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Strategy Planning
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TABLE 2.1: FACTORS TO CONSIDER IN DECIDING ON A COMPANYS FUTURE
DIRECTION
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KEY ELEMENTS OF A STRATEGIC VISION
Delineates managements aspirations for the business
Provides a panoramic view of where we are going
Charts a strategic path
Is distinctive and specific to a particular organization
Avoids use of generic language that is dull and boring and that could apply to most any company
Captures the emotions of employees and steers them in a common direction
Is challenging and a bit beyond a companys immediate reach
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ROLE OF A STRATEGIC VISION
A well-conceived, well-communicated vision functions as a
valuable managerial tool to Give the organization a sense of direction, mold organizational identity,
and create a committed enterprise
Illuminate the companys directional path
Provide managers with a reference point to
Make strategic decisions
Translate the vision into hard-edged objectives and strategies
Prepare the company for the future
A strategic vision exists only as words and has no
organizational impact unless and until it wins the commitment
of company personnel and energizes them to act in ways that
move the company along the intended strategic path!
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TABLE 2.2: CHARACTERISTICS OF AN EFFECTIVELY WORDED VISION
STATEMENT
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TABLE 2.3: COMMON SHORTCOMINGS IN COMPANY VISION STATEMENTS
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EXAMPLE OF STRATEGIC VISION
Red Hat
To extend our position as the most trusted Linux
and open source provider to the enterprise.
We intend to grow the market for Linux
through a complete range of enterprise Red
Hat Linux software, a powerful Internet
management platform, and associated
support and services.
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EXAMPLE OF STRATEGIC VISION
UBS We are determined to be the best global financial services company.
We focus on wealth and asset management, and on investment banking
and securities businesses.
We continually earn recognition and trust from clients, shareholders, and
staff through our ability to anticipate, learn and shape our future.
We share a common ambition to succeed by delivering quality in what we
do.
Our purpose is to help our clients make financial decisions with confidence.
We use our resources to develop effective solutions and services for our
clients.
We foster a distinctive, meritocratic culture of ambition, performance and
learning as this attracts, retains and develops the best talent for our
company.
By growing both our client and our talent franchises, we add sustainable
value for our shareholders.
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EXAMPLES OF STRATEGIC VISIONS
Caterpillar
Be the global leader in customer value.
eBay
Provide a global trading
platform where practically anyone
can trade practically anything.
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WHAT IS A COMPANY MISSION?
A broadly framed but enduring statement
of a firms intent. It is the unique purpose
that sets a company apart from others of
its type and identifies the scope of its
operations in product, market, and
technology terms.
STRATEGIC VISION VS. MISSION
A strategic vision
concerns a firms future
business path - where
we are going
Markets to be pursued
Future product/market/ customer/technology focus
Kind of company management is
trying to create
A companys mission
statement typically
focuses on its present
business purpose - who
we are and what we do
Current product and service offerings
Customer needs and customer groups being
served
Geographic coverage
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CHARACTERISTICS OF A MISSION
STATEMENT Identifies boundaries of a companys current business and
says something about Present products and services
Types of customers served
Geographic coverage
Conveys Who we are,
What we do, and
Why we are here
A good mission statement describes a companys business
makeup and purpose in language specific enough to give
the company its own identity and distinguish it from
other enterprises in the same or other industries!
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QUESTIONS ADDRESSED IN A MISSION STATEMENT
Why is this firm in business?
What are our economic goals?
What is our operating philosophy in terms of quality, company image, and self-concept?
What are our core competencies and competitive advantages?
What customers do and can we serve?
How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?
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FORMULATING A MISSION
The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur
These beliefs are usually the basis for the companys mission
As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary
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EX. 2.2 (ADAPTED) MISSION STATEMENT COMPONENTS
1. Customer-market 2. Product-service 3. Geographic Domain 4. Technology 5. Concern for Survival 6. Philosophy 7. Self-concept 8. Concern for Public Image
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THREE ESSENTIAL COMPONENTS:
Basic Product or Service
Primary Market
Principal Technology If a firm uses a silver bullet mission for
outsiders to read, it will include these three
components.
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PRIMARY COMPANY GOALS
Survival A firm that is unable to
survive will be incapable of
satisfying the aims of any of its
stakeholders.
