Essay Editing

Principles of Organization & Management

Week of September 16, 2019

CHAPTER 6

Strategic Management How Exceptional Managers Realize

a Grand Design

All information in this power point is from Kinicki, A., & Williams, B. K. (2017). Management: A practical approach. McGraw-Hill Education, unless otherwise noted.

Major Topics 6.1 Strategic positioning

6.2 The strategic management process?

6.3 The characteristics of good mission, vision, and values statements

6.4 Determining where the organization stands from a competitive point of view

6.5 Porter’s four competitive strategies, diversification strategy, blue ocean strategy, and the BCG matrix

6.6 Effective execution of the strategic-management process

6.1 – EFFECTIVE STRATEGY

What Is an Effective Strategy?

• Strategic positioning

– Developed by famous strategist Michael Porter

– Attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

– “Performing different activities from rivals, or performing similar activities in different ways”

Copyright Bloomberg/Getty Images

Strategic Positioning and Its Principles Three key principles underlie strategic positioning.

1. Strategy is the creation of a unique and valuable position.

• Few needs, many customers • Broad needs, few customers • Broad needs, many customers

2. Strategy requires trade-offs in competing.

3. Strategy involves creating a “fit” among activities.

6.2 – THE STRATEGIC MANAGEMENT PROCESS

The Strategic-Management Process

Figure 6.1

Jump to Appendix 1 for description

6.3 – ESTABLISHING THE MISSION, VISION, AND VALUES STATEMENTS

Establishing the Mission Statement

Does your company’s mission statement answer these questions: 1. Who are our customers?

2. What are our major products or services?

3. In what geographical areas do we compete?

4. What is our basic technology?

5. What is our commitment to economic objectives?

6. What are our basic beliefs, values, aspirations, and philosophical priorities?

7. What are our major strengths and competitive advantages?

8. What are our public responsibilities, and what image do we wish to project?

9. What is our attitude toward our employees?

Establishing the Vision Statement

Does your company’s vision statement answer these questions:

1. Is it appropriate for the organization and for the times?

2. Does it set standards of excellence and reflect high ideals?

3. Does it clarify purpose and direction?

4. Does it inspire enthusiasm and encourage commitment?

5. Is it well articulated and easily understood?

6. Does it reflect the uniqueness of the organization, its distinctive competence, what it stands for, what it’s able to achieve?

7. Is it ambitious?

Establishing the Values Statement

Does your company’s values statement answer these questions: 1. Does it express the company’s distinctiveness, its view of the world?

2. Is it intended to guide all the organization’s actions, including how you treat employees, customers, etc.?

3. Is it tough, serving as the foundation on which difficult company decisions can be made?

4. Will it be unchanging, as valid 100 years from now as it is today?

5. Does it reflect the beliefs of those who truly care about the organization—the founders, CEO, and top executives—rather than represent a consensus of all employees?

6. Are the values expressed in the statement limited (five or so) and easy to remember, so that employees will have them top-of-mind when making decisions?

7. Would you want the organization to continue to hold these values, even if at some point they become a competitive disadvantage?

6.4 – ASSESSING THE CURRENT REALITY

Assessing the Current Reality

• Assess the current reality

– Look at where the organization stands internally and externally, to determine what’s working and what’s not

– See what can be changed so as to increase efficiency and effectiveness in achieving the organization’s vision

– Tools include competitive intelligence, SWOT analysis, forecasting, benchmarking, Porter’s model for industry analysis

Competitive Intelligence • Competitive intelligence

– Means gaining information about one’s competitors’ activities so that you can anticipate their moves and react appropriately

– Sources of information include public print and advertising, investor information, informal sources

Copyright Alex Wong/Getty Images

SWOT Analysis (1 of 2)

• Environmental scanning

– Monitoring of an organization’s internal and external environments to detect early signs of opportunities and threats that may influence the firm’s plans

– SWOT, process for scanning

• Internal Strengths

• Internal Weaknesses

• External Opportunities

• External Threats

SWOT Analysis (2 of 2) Figure 6.2

Jump to Appendix 2 for description

Example: SWOT Characteristics of a College Campus Table 6.2

S—STRENGTHS (INTERNAL STRENGTHS)

W—WEAKNESSES (INTERNAL WEAKNESSES)

•Faculty teaching and research abilities •High-ability students •Loyal alumni •Strong interdisciplinary programs

•Limited programs in business •High teaching loads •Insufficient racial diversity •Lack of high-technology infrastructure

O—OPPORTUNITIES (EXTERNAL OPPORTUNITIES)

T—THREATS (EXTERNAL THREATS)

•Growth in many local skilled jobs •Many firms give equipment to college •Local minority population increasing •High school students take college classes

•Depressed state and national economy •High school enrollments in decline •Increased competition from other colleges •Funding from all sources at risk

Forecasting: Predicting the Future

• Forecasting

– A vision or projection of the future

• Trend analysis

– Hypothetical extension of a past series of events into the future

• Contingency planning

– Creation of alternative hypothetical but equally likely future conditions

– Also called scenario planning and scenario analysis

Benchmarking: Comparing with the Best • Benchmarking

– A process by which a company compares its performance with that of high-performing organizations

Porter’s Five Competitive Forces

Porter contends that business-level strategies originate in five primary competitive forces in the firm’s environment

1. threat of new entrants.

