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8/6/2019 2nd Lecture-Establishing Direction
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ESTABLISHINGESTABLISHING
ORGANIZATIONS DIRECTIONORGANIZATIONS DIRECTION
MISSIONMISSION// VISION,VISION,
OBJECTIVES & STRATEGYOBJECTIVES & STRATEGY
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DIRECTIONDIRECTION--SETTING PROCESSSETTING PROCESS
1.1. Charting Future Strategic PathCharting Future Strategic Path
2.2. Setting ObjectivesSetting Objectives
3.3. Crafting StrategyCrafting Strategy
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11--ChartingChartingFuture Strategic PathFuture Strategic Path
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VISIONVISION
Effective strategy making begins with aEffective strategy making begins with a
vision of where the organization needs tovision of where the organization needs to
head.
head.
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STRATEGIC VISIONSTRATEGIC VISION
Early on in the directionEarly on in the direction--setting process, managers need tosetting process, managers need toaddress the question "What is our business and what will itaddress the question "What is our business and what will itbe?"be?"
Management's views and conclusions about theManagement's views and conclusions about theorganization's future course, the market position it should tryorganization's future course, the market position it should tryto occupy, and the business activities to be pursuedto occupy, and the business activities to be pursuedconstitute aconstitute a strategic visionstrategic vision for the organization.for the organization.
A strategic vision indicates management's aspirations for theA strategic vision indicates management's aspirations for theorganization, providing a panoramic view of "whatorganization, providing a panoramic view of "whatbusinesses we want to be in, where we are headed, and thebusinesses we want to be in, where we are headed, and thekind of organization we are trying to create."kind of organization we are trying to create."
CONTINUEDCONTINUED
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A strategic vision spells out a direction andA strategic vision spells out a direction and
describes the destination.
describes the destination.
Effective visions are clear, challenging, andEffective visions are clear, challenging, andinspiring; they prepare an organization for theinspiring; they prepare an organization for thefuture, and they make sense in the marketplace.future, and they make sense in the marketplace.
A wellA well--conceived, wellconceived, well--worded mission/visionworded mission/visionstatement helps managers manage and servesstatement helps managers manage and servesas a beacon of the enterprise's longas a beacon of the enterprise's long--termterm
direction, helping channel organizational effortsdirection, helping channel organizational effortsand strategic initiatives along the pathand strategic initiatives along the pathmanagement has committed to following,management has committed to following,building a strong sense of organizational identitybuilding a strong sense of organizational identityand purpose, and creating employee buyand purpose, and creating employee buy--in.in.
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Three Elements of a Strategic VisionThree Elements of a Strategic Vision
Use the mission statementmission statementas aas astarting pointstarting point
Develop a strategic visionstrategic vision thatspells out a course to pursue
CommunicateCommunicate the vision in aclearclearand excitingexcitingmanner
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Mission StatementMission StatementDefinesDefines currentcurrentbusiness activitiesbusiness activities
HighlightsHighlights boundariesboundaries of current businessof current business
ConveysConveys
WhoWho we are,we are,
WhatWhatwe do, andwe do, and
WhereWhere we are nowwe are now
CompanyCompany specificspecific, not generic, not generic
so as to give a company its own identityso as to give a company its own identityA companys mission isA companys mission is notnot to make ato make aprofit ! The real mission is alwaysprofit ! The real mission is alwaysWhatWhat
will we do to make a profit?will we do to make a profit?
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Defining Organizations BusinessDefining Organizations Business
A companys business is defined by what needs it is tryingA companys business is defined by what needs it is trying
to satisfy, by which customer groups it is targeting, and byto satisfy, by which customer groups it is targeting, and bythe technologies and competencies it uses and thethe technologies and competencies it uses and theactivities it performs.activities it performs.
A goodA good business definitionbusiness definition incorporates threeincorporates three
factorsfactors Customer needsCustomer needs ---- WhatWhatis being satisfiedis being satisfied
Customer groupsCustomer groups ---- WhoWho is being satisfiedis being satisfied
Technologies and competencies employedTechnologies and competencies employed
Technology, competencies, andTechnology, competencies, and activities are importantactivities are importantto defining a companys business because theyto defining a companys business because theyindicate the boundaries on its operations.indicate the boundaries on its operations.
