Strategic Management Concept and Process Kuliah 2-3

Translating Vision, Mission and Corporate Strategy into Business and Functional Strategy

DODIE TRICAHYONO

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Definitions
Strategic Competitiveness
When a firm successfully formulates and implements a value-creating strategy

Sustainable Competitive Advantage

When competitors are unable to duplicate a companys value-creating strategy

Strategic Management Process

The full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns

Risk
An investors uncertainty about the economic gains or losses that will result from a particular investment

Average Returns
Returns equal to those an investor expects to earn from other investments with a similar amount of risk

Above-average Returns
Returns in excess of what an investor expects to earn from other investments with a similar amount of risk
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Key Terms in Strategic Management Competitive advantage Stakeholders Strategists Vision and Mission Statements External Opportunities and Threats Internal Strengths and Weaknesses Long-term Objectives Strategies Annual Objectives Policies

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Strategic Management Concepts

Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
Key Attributes of Strategic Management:
Directs the organization toward overall goals and objectives. Involves the inclusion of multiple stakeholders in decision making.

Needs to incorporate short-term and long-term perspectives.

Recognizes tradeoffs between efficiency and effectiveness.

Some Key Driving Forces:

Globalization: Think globally, act locally

Rapid technological change and diffusion Intellectual capital: Knowledge as the source of competitive advantage Enhancing employee involvement
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The Strategy-Making, Strategy-Executing Process

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Developing a Strategic Vision

Involves thinking strategically about

Future direction of company
Changes in companys product-marketcustomer-technology to improve
Current market position

Future prospects

A strategic vision is a road map showing the route a company intends to take in developing and strengthening its business. It paints a picture of a companys destination and provides a rationale for going there.
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Key Elements of a Strategic Vision

Delineates managements aspirations for the business Charts a strategic path for the future Where are we going? Steers energies of employees in a common direction Molds organizational identity Is distinctive and specific to a particular organization Avoids use of generic language Triggers strong emotions Is challenging, uncomfortable, nail biting

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Examples of Strategic Visions

General Electric
We will become number one or number two in every market we serve, and revolutionize this company to have the speed and agility of a small enterprise.

Nike
To bring innovation inspiration to every athlete in the world.

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Examples of Strategic Visions

Intel
Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intels core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of peoples computing experience. We are helping to expand the capabilities of the PC platform and the Internet . . . We have seen only the early stages of deployment of digital technologies.

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Characteristics of Mission Statement

Defines current business activities, highlighting boundaries of current business
Present products and services Types of customers served

Conveys
Who we are, What we do, and Why we are here

Three factors to consider

Customer needs What is being satisfied Customer groups Who is being satisfied Technologies/resources/business approaches used and activities performed How customer needs are satisfied

A companys mission is not to make a profit! Its true mission is its answer to What will we do to make a profit? Making a profit is an objective or intended outcome!
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Dells Mission Statement

Dell Computer
Dell Computers mission is to be the most successfull computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability.

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Example: Mission Statement

Pfizer Inc.
Pfizer is a research-based, global pharmaceutical company. We discover and develop innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. The company has three business segments: health care, animal health and consumer health care. Our products are available in more than 150 countries.
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Example: Mission Statement

Ritz-Carlton Hotels
The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission. We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experiences enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.
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Example: Mission Statement

The Gillette Company

The Gillette Company is a globally focused consumer products company that seeks competitive advantage in quality, value-added personal care and personal use products. We compete in four large, worldwide businesses: personal grooming products, consumer portable power products, stationery products and small electrical appliances. As a company, we share skills and resources among business units to optimize performance. We are committed to a plan of sustained sales and profit growth that recognizes and balances both short- and long-term objectives.
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Example: Mission Statement

The Gillette Company

Our mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which we choose to compete. Current core categories are: Male grooming products - blades and razors, electric shavers, shaving preparations and deodorants . . . Female grooming products - wet shaving products, hair removal and hair care appliances and deodorants . . . Alkaline and specialty batteries and cells. Writing instruments and correction products. Certain areas of the oral care market - toothbrushes . . . Selected areas of the high-quality small household appliance business - coffeemakers . . .
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How to Evaluate the Mission Statements

Customers Who are the firms customers? Products or Services What are the firms major products or servoces?

Markets Geographically, where does the firm compete?

Technology Is the firm technologically current? Concerns for survival, growth, and profitability Is the firm committed to growth and financial soundness?

Philosophy What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept What is the firms distinctive competence or major competitive advantage?

Concern for public image Is the firm responsive to social, community, and environmental concerns?
Concern for employees Are employees a valuable asset of the firm?
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Mission Statements for Functional Departments

Spotlights departments

Role and scope of activities Direction which department needs to pursue Contribution to firms overall mission
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Break
Tugas Kelompok 1: Cari Vission and Mission Statements dari satu perusahaan dan analisis dengan menggunakan teori yang ada.

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Linking the Vision With Company Values

A statement of values is often provided to guide the companys pursuit of its vision

Values Beliefs, business principles, and ways of doing things that are incorporated into
Companys operations Behavior of workforce

Values statements
Contain between four and eight values Are ideally tightly connected to and reinforce companys vision, strategy, and operating practices

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Example: Company Values

Home Depot
Creating shareholder value
Entrepreneurial spirit

Excellent customer service

Building strong relationships

Giving back to the community

Taking care of people Doing the right thing

Respect for all people

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Example: Company Values

Du Pont
Safety Ethics

Respect for people

Environmental stewardship

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Communicating the Strategic Vision

An exciting, inspirational vision
Contains memorable language Clearly maps companys future direction Challenges and motivates workforce Provokes emotion and enthusiasm

Winning support for the vision involves

Putting where we are going and why in writing Distributing the statement organization-wide Having executives explain the vision to the workforce

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Examples: Vision Slogans

Levi Strauss & Company
We will clothe the world by marketing the most appealing and widely worn casual clothing in the world.

