CHAPTER

The Strategic Management Process

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Part 1 Strategy Analysis

22

2-2

LO 2-1 Explain the role of vision, mission, and values in the strategic management process.

LO 2-2 Describe and evaluate the role of strategic intent in achieving long-term goals. LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success. LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-3

ChapterCase 2

Teach For America: Inspiring Future Leaders

TFA Mission: Eliminate educational inequality

Started by an undergraduate student Inspiring mission

Provide a meaningful service option for bright young people

Make teaching to the neediest high prestige

Over 40,000 applicants for 4,500 jobs

TFA Video
2-4

Teach For America Inspiring Others What are the key issues in the opening case?

How was TFA able to successfully recruit?

Established an inspiring mission

Appealing to the target demographic

Clear communication of the goals of the organization

The program is highly selective

2-5

VISION, MISSION, AND VALUES

What are visionary organizations?
Begin with the end in mind

Similar to designing & building a home

Vision what to ultimately accomplish? Mission what is the firm about? Values how to accomplish goals?

2-6

EXHIBIT 2.1

Teach For America: Vision, Mission, and Values

2-7

VISION, MISSION, AND VALUES What is forming strategic intent?

Staking out a desired leadership position in the long

term that far exceeds a company's current situation

Often used in Japanese corporate settings

Canon will "beat Xerox"

Effective use of stretch goals

Competitive advantage for tomorrow

2-8

STRATEGY HIGHLIGHT 2.1

Winning Through Strategic Intent: The Pocketable Radio

Small Japanese Company after WWII

Invented an electric rice cooker Wanted to license the transistor from Bell Labs in U.S.

Japanese Government & Bell Labs both said NO

Persisted with request Finally,1953 got transistor!

Beat Bell Labs to pocket-sized radio

1957 Launched worlds FIRST pocket radio 1958 Changed company name to.

SONY
19

2-9

SMART Goals (Text Extension)

Specific Measurable Achievable Relevant Time-specific SMART can
Increase motivation Clear direction

SMART example:
3M Corporation Goal: 30% of all sales

from products under 4 years on the market

Manage by Objectives

BUTcan also
Trigger unethical actions
2-10

LO 2-1 Explain the role of vision, mission, and values in the strategic management process. LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals. LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success. LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-11

VISION, MISSION, AND VALUES

CUSTOMER-ORIENTED MISSIONS Define the firm in terms of solutions for customers

Disney: "Make People Happy"
Enhanced strategic flexibility NOT the same as listening to customers

PRODUCT-ORIENTED MISSIONS Define the firm in terms of products or services

U.S. Railroads: "Safest N. American railroad

Missed the chance to move into delivery before UPS & Federal Express

2-12

MISSION STATEMENTS AND COMPETITIVE ADVANTAGE Do mission statements help gain & sustain competitive advantage?
Results are inconclusive Need strategic commitments to succeed

Positive associations Visionary firms Negative associations Better World Books No associations Intel

2-13

Mission Statement
Intel Corp. In search of a mission From product orientation
To be the pre-eminent building block supplier of the PC industry To be the pre-eminent building block supplier of the Internet

economy

To customer orientation
Delight our customers, employees, and shareholders by

relentlessly delivering the platform and technology advancements that become essential to the way we work and live

What is the link between a firms mission statement and competitive advantage?

2-14

LO 2-1 Explain the role of vision, mission, and values in the strategic management process. LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals. LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for long-term success.

LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-15

Living the Values

Ethical standards and norms that govern behavior.
How do we accomplish our goals?

McKesson ICARE
Shared principles a framework for daily interactions

Dark side of values

Bernard Madoff

Ponzi scheme estimated at $65 billion in fraud

Enron
One of the largest bankruptcies in U.S. history Over 50,000 jobs lost (Enron & Arthur Anderson)

2-16

LO 2-1 Explain the role of vision, mission, and values in the strategic management process. LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals. LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications. LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage. LO 2-5 Explain why anchoring a firm in ethical values is essential for long term success. LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications.

2-17

The Strategic Management Process

1. Strategic Planning 2. Scenario Planning 3. Strategy as Planned Emergence

2-18

Strategy as Strategic Planning

Top-down rational planning
Define mission, vision, & goal (strategic intent)
External analysis of opportunities and threats Internal analysis of strengths and weaknesses Create strategic fit through SWOT Formulate appropriate strategy Implement chosen strategy Monitor performance & modify if necessary
2-19

Strategic Planning
Traditional view of strategy
Works reasonably well in stable environment
Scientific management

Strategy is an engineering programming problem

Past predicts the future Strategic thinking is separated from implementation

2-20

Strategy as Scenario Planning

Scenario planning
Envision different "what-if" plans
Generates a dominant plan

Must implement the most probable option

Keeps other scenarios in the event of changes

"Arab Spring" impact on the oil industry?

Good example of the AFI framework

2-21

Scenario Planning
The future cannot be known Some examples:
UPS, FedEx, AirTran, Delta

How to compete if the barrel of oil costs $35 or $200?

Boeing, Harley-Davidson, Caterpillar

How to compete if 1 euro = $2 or $1 = 75 yen

How to obtain capital when the DJIA is at 6,800 and the credit markets

are frozen up?

Thinking outside the box But tendency is not to think about pessimistic scenarios

2-22

EXHIBIT 2.2

Scenario Planning in the AFI Strategy Framework

2-23

STRATEGY HIGHLIGHT 2.2

Shells Future Scenarios

Petroleum industry use of scenario planning

Shell made right move in the 1960s Again in the 1980s Communisms might fall

Now projecting 20% energy from renewables by 2025

2-24

Small Group Exercise Global Trends 2025

Relative Certainties Likely Impact Key Uncertainties
Energy alternatives by 2025? Climate change: When and Where? Return of Mercantilism? Democracy in China and Russia? Arms race triggered by Iran? Stability in the Middle East? European Japanese Relations Cooperation of global powers with new powerhouses?

