SM-Mod-2

Strategic Management Mod-2

STRATEGIC MANAGEMENT

Vision Statement –

What do we want to become?

Mission Statement –

What is our business?

Vision vs. Mission

A vision statement is a description of what competitive position it wants to

attain over a given period of time, and what core competencies it must

acquire to get there

To be effective…it must be clear, desireable, and feasible

A mission statement documents the purpose of an organization’s existence

Crafting and executing strategy are the heart and soul of managing a

business enterprise

But the question is…

Who develops the strategy and executes it proficiently ?

Who besides the top management has the responsibility towards it ?

Agreement on the basic vision for which the firm strives to achieve in the

long run is critically important to the firm’s success.

“What do we want to become?”

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ComprehensiveMission

Statement

Clear Business Vision


Shared Vision --

Creates commonality of interests

Reduce daily monotony

Provides opportunity & challenge

Mission Statements

• Enduring statement of purpose

• Distinguishes one firm from another

• Declares the firm’s reason for being

Also referred to as:

• Creed statement

• Statement of purpose

• Statement of philosophy

• Statement of business principles

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Mission Statements

Reveal what an organization wants to be and whom it wants to serve

Essential for effectively establishing objectives and formulating strategies

Many organizations develop both vision & mission statements

Essential for effectively establishing objectives and formulating strategies

Developing Vision & Mission

Clear mission is needed before alternative strategies can be formulated and

implemented

Importance of Mission

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Mission

Resource Allocation

Unanimity of Purpose

Organizational Climate

Focal point for work structure


Effective Missions

1. Broad in scope

2. Generate strategic alternatives

3. Not overly specific

4. Reconciles interests among diverse stakeholders

5. Finely balanced between specificity & generality

6. Arouse positive feelings & emotions

7. Motivate readers to action

8. Generate favorable impression of the firm

9. Reflect future growth

10. Provide criteria for strategy selection

11. Basis for generating & evaluating strategic options

12. Are dynamic in nature

Mission & Customer Orientation

Define what the organization is

Define what it aspires to be

Limited to exclude some ventures

Broad enough to allow for growth

Distinguishes firm from all others

Stated clearly – understood by all

An Effective Mission Statement --

Anticipates customer needs

Identifies customer needs

Provides product/service to satisfy needs

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Managerial philosophy shapes social policy --

Affects development of vision & mission

Responsibilities to –

Consumers

Environmentalists

Minorities

Communities

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Mission Elements

CustomersMarkets

Employees

PublicImage Self-

ConceptPhilosophy

SurvivalGrowthProfit

ProductsServices

Technology


Strategic Objectives (Financial)

Increase sales growth 6 to 8 percent and accelerate core net earnings per

share growth to 13 to 15 percent in each of the next five years (Procter &

Gamble) Generate Internet-related revenue of $1.5 billion. (Automation)

Increase the contribution of Banking Group earnings from investments,

brokerage and insurance from 16 percent to 25 percent (Wells Fargo) Cut

corporate overhead costs by $30 million per year (Fortune brands)

Strategic Objectives (Nonfinancial)

• Capitalize on e-commerce (Federal Express)

• We want a majority of our customers,when surveyed, to say they

consider Wells Fargo the best financial institution in the community

Wells Fargo)

• We want to operate 6,000 stores by 2010—up from 3000 in the year

2000 (Walgreen’s)

• Develop a smart card strategy that will help us play a key role in

shaping online payments (American Express)

• Reduce greenhouse gases by 10 percent (from a 1990 base) by 2010

(BP Amoco)

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The process of crafting and executing strategy includes

Developing a strategic vision

Setting objectives and using them as yardsticks for measuring company’s

performance

Crafting a strategy to achieve the desired outcomes

Implementing and executing the chosen strategy effectively and efficiently

Monitoring developments and initiating corrective adjustments

Developing a Strategic Vision

Top management’s views and conclusions about the company’s direction

and the product-customer-market-technology focus constitute a STRATEGIC

VISION for a company.

It provides a panoramic view of “where we are going” and a convincing

rationale for why this makes good business sense for the company.