HowHowvalue is delivered to customers to satisfy theirvalue is delivered to customers to satisfy theirneedsneeds
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Diversified companies have broaderDiversified companies have broader
missions and business definitions thanmissions and business definitions than
singlesingle--business enterprises.business enterprises.
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MISSIONMISSION
Mission is the organizations basic functionMission is the organizations basic function
in society. (Mintzberg)in society. (Mintzberg)
Mission outlines why an organizationMission outlines why an organization
exists.exists.
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ELEMENTS OF MISSIONELEMENTS OF MISSION
1.1. PURPOSEPURPOSE To make profit for shareholdersTo make profit for shareholders
To provide an apparatus of financial accountabilityTo provide an apparatus of financial accountability
2.2. STRATEGIC STANCESTRATEGIC STANCE The Products it offers and therefore its competitive positionThe Products it offers and therefore its competitive position
The Competences by which it hopes to prosper and its way ofThe Competences by which it hopes to prosper and its way ofcompetingcompeting
3.3. STANDARDS OF BEHAVIORSTANDARDS OF BEHAVIOR Conversion of mission into every day performanceConversion of mission into every day performance
4.4. VALUESVALUES Basic beliefs of the organizational membersBasic beliefs of the organizational members
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MISSION STATEMENTMISSION STATEMENT
Formal statement of an organizations missionFormal statement of an organizations mission
It captures the essence of why organization exists.It captures the essence of why organization exists.
It expresses the core values of organization.It expresses the core values of organization.
One of the roles of a mission statement is to giveOne of the roles of a mission statement is to give
the organization its own special identity, businessthe organization its own special identity, businessemphasis, and path for developmentemphasis, and path for developmentone thatone thattypically sets it apart from other similarly situatedtypically sets it apart from other similarly situatedcompanies.companies.
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MISSION STATEMENT MUST ANSWERMISSION STATEMENT MUST ANSWER
FOLLOWING QUESTIONSFOLLOWING QUESTIONS::
1.1. What is our reason for being?What is our reason for being?
2.2.What is our basic purpose?What is our basic purpose?
3.3. What Business are we in?What Business are we in?
4.4. What is unique or distinctive about ourWhat is unique or distinctive about ourorganization?organization?
5.5. What do we stand for?What do we stand for?
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The mission
statement is the
justification foran organization's
existence.
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WELL CRAFTED MISSION STATEMENTS ANSWERWELL CRAFTED MISSION STATEMENTS ANSWER
THREE FUNDAMENTAL QUESTIONSTHREE FUNDAMENTAL QUESTIONS::
1.1. Who we are?Who we are?
2.2. What we want to doWhat we want to door accomplish?or accomplish?
3.3. Why we do whatWhy we do what
we do?we do?Effective mission statements areEffective mission statements are
easily recalled and provide directioneasily recalled and provide direction
and motivation for the organization.and motivation for the organization.
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EXAMPLESEXAMPLES
GOOD AND BAD MISSION STATEMENTSGOOD AND BAD MISSION STATEMENTS
To Make People Happy
To Explore the
Universe and Search
for Life and to
Inspire the Next
Generation of
Explorers
NASA
Walt Disney
Does a good job of expressing the core
values of the organization. Also conveysunique qualities about the organization.
Too vague and and unclear. Need more
descriptive information about what makes
the organization special.
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FUNCTIONS OFFUNCTIONS OF
MISSION STATEMENTMISSION STATEMENT
It provides focus for strategic decisions.It provides focus for strategic decisions.
It creates values to guide discretionary decisionIt creates values to guide discretionary decision--making.making.
It strengthens organizational culture.It strengthens organizational culture.
It communicates the nature of organization to insiders andIt communicates the nature of organization to insiders andoutsiders.outsiders.
Good mission statements are highly personalizedGood mission statements are highly personalizedunique tounique tothe organization for which they are developed.the organization for which they are developed.
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PROBLEMS WITHPROBLEMS WITH
MISSION STATEMENTSMISSION STATEMENTS
Public Relations ExercisesPublic Relations Exercises
Ignored in PracticeIgnored in Practice
Full of GeneralizationsFull of Generalizations
Post HocPost Hoc
Mission does not drive the organization but are usedMission does not drive the organization but are used
to rationalize organizational existence.to rationalize organizational existence.
