THE FIVE FACES OF STRATEGIC MANAGEMENT

Dr. Iftekhar Ghani Chowdhury

A good strategy enables a company build a strong market position in the face of unforeseeable external developments, potent competition and internal problems. But it is not enough to have a good strategy; it is necessary to implement it as well. It is said that we strategize beautifully but implement it pathetically. The 5 tasks of strategic management are: 1. Setting a vision and a business mission Convert the mission into objectives Craft a strategy to achieve results Implement and execute the chosen strategy Evaluate performance and take corrective measure if necessary SETTING A VISION

Vision is a chart of companys journey into the future from what it is to where it wants to go. It must pervade the entire organization from the chief executive to the workers at the operational level. By developing and communicating a strategic vision management infuses the workforce with a sense of purpose and a persuasive rational for the companys future direction. A business is not defined by a name articles of incorporation but by a mission. A clear definition of the mission and purpose of the organization is necessary to develop realistic business objectives. To quote Drucker The management that does not ask what is our mission, when the company is successful is, in effect smug, lazy and arrogant. It will not be long before success will turn into failure. Four key questions in formulating business mission and purpose are What is our business? Who is our customer? Where is our customer? What is our value to our customer? A sense of mission is essentially an emotional feeling by the people in the organization. An organization with a sense of mission can capture the emotional support of its people and hence is the term

shared vision/mission. If you have doubts about the need of a vision you are not alone. Lou Gerstner IBM CEO in 1993 drew attention with his statement the last thing IBM needs right now is a vision. However, in 1996 he had an altered position What IBM needs most right now is a vision. The words vision and mission have interchangeable use in management vocabulary. If there is a difference it is in the notion of time: Vision is futuristic (what do we plan to do, where are we heading) Mission relates to the present (what are we trying to do, what is our business). Why take so much pain in preparing organizational vision/mission? Business Week reports that firms using mission statements have a 30 percent higher return on certain financial measure than those without such statements. Some reasons are as follows: Ensure uniformity of purpose within the organization Provide a basis, or standard, for allocating organizational resources Establish a general tone or organizational climate Serve as a focal point for individuals to identify with the organizations purpose and direction Facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements within organization Specify organizational purposes and then translate the purpose into objectives in such a way that cost, time and performance parameters can be assessed and controlled Good mission statements identify the utility of a firms product, not the product itself, to the customers. Not the clothes but the looks Not the shoes but the pleasure of walking Not books but knowledge Not the furniture but the comfort and coziness Do not offer things It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or service converts economic resources into wealth and things into goods. The mission statement includes the following components:
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Customer - Who Products - What Market - Where Philosophy - Beliefs, Values, Aspirations, Ethical Priorities Self-Concept - Distinctive Competence Public Image - Responsiveness to society, community Employees - Concern, employees are valuable assets Growth, Survival - Commitment to growth & financial soundness Business of coca cola: Business of IBM: Soft drink Computer

Refer to Levits Marketing Myopia and redefine the business of the two companies. How about changing mission of the two companies as follows: Coca Cola: IBM: Beverages Information

It adds a stretch to the Mission Trying to identify needs served, target market, and functions performed in a single, snappy sentence is a challenge and many firms mission statement fail to do so. It must be communicated to the employees through the functional channels that will imbibe a sense of purpose and pride. Any changes in the mission statement must also be communicated to keep employees informed. Avoid using hollow or bland words full of sound signifying nothing (Exercise, find one). Well-conceived and well-worded mission statement crystallizes managements view of long-term direction of business, reduces risk of rudderless decision making, gives a purpose to employees to give their best, sets goals a functional level of management and helps the organization for the future. Simpler wording better than grandiose phrases. Some more examples of company mission and vision statement: Eastman Kodak To be the worlds best in chemical and electronic imaging Compaq Computer To be the leading supplier of PC servers in all customer segments BOC Bangladesh To be recognized as the leader in all the business sectors in which we compete
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Beximco Pharma Benefit and add value to the common wealth of our society.... accountability to all constituents with whom we interact; customers, business associates, fellow citizens and shareholders Otis Elevator To provide any customer a means of moving people and things up, and sideways over short distances with higher reliability than any similar enterprise in the world How would you now write the mission of the following companies? Mobil: Sells everything related to oil, from drilling to pumping to refining to selling Uses own distributors. Transports people from one place to another Does not make aircraft, buys them from other. Does not take customers home, up to the airport.

Biman:

A company mission has a finite life, subject to change as management decides that the present mission is no longer adequate. The values of a well-conceived and worded mission statement are: 2. Provides a direction and a purpose Eliminates risk of decisions in vacuum Provides employees a sense of purpose Steers organization into the future SETTING OBJECTIVES

Objectives convert a vision into measurable outcomes of performance. They are quantitative and have deadlines. Must also be specific and not words like increase sales or maximize profit. What gets measured gets done. Two broad categories of objectives are; Financial Higher dividends/ rising stock prices Higher returns on invested capital

Company X: Increase sales from Tk 100 million to Tk 200 Million Non-Finacial Mainly competitor focused, usually aimed at unseating a competitor considered to be industrys best in a particular product. To offer the best possible PC technology, and to put the technology in the hands of as many people as possible McDonalds: Achieve total customer satisfaction/ every day/ever restaurant/every customer Strategic in nature such as Bigger market share Total customer satisfaction Strategic intent is normally related to long term goals while financial objective can be short term. Strategic intent can take a heroic character such as Land a man on the moon before the Russians There can be clash between the two types of objectives. If than happens which one gets precedence? Short-term Financial objectives are tempting and can be imposing in difficult times. If this is pursued too often the longterm effectiveness of a company may be in danger. A more focused objective is shown on a strategic intent of how a company wants to position itself, for example as the market leader. Komatsus intent was to Beat Caterpillar, Canons was to Beat Xerox which shows a deep-seated commitment to winning. Objectives should be challenging but achievable. It is the job of a manager to work out what is achievable or not. All components must have objectives from departments to divisions to the entire organization. For example, the corporate objective of Tk 200 Million can be split between business divisions which in turn can be split in sales unit sales target and so on. They must fit, one within another. Objective setting is a top-down task. Comparison of the two types of objectives:

Financial
Growth in revenue Higher return on invested capital Rising stock prices Stable earning during recession

Non-Financial
Bigger market share Higher product quality than rivals More attractive product line than rivals Wider geographic coverage than rivals

3.

