialcompetitive advantagesordistinctive competencies .

• Weaknesses

• • Areas that are in need of improvement.

22. Table 4. 3 Internal Factors for Analysis MarketingOperations Product, serviceProductivity Brand equityQuality Market researchFacilities Sales forceSupply chain Market shareTechnology Size of marketPurchasing Distribution channelsSafety PriceEcological issues Promotion Finance Profitability Revenue Asset utilization Debt/leverage Equity Per unit costs Profit margins Cash flow Human Resources Skills Selection Training and development Leadership Motivation Communication Rewards Other Factors Organization culture Overall control Information system Information technology Organizational structure 23. Strategy Formulation

Answers the question:

• Where does the organization want to be?

Steps in strategy formulation include:

• Casting the vision for the organization.

• Setting strategic goals.

• Identifying strategic alternatives.

• Evaluating and choosing strategies that provide a competitive advantage and optimize the performance of the organization in the long term.

24. Casting the Vision for the Organization

The development of a vision for the organization is central to any strategic plan.

Vision versus Mission

• Avision statementdescribes what the organization aspires to be in the long run.

• Amission statementdescribes the products, services, and target markets for an organization.

25. Setting Strategic Goals

Goals

• Are very broad statements of the results that an organization wishes to achieve in the long run.

• Relate to the mission and vision of the organization and specify the level of performance that the organization wants to achieve.

SMART goals are:

• SpecificMeasurableAchievableResults-orientedTimeline

26. Identifying Strategic Alternatives

Strategic Alternatives

• Are developed in light of the organizational mission considering its strengths, weaknesses, opportunities, and threats, and its vision and strategic goals.

Grand Strategies

• Stability strategies:intended to ensure continuity in the operations and performance of the organization.

• Growth strategies:designed to increase the sales and profits of the organization.

• Retrenchment strategies:designed to reverse negative sales and profitability trends.

27. Identifying Strategic Alternatives(contd)

Generic Strategies

• The primary ways in which an organization can compete in its chosen market(s).

• • Cost leadership:competing on the basis of price.

• • Differentiation:offering products or services that are differentiated from those of competitors in some way.

• • Focus:avoiding competing in broad markets by targeting a narrow market segment.

• • Best-Cost provider:competing on the basis of both low-cost and differentiation.

28. Figure 4. 5Generic Strategies Matrix 29. Evaluating and Choosing Strategy

Portfolio Assessment

• Provides a mechanism for evaluating an organizations portfolio of business, products and services.

• • Boston Consulting Group (BCG) Growth-Share matrix

• • General Electric Industry Attractiveness Business Strength matrix

Decision Matrices

• A decision matrix provides a method for evaluating alternative strategies according to the criteria that the organizations leaders consider more important.

30. Strategy Implementation: Focusing on Results

The best-formulated strategy is virtually worthless if it cannot be implemented effectively.

• A direct, specific, clear strategy must be developed.

• Strategies must be established at all levels of the organization to align each part of the organization with the organizations overall mission and goals.

• The organizations system must be designed to ensure that strategies can be institutionalized in its culture.

31. Evaluation and Control: Achieving Effectiveness and Efficiency

Strategic Control

• Involves monitoring the implementation of the strategic plan to ensure quality and effectiveness in terms of organizational performance.

• Feedforward controls

• • Are designed to identify changes in the external environment or internal operations that affect organizations ability to fulfill its mission and meet its strategic goals.

• Feedback Controls

• • Compare the actual performance of the organization to its planned performance.

32. Information Technology and Strategic Planning

Positive

• The increasing availability of information technology has had a tremendous impact on the ability of organizations to develop effective strategic plans.

Negative

• Many organizations fail to use the information made available by management information systems to ensure effective strategic planning.

33. Institutionalizing Strategy

Every member, work group, department, and division of the organization must subscribe to and support the organizations strategy with its plans and actions.

• There must be a good fit between the chosen strategy and:

• • the organizational structure

• • the organizational culture

• • the organizational leadership

34. The Importance of Organizational Culture

Organizational Culture

• Refers to the shared, emotionally charged beliefs, values, and norms that bind people together.

• • Helps people make sense of the systems within an organization.

• • Guides the behavior of and gives meaning to the members of the organization.

35. Organizational Leadership

The Importance of Leadership

• If an organization is to implement its strategy effectively, it must have the appropriate leadership.

• Without effective leadership, an organization is unlikely to realize the benefits of its selected strategy.

36. Implications for Leaders

Understand the realities of the external environment in which you operate.

Understand the importance of a thorough and accurate assessment of the current situation of the organization.

A plan will be only as good as the analysis upon which it is based.

Strategic vision is critical for ensuring a common strategic direction for the organization.

Make sure that the mission statement is a working document that provides direction for the members of the organization.

37. Implications for Leaders (contd)

Strategic goals serve as targets for achievement. Make sure that they are specific, measurable, results oriented, and have a established time for their achievement.

Strategy should be designed to provide the organization with a distinctive competitive advantage in the long run.

A strategic plan is meaningless if it is not implemented well.

Provide for evaluation and control to be sure that operations are on track for accomplishment of the organizations mission.