This goal is often taken for granted
If neglected, firm may focus on short-term aims
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PRIMARY COMPANY GOALS (CONTD.)
Profitability A firms profitability is the
mainstay goal of a business.
Clearest indication of firms ability to satisfy principal claims and desires of employees and
stockholders
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PRIMARY COMPANY GOALS (CONTD.)
Growth A firms growth is tied inextricably
to its survival and profitability. Growth in
this sense must be broadly defined.
Important to define growth i.e., in terms of market share, etc.
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COMPANY PHILOSOPHY
Company philosophy is often called company creed.
Usually accompanies or appears within the mission statement
Reflects the basic beliefs, values, aspirations, and philosophical priorities to which strategic
decision makers are committed in managing
the company
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PUBLIC IMAGE
Both present and potential customers attribute certain qualities to particular
businesses.
Firms seldom address the question of their public image in an intermittent
fashion.
Firms should be concerned with their public image even when there is no
public agitation.
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COMPANY SELF-CONCEPT
A major determinant of a firms success is the extent to which the firm can relate functionally to its
external environment.
The ability of firms to survive in a dynamic and highly competitive environment would be severely limited if
they did not understand their impact on others or of
others on them.
Ordinarily, descriptions of the company self-concept per se do not appear in mission statements.
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NEWEST TRENDS IN MISSION COMPONENTS
Sensitivity to customer wants
The customer is our top priority
Importance of consumer satisfaction
The Penney Idea
Importance of customer service
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NEWEST TRENDS IN MISSION COMPONENTS (CONTD.)
Quality
Quality is job one!
The work of W. Edwards Deming and J.M. Juran
Malcolm Baldridge Awards
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DEMINGS 14 POINTS:
1. Create constancy of purpose.
2. Adopt the new philosophy.
3. Cease dependence on mass inspection to achieve quality.
4. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier.
5. Improve constantly the system of production and service.
6. Institute training on the job.
7. Institute leadership.
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DEMINGS 14 POINTS (CONTD):
8. Drive out fear.
9. Break down barriers between departments.
10. Eliminate slogans, exhortations, and numerical targets.
11. Eliminate work standards (quotas) and management by objective.
12. Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship.
13. Institute a vigorous program of education and self-improvement.
14. Put everyone in the company to work to accomplish the transformation.
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NEWEST TRENDS IN MISSION COMPONENTS (CONTD.)
Statement of companys vision
A statement that presents a firms strategic intent designed to focus the energies and
resources of the company on achieving a
desirable future
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BOARDS OF DIRECTORS
The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission.
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MAJOR BOARD RESPONSIBILITIES:
Establish and update mission
Elect top officers & CEO
Establish compensation for top officers
Determine amount & timing of dividends
Set broad company policy
Set objectives and authorize managers to
implement long-term strategy
Mandate companys legal and ethics compliance
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AGENCY THEORY
Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.
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AGENCY COSTS
The cost of agency problems plus the cost of actions taken to minimize agency
problems are collectively termed agency
costs.
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HOW AGENCY PROBLEMS OCCUR
Moral hazard problem Executives are often free to pursue their own
interests because of the disproportionate
access they have to company information.
This is the moral hazard problem.
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HOW AGENCY PROBLEMS OCCUR (CONTD.)
Adverse selection
is an agency problem caused by the limited ability of stockholders to
determine the competencies and
priorities of executives at hire.
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PROBLEMS RESULTING FROM AGENCY
Executives pursue growth in company size rather than earnings
Executives attempt to diversify their corporate risk
Executives avoid healthy risk
Managers act to optimize their personal payoffs
Executives protect their status
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SOLUTIONS TO AGENCY PROBLEM
Owners pay executives a premium for their service to increase loyalty
Executives receive back-loaded compensation.
Creating teams of executives across different units of a corporation can help to focus
performance measures on organizational rather
than personal goals.
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ALIGNING EXECUTIVE INTERESTS WITH
OWNER INTERESTS
Stock Option Plans
Bonus plans
Incentives for Long-Term Performance
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REFERENCES
Pearce, J.A. & Robinson, R.B. 2013. Strategic
Management: Formulation, Implementation & Control,
13th Edition. McGraw-Hill International edition,
Chapter 2.
Thompson & Strickland, 2010, Crafting and Executing
Strategy: The Quest for Competitive Advantage:
Concepts and Cases, Chapter 2