Microsoft Corporation
Empower people through great softwareany time, any place, and on any device.

Mayo Clinic
The best care to every patient every day.

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Strategic Inflection Points

There are times when companies come to a major fork in the road.
Perhaps because market conditions are changing rapidly in ways that threaten or endanger the companys business prospects Perhaps because the strategy simply runs out of stream Perhaps because the actions of competitors block the success of the companys present strategic course and strategy

Critical decisions have to be made about where do we go from here

A major new directional path may have to be taken
A major new strategy may be needed

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Intels Strategic Inflection Points

Prior to mid-1980s
Focus on memory chips

Starting in mid-1980s
Abandon memory chip business (due to lower-cost Japanese companies taking over the market) and
Become preeminent supplier of microprocessors to PC industry Make PC central appliance in workplace and home Be undisputed leader in driving PC technology forward

1998
Shift focus from PC technology to becoming the preeminent building block supplier to the Internet economy

2005? 2010?
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Payoffs of a Clear Strategic Vision

Crystallizes an organizations long-term direction Reduces risk of rudderless decision-making Assists in gaining support of organizational members for changes to make the vision a reality Helps keep strategy-related actions of managers on common path Helps an organization prepare for the future
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Setting Objectives
Purpose of setting objectives
Converts vision into specific performance targets

Creates yardsticks to track performance

Pushes firm to be inventive, intentional, and focused in its actions

Setting challenging, achievable objectives guards against

Complacency

Internal confusion
Status quo performance

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Characteristics of Objectives
Represent commitment to achieve specific performance targets Spell-out how much of what kind of performance by when Well-stated objectives are
Quantifiable
Measurable Contain a deadline for achievement

Establishing objectives converts the vision into concrete performance outcomes!

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Types of Objectives Required

Financial Objectives
Outcomes focused on improving financial performance
X % increase in annual revenues X % increase annually in after-tax profits X % increase annually in earnings per share Annual dividend increases of X % Profit margins of X % X % return on capital employed (ROCE) Increased shareholder value Strong bond and credit ratings Sufficient internal cash flows to fund 100% of new capital investment Stable earnings during periods of recession

Strategic Objectives
Outcomes focused on improving long-term competitive business position
Have strong position in X market Increase market share to become X% Shorter On-Time delivery than rivals Shorter design-to-market times (x) than rivals Lowest costs of production Wider geographic coverage than rivals No 1 in Quality of products and service Wider product line than rivals

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Unilevers Strategic and Financial Objectives

Grow annual revenues by 5-6% annually Increase operating profit margins from 11% to 16% within 5 years Trim companys 1200 food, household, and personal care products down to 400 core brands Focus sales and marketing efforts on those brands with potential to become respected, market-leading global brands Streamline companys supply chain

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Seagate Technologys Strategic Objectives

Solidify the companys No. 1 position in the overall market for hard-disk drives
Get more Seagate drives into popular consumer electronics products (i.e. video recorders) Take share away from Western Digital in providing disk drives for Microsofts Xbox

Capture a 10% share of the market for 2.5-inch hard drives for notebook computers by 2004

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DuPonts Financial and Strategic Objectives

To achieve annual revenue growth of 5 to 6% and annual earnings-per-share growth averaging 10% Grow per-share profits faster than revenues by (a)Increasing productivity, (b)Selling enough new products each year that average prices and average margins rise, and (c)Using surplus cash to buy back shares Sell the companys low-margin textiles and interiors division (with sales of $6.6 billion and operating profits of only $114 million)

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Strategic Performance Fosters Better Financial Performance

A companys achievement of satisfactory financial performance, by itself, is not enough Financial performance measures are lagging indicators reflecting results of past decisions and actions Of equal or greater importance is a companys performance on measures of its strategic well-being its competitiveness and market position Strategic performance measures are leading indicators of a companys future financial performance and business prospects Achievement of strategic performance targets
Signals growing competitiveness Signals growing strength in the marketplace

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Balanced Scorecard Approach Strategic and Financial Objectives Balanced scorecard approach for measuring company performance requires both
Financial objectives Strategic objectives

Emphasis on financial performance may assume priority over strategic performance when companys
Financial performance is dismal and Survival is threatened

Otherwise, management is advised to put more emphasis on achieving strategic objectives

The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a companys business position and give it a growing competitive advantage over rivals!
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Short-Term vs. Long-Term Objectives Short-term objectives

Targets to be achieved soon Milestones or stair steps for reaching long-range performance

Long-term objectives
Targets to be achieved within 3 to 5 years Prompt actions now that will permit reaching targeted long-range performance later

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Objectives Are Needed at All Levels

1. First, establish organization-wide objectives and performance targets 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives

4. Individual objectives are established last

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Importance of Top-Down Objectives

Guide objective-setting and strategy-making at lower levels

Ensures financial and strategic performance targets for all business units, divisions, and departments are directly connected to achieving company-wide objectives Integration of objectives has two advantages
Helps produce cohesion among objectives and strategies of different parts of organization

Helps unify internal efforts to move a company along the chosen strategic path

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Break 2
Tugas kelompok 2: Selama liburan, identifikasi company values dari beberapa pemain utama industri telekomunikasi Indonesia.

KELOMPOK 1,2

PERUSAHAAN PT TELKOM Indonesia

3,4 5,6
7 8

PT INDOSAT PT Exelcomindo
PT Bakrie Telcom PT Hucthinson

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