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Strategic VisionStrategic Vision
Charts an organizations future strategicCharts an organizations future strategiccoursecourse
Defines the business makeup for 5 yearsDefines the business makeup for 5 years(or more)(or more)
Specifies future technologySpecifies future technology--productproduct--customer focuscustomer focus
Indicates capabilities to be developedIndicates capabilities to be developed
Requires managers to exercise foresightRequires managers to exercise foresight
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The entrepreneurial challenge in developing a strategic visionThe entrepreneurial challenge in developing a strategic visionis to think creatively about how to prepare a company for theis to think creatively about how to prepare a company for thefuture.future.
Forming a strategic vision is an exercise in astuteForming a strategic vision is an exercise in astuteentrepreneurship, not a time for pipedreams or fantasies aboutentrepreneurship, not a time for pipedreams or fantasies aboutthe companys future.the companys future.
Many successful organizations need to change direction not inMany successful organizations need to change direction not inorder to survive but in order to maintain their success.order to survive but in order to maintain their success.
A wellA well--articulated strategic vision creates enthusiasm for thearticulated strategic vision creates enthusiasm for thecourse management has charted and engages members ofcourse management has charted and engages members ofthe organization.the organization.
The bestThe best--worded vision statements clearly and crisplyworded vision statements clearly and crisply
illuminate the direction in which an organization is headed.illuminate the direction in which an organization is headed.
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VISIONVISION
Vision is aVision is a DreamDream, with a Deadline., with a Deadline.
Vision is aVision is a Picture of FuturePicture of Future..
Vision providesVision provides Boundaries forBoundaries forOrganizations DirectionOrganizations Direction..
Strategy draws on the Vision.Strategy draws on the Vision.
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THREE ASPECTS OF VISIONTHREE ASPECTS OF VISION
1.1. What the organization is now?What the organization is now?
2.2. What it could be in an ideal world?What it could be in an ideal world?
3.3. What the ideal world would be like?What the ideal world would be like?
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FROM AN ORGANIZATIONAL PERSPECTIVE,FROM AN ORGANIZATIONAL PERSPECTIVE,
VISION HAS TO HAVE FIVE COMPONENTSVISION HAS TO HAVE FIVE COMPONENTS ::
1.1. A Sense of WorthinessA Sense of Worthiness
2.2. An Ability to InspireAn Ability to Inspire
3.3. An Invitation to ShareAn Invitation to Share
4.
4.
Clarity and UnderstandabilityClarity and Understandability
5.5. AchievabilityAchievability
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TIPS FOR WRITING THE VISIONTIPS FOR WRITING THE VISION
1.1. Visualize.Visualize. Close your eyes and Practice visualization.Close your eyes and Practice visualization.
2.2. Be Specific.Be Specific. Write your vision statement on paper.Write your vision statement on paper.Next write down all of your thoughts related to yourNext write down all of your thoughts related to yourvision. Make sure the most crucial thoughts arevision. Make sure the most crucial thoughts arecentral to your mission.central to your mission.
3.3. Be Descriptive.Be Descriptive. Present your thoughts in a logicalPresent your thoughts in a logical
fashion so that the reader can follow your vision.fashion so that the reader can follow your vision.
4.4. Be concise.Be concise. Stick to material that is relevant andStick to material that is relevant andnecessary for you to communicate your vision. Toonecessary for you to communicate your vision. Toolong a vision will not be read or understood.long a vision will not be read or understood.
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IN SUMMARYIN SUMMARY
You have to have aYou have to have a Plan for SuccessPlan for Success!!
ItIt starts with a Visionstarts with a Vision..
You get the vision by reaching eachYou get the vision by reaching each
Objective/ Goal.Objective/ Goal.
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22-- Setting ObjectivesSetting Objectives
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SETTING OBJECTIVESSETTING OBJECTIVES
Second directionSecond direction--setting task is to establishsetting task is to establish objectives,objectives,strategicstrategicandand financialfinancialfor the organization to achieve.for the organization to achieve.
Objectives convert the mission statement andObjectives convert the mission statement andstrategic vision into specific performance targets.strategic vision into specific performance targets.
Objectives need to spell out precisely how much byObjectives need to spell out precisely how much by
when, and they need to require a significant amount ofwhen, and they need to require a significant amount oforganizational stretch.organizational stretch.
Objectives are needed at all organizational levels.Objectives are needed at all organizational levels.