Strategic Vision

Core concept…

It is a road map showing the route a company intends to take in developing

and strengthening its business.

It paints a picture of a company’s destination and provides a rationale for

going there.

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Factors to consider in deciding the directional path

A good vision always needs to be a bit beyond a company’s reach, but

progress toward the vision unifies the efforts of company personnel.

There are certain factors to be considered

before setting a vision for the company…they are

classified into,

- External considerations

- Internal considerations

Review and define the organizational mission

Mission statement identifies the scope of organization in terms of

products and services

Communicates and identifies the purpose of organization to all

stakeholders

Mission statement normally includes – Products and services, target

customers and markets

May also include organizational philosophy, key technologies, public

image and contribution to society


Mission statements change infrequently

Steve Jobs

Looked at computer technology beyond office use

His mission was to make computer technology a vehicle for work and

entertainment

Developed iPod

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Produced animated movies like ‘Finding Nemo’ (For Disney through

Pixar organization)

Specific mission statement provide tighter focus


Which is good ? Which is poor?

Provide Hospital design services

Provide Voice/data design services

Provide information technology services

Increase shareholder value

Provide high-value products to the customer

Set long-range goals and objectives

Translate mission into specific, concrete and measurable terms

Indicate direction to managers

Answers where and when

Objectives include – market coverage, products, innovation,

quality etc

Objectives must be as operational as possible

Example – Luggage firm introducing new type of luggage

Objective becomes a project to R&D of firm

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Setting Objectives

The purpose is to convert the mission into Specific Performance

Targets

Serve as yardsticks for tracking company progress and

performance.

Should be set at levels that require stretch and disciplined effort.

STRATEGIC OBJECTIVES

To ensure compliance with applicable legislation

To establish and implement optimal internal governance structures

and processes

To establish internal and external accountability systems

To establish and implement an effective organizational performance

system

Strategic Objectives

Strategic objectives are made by the top level management defining

the goals of the organizations.

Such as expanding the business is the strategic objective.

Financial Objectives

Financial objectives are related to the finances of the organization.

For example, reducing the cost of debt is the financial objective.

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Financial vs. Strategic Objectives

Financial Objectives

Growth in revenues

Growth in earnings

Higher dividends

Higher profit margins

Higher earnings per share

Improved cash flow

Strategic Objectives

Larger market share

Quicker on-time delivery than rivals

Quicker design-to-market times than rivals

Lower costs than rivals

Higher product quality than rivals

Wider geographic coverage than rivals

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THE BALANCED SCORECARD

The Balanced Scorecard is a set of measures that are directly linked to

the company’s strategy.

Developed by Robert S. Kaplan and David P. Norton,

It direct a company to link its own long-term strategy with tangible

goals and actions.

Definition:

The Balanced Scorecard is a management tool that provides

stakeholders with a comprehensive measure of how the organization is

progressing towards the achievement of its strategic goals.

The Balanced Scorecard:

Balances financial and non-financial measures

Balances short and long-term measures

Balances performance drivers (leading indicators) with outcome

measures (lagging indicators)

Should contain just enough data to give a complete picture of

organizational performance… and no more!

Leads to strategic focus and organizational alignment.

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The Balanced Scorecard Why do it?

To achieve strategic objectives.

To provide quality with fewer resources.

To eliminate non-value added efforts.

To align customer priorities and expectations with the customer.

To track progress.

To evaluate process changes.

To continually improve.

To increase accountability.

It allows managers to evaluate the company from four perspectives:

1. Financial performance

2. Customer Knowledge

3. Internal business processes

4. learning and growth

Four Perspectives

Before we build strategic maps, we need to define four perspectives:

Financial: Top layer in the map, represents financial outcomes (profits,

revenues, etc.)

Customer: Next layer down, enables financial results (service, image, price,

quality, etc.)

Internal Processes: The values added to customers, such as delivery,

production, distribution, etc.

Learning & Growth: The people, systems, and organization that enable

processes.

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FINANCIAL/REGULATORYTo satisfy our constituents,

what financial & regulatory objectives must we accomplish?