2. bargaining power of suppliers.

3. bargaining power of buyers.

4. threat of substitute products or services.

5. rivalry among competitors.

6.5 – FORMULATING THE GRAND STRATEGY

Formulate the Grand Strategy

• Grand strategy

– Comes after assessing the current reality

– Explains how the organization’s mission is to be accomplished

Common Grand Strategies

• Growth strategy

– Involves expansion, as in sales revenues, market share, number of employees, or number of customers

• Stability

– Involves little or no significant change

• Defensive

– Involves reduction in the organization’s efforts

– Retrenchment

How Companies Can Implement a Grand Strategy Table 6.3

GROWTH STRATEGY STABILITY STRATEGY DEFENSIVE STRATEGY

It can improve an existing product or service to attract more buyers.

It can go for a no-change strategy (if, for example, it has found that too-fast growth leads to foul-ups with orders and customer complaints).

It can reduce costs, as by freezing hiring or tightening expenses.

It can increase its promotion and marketing efforts to try to expand its market share.

It can go for a little-change strategy (if, for example, the company has been growing at breakneck speed and feels it needs a period of consolidation.)

It can sell off (liquidate) assets—land, buildings, inventories, and the like.

It can expand its operations, as in taking over distribution or manufacturing previously handled by someone else.

It can gradually phase out product lines or services.

It can expand into new products or services. It can divest part of its business, as in selling off entire divisions or subsidiaries.

It can acquire similar or complementary businesses.

It can declare bankruptcy.

It can merge with another company to form a larger company.

It an attempt a turnaround—do some retrenching, with a view toward restoring profitability.

Porter’s Four Competitive Strategies (1 of 2) • Cost-leadership strategy

– Keep the costs, and hence prices, of a product or service below those of competitors and target a wide market

• Cost-focus strategy

– Keep the costs of a product below those of competitors and to target a narrow market

Porter’s Four Competitive Strategies (2 of 2) • Differentiation strategy

– Offers products that are of unique and superior value compared to those of competitors but to target a wide market

• Focused-differentiation strategy

– Offers products that are of unique and superior value compared to those of competitors and to target a narrow market

Single-Product Strategy: Focused but Vulnerable

• Single-product strategy

– Company makes and sells only one product within its market

– Benefit is that a company can focus on just one product

– Risk is that you are vulnerable – why?

The Diversification Strategy

• Diversification

– Operating several businesses in order to spread the risk

– Products may be related or unrelated

• Vertical integration

– Firm expands into businesses that provide the supplies it needs to make its products or that distribute and sell its products

The Blue Ocean Strategy

• Blue Ocean Strategy

– A company creates a new, uncontested market space that makes competitors irrelevant, creates new consumer value, and decreases costs

– “Competing in overcrowded industries is no way to sustain high performance,” the authors write. “The real opportunity is to create blue oceans of uncontested market space.”

The BCG Matrix Figure 6.3

Jump to Appendix 3 for description

6.6 – IMPLEMENTING AND CONTROLLING STRATEGY: EXECUTION

Implementing and Controlling Strategy

• Strategy implementation

– Putting strategic plans into effect

– Means dealing with roadblocks within the organization’s structure and culture and seeing if the right people and control systems are available to execute the plans

• Strategic control

– Monitoring the execution of strategy and taking corrective action, if necessary

– To keep on track, you must (1) engage people, (2) keep it simple, (3) stay focused, and (4) keep moving

Execution: Getting Things Done • Execution

– Consists of using questioning, analysis, and follow-through in order to mesh strategy with reality, align people with goals, and achieve results promised

Occupying a sprawling campus in Cary, North Carolina, software maker SAS’s ability to execute effectively has made it highly profitable

and the world’s largest privately owned software company.

Copyright Courtesy of SAS

The Three Core Processes of Business A company’s overall ability to execute is a function of effectively executing according to three processes

1. People – consider who will benefit you in the future

2. Strategy – consider how success will be accomplished

3. Operations – consider what path will be followed

What Questions Should a Strong Strategic Plan Address?

Table 6.4

1. What is the assessment of the external environment?

2. How well do you understand the existing customers and markets?

3. What is the best way to grow the business profitability, and what are the obstacles to growth?

4. Who is the competition?

5. Can the business execute the strategy?

6. Are the short term and long term balanced?

7. What are the important milestones for executing the plan?

8. What are the critical issues facing the business?

9. How will the business make money on a sustainable basis?

Building a Foundation of Execution

• Know your people and your business.

• Insist on realism.

• Set clear goals and priorities.

• Follow through on accountability and results.

• Reward the doers.

• Expand people’s capabilities.

• Know and understand yourself.