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Concept of Strategic IntentConcept of Strategic Intent
A company exhibitsA company exhibits strategic intentstrategic intent
when itwhen it relentlesslyrelentlesslypursuespursues strategicstrategic
objectiveobjective and concentrates itsand concentrates itscompetitive actions and energies oncompetitive actions and energies on
achieving that objective!achieving that objective!
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33-- Crafting StrategyCrafting Strategy
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A strategy is a commitment to undertakeA strategy is a commitment to undertake
one set of actions rather than another.one set of actions rather than another.
Sharon M. Oster, Professor, Yale UniversitySharon M. Oster, Professor, Yale University
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CRAFTING A STRATEGYCRAFTING A STRATEGY
Third directionThird direction--setting step entailssetting step entails crafting a strategycrafting a strategytotoachieve the objectives set in each area of the organization.achieve the objectives set in each area of the organization.
A Corporate Strategy is needed to achieve corporateA Corporate Strategy is needed to achieve corporate--levellevelobjectives;objectives;
Business Strategies are needed to achieve businessBusiness Strategies are needed to achieve business--unitunit
performance objectives;performance objectives;Functional Strategies are needed to achieve the performanceFunctional Strategies are needed to achieve the performancetargets set for each functional department; andtargets set for each functional department; and
OperatingOperating--level Strategies are needed to achieve thelevel Strategies are needed to achieve theobjectives set in each operating and geographic unit.objectives set in each operating and geographic unit.
In effect, an organization's strategic plan is a collection ofIn effect, an organization's strategic plan is a collection ofunified and interlocking strategies. Typically, the strategyunified and interlocking strategies. Typically, the strategy--making task is more topmaking task is more top--down than bottomdown than bottom--up. Lowerup. Lower--levellevelstrategies should contribute to the achievement of higherstrategies should contribute to the achievement of higher--level, companywide objectives.level, companywide objectives.
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L l f St tL l f St t
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Corporate
Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level
Managers
Business-LevelManagers
Operating
Managers
Functional
Managers
Levels of StrategyLevels of Strategy
in a Diversified Companyin a Diversified Company
L l f St tL l f St t
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Levels of StrategyLevels of Strategy
in a Singlein a Single--Business CompanyBusiness Company
Business
Strategy
Two-Way Influence
Two-Way Influence
Functional Strategies
Operating Strategies
Executive-Level
Managers
Operating
Managers
Functional
Managers
C t St tC t St t
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Corporate StrategyCorporate Strategyfor a Diversified Companyfor a Diversified Company
Corporate
Strategy
Approach to
capital allocation
Narrow or broad-based diversification
Scope of
geographic
operations
Moves to add new
new businesses
Moves to build positions
in new industries
Efforts to capture
cross-business
strategic fits
Moves to divest
weak business units
Is diversification
related, unrelated
or a mix?
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Tasks of Corporate StrategyTasks of Corporate Strategy
Moves to achieveMoves to achieve diversificationdiversification
Actions toActions to boost performanceboost performance ofof
individual businessesindividual businesses
Capturing valuable crossCapturing valuable cross--businessbusiness
strategic fitsstrategic fits that result inthat result in 1 + 1 = 31 + 1 = 3
effects!effects!