CUSTOMERTo achieve our vision,

what customer needs must we serve?

INTERNALTo satisfy our customers and

stakeholders, in which business processes must we excel?

LEARNING & GROWTHTo achieve our goals, how

must we learn, communicate and grow?

THE BALANCED SCORECARDTHE BALANCED SCORECARD


1. Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data.

Timely and accurate funding data will always be a priority, and managers will do

whatever necessary to provide it.

There is perhaps a need to include additional financial-related data, such as risk

assessment and cost-benefit data, in this category.

2. Customer Perspective

Recent management philosophy has shown an increasing realization of the

importance of customer focus and customer satisfaction in any business.

These are leading indicators: if customers are not satisfied, they will eventually

find other suppliers that will meet their needs.

Poor performance from this perspective is thus a leading indicator of future

decline, even though the current financial picture may look good.

3. Business Process Perspective

This perspective refers to internal business processes. Metrics based on this

perspective allow the managers to know how well their business is running, and whether

its products and services conform to customer requirements (the mission).

In addition to the strategic management process, two kinds of business processes

may be identified:

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a) Mission-oriented processes, and

b) Support processes.

Mission-oriented processes are the special functions of government offices, and

many unique problems are encountered in these processes.

The support processes are more repetitive in nature, and hence easier to measure

and benchmark using generic metrics.

4. The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes

related to both individual and corporate self-improvement.

Kaplan and Norton emphasize that 'learning' is more than 'training'; it also

includes things like mentors and tutors within the organization, as well as that ease of

communication among workers that allows them to readily get help on a problem when it

is needed. It also includes technological tools; what the Baldrige criteria call "high

performance work systems."

Company objectives

Objectives are the targets towards which management is directed

Long-term Objectives

Profitability

Return on investment

Competitive position

Technological leadership

Productivity

Employee relations

Public responsibility

Employee development

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BEL objectives

To be a customer focused company providing state-of-the-art products &

solutions at competitive prices, meeting the demands of quality, delivery & service.

To generate internal resources for profitable growth.

To attain technological leadership in defense electronics through in-house R&D,

partnership with defense/research laboratories

Setting Goals & Objectives

Converts strategic vision and mission into specific performance targets

Creates yardsticks to track performance

Pushes firm to be inventive and focused on results

Helps prevent complacency and coasting

Financial Goals & Objectives

Strive for stock price appreciation equal to or above the S&P 500 average

Maintain a positive cash flow every year

Achieve and maintain a AA bond rating

Grow earnings per share 15% annually

Boost annual return on investment from 15% to 20% within three years

Increase annual dividends per share to stockholders by 5% each year

Strategic Goals

Increase firm’s market share

Overtake key rivals on quality or customer service or product performance

Attain lower overall costs than rivals

Boost firm’s reputation with customers

Attain stronger foothold in international markets

Achieve technological superiority

Become leader in new product introductions

Capture attractive growth opportunities

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What is a Strategic Plan

Strategy Implementation and Execution

Strategy implementation and execution is an action-oriented, “make-it-happen”

process involving people management, developing competencies and capabilities,

budgeting, policy-making, motivating, culture-building, and leadership

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Where firm is headed -- Strategic vision and business mission

Action approaches to achieve targeted results -- A comprehensive strategy

Short and long term performance targets -- Strategic and financial objectives


Levels of Strategy-Making in a Diversified Company

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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-Level Managers

Opera-tingManagers

Function-al Managers

Business Strategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

OperatingManagers

Functional Managers


Levels of Strategy-Making in a Single-Business Company

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Factors Shaping the Choice of Company Strategy

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Company’s Strategic Situation

Craftthe

strategy

External Factors

Internal Factors

Social, political,

regulatory and

community factors

Competitive conditions

and industry attractiveness

Company opportunities and threats to

company’s well-being

Resource strengths,

capabilities, and

weaknesses

Influences of key

executives

Shared values and company culture

Identify and

evaluate alternatives

Determine relevance of internal

and external factors

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SM-Mod-2