CRAFTING A STRATEGY

Strategy is the means to achieve an objective. This needs entrepreneurial activity risk-taking, venturesome ness, business creativity, and an eye for spotting emerging market opportunities. Managers must be able to respond to environmental changes else the company will face performance crisis. Entrepreneurship can surface at any level of managing such as a sales manager deciding to provide every sales a lap top. Or a plant manager deciding to outsource an item because it is more cost effective and releases resources to more vital areas of operation. Strategy can evolve through both purposeful actions (Intended ) or through reactions to anticipated developments (Emergent). It is unlikely that a strategy will remain unchanged in time, but the changes may vary from fine-tuning to quantum changes depending on external developments. Changes, if a strategy is well crafted, should develop in bits and pieces except in crisis situations such as a break through in technology or social innovations. Some elements of strategy are; How to grow the business How to satisfy the customers How to out compete rivals How to respond to changing market conditions How to manage each functional piece of business How to meet strategic and financial objectives Obviously Strategies have a pyramid structure from Corporate to Business to Functional to Operational level. The lower elements have to feed into the higher elements towards a common goal. For example, in a single business company the functional channels or the units within such as plants, sales districts will all have their own goals and tasks to fit into the objective of the higher unit. Corporate Strategy relates to a diversified company where each business will perform in a similar fashion. However the individual businesses will again have their own goals to fit within the corporate framework. Diversification requires synergy between the business units.
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Strategy can also be a function of the style of leadership such as a highperforming enterprises that initiates and leads, not just react and defend. Aggressive pursuit of a creative, opportunistic strategy can propel a firm into a leadership position, paving the way for its products/services to become the industry standard. 4. Implementation

Implementation is the process of seeing what it takes to make the strategy work. Strategy cannot exist in vacuum. It will need support from all levels. Factors affecting the implementation of a strategy are: Industry Environment Competitive conditions determine how the company should position itself. Must respond to opportunities and threats of the market with regard to its own strength, weakness and competitive capabilities. Core strengths of a company are important constituents of a strategy. A strategic plan cannot be executed if a firm lacks of skills and resources necessary for its implementation.

Society, Politics and Regulations Government policies and regulatory requirement Practices acceptable to society and community Culture A Mission has a close sync with company culture on how it performs business externally (against competitors) internally (within) All organizations develop their own cultures and to work in them you have to join them, psychologically and physically the power culture, the role culture, the task culture and the person culture. An organizations way of doing things: Policies

 Practices Traditions Beliefs combine to form its culture. An organizations response to external stimuli is conditioned by culture. Core values and beliefs modulate companies culture - We believe that honesty, integrity, and fairness should be the cornerstone of our relationships with consumers, customers, suppliers, stockholders, and employees. Organizational Culture evolves as an organization learns to cope with its problem of external adaptation and internal integration, that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think and feel. Ethics Ethics is the process whereby we choose between competing moral and/or economic values. Ethics is a system of moral principles governing the appropriate conduct for an individual or group, based on what somebodys conscience suggest is right or wrong, rather than on what the law says should be done. Ethics is obedience to the unenforceable, not covered by the terms of law such as thou shalt not. Ethics concerns human duty and principles on which duty rests. Duties of a business extend to Owners Shareholders Employees Customers Suppliers Community at large Leadership What attributes make a leader? No general agreement on the attributes such as decisiveness, ability to motivate, intellect, skill in communication, foresight, leadership etc.
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The style of leadership can vary such as from a very authoritarian style to a totally democratic style. Contingency theory relates leadership style to the type of the organization such as an informal style in a small one to the very formal approach in a larger organization. Hence, building an organization that can support the strategy will require the following; Develop budget to steer resources into critical areas Establishing policies to support strategy Motivate people Tie up the reward structure Create conducive company culture and work climate Install support systems Institute programs and practices of continuous improvement Leadership to drive the implementation

The different components of organization must worker together in support of strategy. Hence, there must be a close fit between the way things are done, between strategy and reward structure, between strategy and internal support system and so on. Implementation is a lengthy process, can take from several months to several years. 5. Evaluation

Evaluation and review are necessary not only to find out how the different components are working together but also because strategy making is not a one time exercise. It is a continuous process of monitoring, controlling and adjustments as necessary. Measure of strategy evaluation consist of financial and non-financial indicators such as, Customer Satisfaction Market Share Quality Employee Turnover Profitability Inventory Levels Stock Price ROI

Financial indicators are lag indicators of historical nature. These do not necessarily reflect the long-term health of an organization. For example, by cutting down on expenses such as R&D, Quality and Customer Relationship the financial performance of a company can be made to improve. But this will affect the long-term health of the company. The non-financial indicators such as customer loyalty or employee satisfaction are not easy to measure unlike the financial indicators. Yet, there is a need for a balancing the two types of measures. Balanced Scorecard Method is one such approach. The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation. Like a pilot needs more than one dial to monitor the safety of an aircraft an organization needs more than one performance indicator. The balanced scorecard suggest that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives. These are finance (increased sales), customer (increased customer satisfaction) , internal business processes (reduce delivery time) and learning and growth (empower workforce).

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