EstablishingEstablishing investmentinvestment
prioritiespriorities and steeringand steering
corporate resources into thecorporate resources into the
most attractive businessesmost attractive businesses
C t f St tC t f St t
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Components of StrategyComponents of Strategy
for a Singlefor a Single--Business CompanyBusiness Company
Efforts to build
competitive
advantage
Planned, proactive moves to outcompete rivals
Responses to
changing
conditions
Scope ofgeographic
coverage
Collaborativepartnerships and
strategic alliances
R&D strategy
Supply chainmanagementstrategy
Manufacturingstrategy
Humanresources strategy
Finance strategy
Business
Strategy
Marketingstrategy
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Functional StrategiesFunctional Strategies
Game planGame plan for a strategicallyfor a strategically--relevantrelevantfunction, activity, or business processfunction, activity, or business process
DetailsDetails howhowkey activities will bekey activities will bemanagedmanaged
ProvideProvide supportsupportfor business strategyfor business strategy
SpecifySpecify howhowfunctional objectives are tofunctional objectives are to
be achievedbe achieved
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Operating StrategiesOperating Strategies
Concern narrower strategies forConcern narrower strategies for
managing grassroots activities andmanaging grassroots activities and
strategicallystrategically--relevantrelevant operating unitsoperating units
AddAdd detaildetailto business and functionalto business and functional
strategiesstrategies
N t ki fN t ki f
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Networking ofNetworking of
Missions, Objectives & StrategiesMissions, Objectives & Strategies
Level 1Corporate-LevelManagers
Level 2
Business-LevelManagers
Level 3Functional
Managers
Level 4Plant Managers,
Lower-Level
Supervisors
Corporate
Level
Objectives
Corporate-wide
Strategic
Vision
Corporate
Level
Strategy
Business
Level
Objectives
Business
Level Strategic
Vision
Business
Level
Strategies
Functional
Objectives
Functional
Missions
Functional
Strategies
Operating
Objectives
Operating
Missions
Operating
Strategies
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence Two-Way Influence Two-Way Influence
Factors Shaping the ChoiceFactors Shaping the Choice
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Factors Shaping the ChoiceFactors Shaping the Choice
of Company Strategyof Company Strategy
Companys Strategic SituationCraft
the
strategy
External Factors
Internal Factors
Social,political,
regulatory
and
community
factors
Competitive
conditions
and industry
attractiveness
Company
opportunities
and threats to
companys
well-being
Resource
strengths,
capabilities,
and
weaknesses
Influences of
key
executives
Shared values
and company
culture
Identify
and
evaluate
alternatives
Determinerelevance
of internal
and
external
factors
S i l P liti l R l tS i l P liti l R l t
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Social, Political, Regulatory,Social, Political, Regulatory,
and Community Factorsand Community Factors
Pressures from special interest groupsPressures from special interest groups
Glare of investigative reportingGlare of investigative reporting
Health and nutrition concernsHealth and nutrition concerns
Concerns about alcohol and drug abuseConcerns about alcohol and drug abuse
Sexual harassmentSexual harassment
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Corporate downsizingCorporate downsizing
Impact of plant closings on communitiesImpact of plant closings on communities
Rising/falling interest ratesRising/falling interest rates
Economic conditions (good or bad)Economic conditions (good or bad)
Trade restrictions, tariffs, and importTrade restrictions, tariffs, and importquotasquotas
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Corporate Social ResponsibilityCorporate Social Responsibility
Conducting company activities withinConducting company activities within
bounds of what is consideredbounds of what is considered ethicalethicalandandin public interestin public interest
Responding positively to emerging societalResponding positively to emerging societal
priorities and expectationspriorities and expectations
Demonstrating willingness to take neededDemonstrating willingness to take neededaction ahead of regulatory confrontationaction ahead of regulatory confrontation
Balancing stockholder interests againstBalancing stockholder interests againstlarger interest of society as a wholelarger interest of society as a whole
Being aBeing a good citizengood citizen in communityin community
Competitive Conditions andCompetitive Conditions and
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Competitive Conditions andCompetitive Conditions and
Industry AttractivenessIndustry Attractiveness
A companys strategy has to beA companys strategy has to beresponsiveresponsive toto
Fresh moves of rival competitorsFresh moves of rival competitors
Changes in industrysChanges in industrys
priceprice--costcost--profit economicsprofit economics
Shifting buyer needs and expectationsShifting buyer needs and expectations
New technological developmentsNew technological developments
Pace of market growthPace of market growth
C St th C t iC St th C t i
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Company Strengths, Competencies,Company Strengths, Competencies,and Competitive Capabilitiesand Competitive Capabilities
A company must have or be able toA company must have or be able toacquire the resources, competencies,acquire the resources, competencies,
and competitive capabilities needed toand competitive capabilities needed to
execute the chosen strategyexecute the chosen strategy
Resource deficiencies, gaps in skills, andResource deficiencies, gaps in skills, and
weaknesses in competitive position makeweaknesses in competitive position make
pursuit of certain strategies riskypursuit of certain strategies riskyoror
altogether unwisealtogether unwise
A Fi Ethi l R ibilitiA Fi Ethi l R ibiliti
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A Firms Ethical ResponsibilitiesA Firms Ethical Responsibilities
to Its Stakeholdersto Its Stakeholders
Owners/shareholders Rightfully expect someform of return on their investment
Employees - Rightfully expect respect for theirworth and devoting their energies to firm
Customers - Rightfully expect a seller to providethem with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitablerelationship with firms they supply
Community- Rightfully expect businesses to begood citizens in their community
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THANK YOUTHANK YOU