Potential Consequences
Oil and gas producers top out and plunge Scarce natural resources Conflict over resources Chinese nationalism, Russian stagnation Nuclear escalation of conflicts Increased turbulence with glimmers of hope Interculturalism Tensions between new and old orders

Emergence of a multipolar New powerhouses, new rules world (U.S., China, Russia, EU) Dispersal of global economic power Decreased U.S. power Natural resources stretched Rapid population growth Conditions rife for conflict Terrorism's appeal may lessen but capabilities may increase Challenge to Western order Policy trade-offs Inadequate energy replacements Social unrest and state failure Role of global powers in Middle East Global vulnerability to hightech terrorism

Consider the above lists as a starting point

What implications would these possible futures have If your group is (1) Ford, (2) GE, (3)ExxonMobil, (4)Google, (5) U.S. Govt Use scenario planning process What is your dominant plan?
Adapted from Global Trends 2025: A Transformed World. National Intelligence Council, Washington, DC, November 2008.

2-25

Strategy as Planned Emergence

Strategic Initiative
Google 50% from the "20% rule"
Enron wind investment

Mintzberg Planned Emergence Strategy can come from top or bottom

Some intended strategies drop off in the process Allows for new emerging ideas to become realized Resource allocation process (RAP) Serendipity can have dramatic effects

2-26

Strategic Initiatives and Serendipity

Polaroid
Instant photography

3M
Masking tape Post-it notes Scotchguard

Japan Railways
Bottled water

Pfizer
Viagra

2-27

Bottom-up Strategic Initiatives / Autonomous Actions

Microsoft
Internet Explorer
Xbox

Intel
DRAM exit and entry into semiconductors

Starbucks
Frappuccino

Google
50% of new products come from 20% autonomous

time
2-28

EXHIBIT 2.3 MINTZBERGS PLANNING FRAMEWORK.

2-29

STRATEGY HIGHLIGHT 2.3

Its Not What We Do!

Starbucks
Autonomous action of mid-level manager Tenacity and persistence of a store manager

Risk of failure Possible career-limiting action

Organization must be willing to accept new ideas Frappuccino was born!

Contributing 20% of revenues for Starbucks recently

2-30

Small Group Exercise # 2 Ideas Bloom Firms today need to allow more "emergence"
How can firms generate more new ideas? What if managers got 2% of their budget for investing?
The organization would generate many "seeds" Experimentation would grow Firms become network of small angel investors New ideas would get small funds for initial tests Application of real options thinking

What are some implementation problems here? Use a firm someone in your group knows well to

discuss problems with widely spreading small project approvals across the company.

2-31

Implications for the Strategist Net Present Value (NPV)

Widely used financial tool
Inappropriate when uncertainty is high Doesnt capture home run upsides

Real Options
Uses a set of smaller decisions Keeps options open longer Prevents early shutdown of projects

Microsoft Keywords (Ch.1 opener)

They may have stayed with it longer Possibly hit stride on search earlier

2-32

CHAPTERCASE 2 /Consider This

Teach For America is TWENTY years old!

A $200 million dollar organization

Teacher effectiveness improves with

Studentoriented achievement course objectives

What role did TFAs vision statement have? How have they recruited so many into teaching? Could it have worked as a for-profit firm?
2-33

Take-Away Concepts
LO 2-1 Explain the role of vision, mission, and values in the strategic
management process. A vision captures an organizations aspirations. An effective vision inspires members of the organization. A mission statement describes what an organization actually does and why it does it. Values define the ethical standards and norms that should govern the behavior of individuals within the firm.

Success is created twice: first analyzing a mental model and second formulating and implementing a strategy to make a vision a reality.

LO 2-2 Describe and evaluate the role of strategic intent in achieving

long-term goals.

Strategic intent finds its expression in stretch goals that exceed the firms existing resources and capabilities by a large margin.
Effective use of strategic intent creates at all levels of the organization an obsession with winning that can help companies ascend to global leadership.

2-34

Take-Away Concepts (contd)

LO 2-3 Distinguish between customer-oriented and product-oriented missions and identify strategic implications.
Customer-oriented missions define businesses providing solutions to customer needs. Product-oriented missions define a business in terms of a good or service provided. Customer-oriented missions provide managers with more strategic flexibility than product-oriented missions.

LO 2-4 Critically evaluate the relationship between mission statements and competitive advantage.
Mission statements can help a firm achieve superior performance, but mission statements by themselves do not directly affect firm performance.

To be effective, mission statements need to be backed up by hard-toreverse commitments.

2-35

Take-Away Concepts (contd)

LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success. Ethical core values enable employees to make day-to-day decisions that are guided by correct principles. Values are guardrails to keep a company on track for competitive advantage. LO 2-6 Compare and contrast strategic planning, scenario planning, and strategy as planned emergence, and discuss strategic implications. Top-down strategic (long-range) planning works reasonably well when the environment does not change much. In scenario planning, managers envision different what-if scenarios and prepare contingency plans that can be called upon when necessary. Strategic initiatives can be the result of top-down planning by executives or can emerge through a bottom-up process from deep within the organization. A firms realized strategy is generally a combination of its top-down intended strategy and bottom-up emergent strategy, resulting in planned emergence.

2-36

Dominant strategic plan Emergent strategy Intended strategy Mission Organizational values Realized strategy Scenario planning Strategic commitments

Strategic initiative Strategic intent Strategic management process Strategic (long-range) planning Unrealized strategy Vision

2-37