CHAPTER

The Strategic
Management Process

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Part 1 Strategy Analysis

LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving
long-term goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.

2-3

Chapter Case 2

Teach For America: Inspiring Future Leaders

TFA Mission: Eliminate educational inequality

Started by an undergraduate student,

Wendy Kopp
Inspiring mission

Provide a meaningful service option for bright young people

Make teaching to the neediest high prestige

Over 45,000 applicants for 4,500 jobs

TFA Video

Teach For America Inspiring Others

What are the key issues in the opening case?
How was TFA able to successfully recruit?
Established an inspiring mission

Appealing to the target demographic

Clear communication of the goals of the organization

The program is highly selective

Would TFA have succeeded as a for-profit firm?

Vision, Mission, and Values

What are visionary organizations?
Begin with the end in mind

Similar to designing & building a home

Vision what to ultimately accomplish?

Mission what is the firm about?
Values how to accomplish goals?

Frank Lloyd Wright

EXHIBIT 2.1

Teach For America:

Vision, Mission, and Values

Vision

One day, all children in this nation

will have the opportunity to attain
an excellent education.

Mission

Eliminate educational inequality

by enlisting our nations most
promising future leaders in the
effort.

Values

Relentless pursuit of results.

Sense of possibility.
Disciplined thought.
Respect and humility.
Integrity.

Vision, Mission, and Values

What is forming strategic intent?
Staking out a desired leadership position in the long

term that far exceeds a company's current situation

Often used in Japanese corporate settings

Canon will "beat Xerox"

Effective use of stretch goals

Competitive advantage for tomorrow

STRATEGY
STRATEGY HIGHLIGHT
HIGHLIGHT 2.1
2.1

Winning Through Strategic

Intent: The Pocketable Radio

Small Japanese Company after WWII,

founded by Masura Ibuka
Invented an electric rice cooker
Wanted to license the transistor from Bell Labs in U.S.

Japanese Government & Bell Labs both said NO

Persisted with request Finally,1953 got transistor.

Beat Bell Labs to pocket-sized radio

1957 Launched worlds FIRST pocket radio

1958 Changed company name to.
19

LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission
statements and competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.

Vision, Mission, and Values

Customer-Oriented Missions
Define the firm in terms of solutions for customers
Disney: "Make People Happy"
Enhanced strategic flexibility
NOT the same as listening to customers

Product-Oriented Missions
Define the firm in terms of products or services
U.S. Railroads: "Safest North American railroad

Missed the opportunity to move into delivery before

UPS & Federal Express

Defining the Business:

The Starting Point of
Strategy
Example: Fall of the Railroads
They let others take customers away from them

because they assumed themselves to be in the

railroad business rather than in the transportation
business. The reason they defined their industry
wrong was because they were railroad oriented
instead of transport oriented; they were product
oriented instead of customer oriented.
Theodore Levitt Market
Myopia

Mission Statements and

Competitive Advantage
Do mission statements help gain and sustain
competitive advantage?
Results are inconclusive
Need strategic commitments to succeed

(e.g., Boeing Dreamliner)

Positive associations Visionary firms, like Merck

Negative associations Better World Books
No associations Intel

LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for
long-term success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.

Living the Values

Ethical standards and norms that govern behavior.
McKesson (health care) ICARE
Shared principles a framework for daily interactions

Dark side of values

Bernard Madoff

Ponzi scheme estimated at $65 billion in fraud

Enron
One of the largest bankruptcies in U.S. history
Over 50,000 jobs lost (Enron and Arthur Andersen)

LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for long
term success.
LO 2-6 Compare and contrast strategic planning, scenario planning,
and strategy as planned emergence, and discuss strategic
implications.

The
The
Evolution
of
Strategic
Management
TheEvolution
Evolutionof
ofStrategic
StrategicManagement
Management

DOMINANT
DOMINANT
THEME
THEME
MAIN
MAIN
ISSUES
ISSUES
CONCEPTS
CONCEPTS
&&
TECHNIQUES
TECHNIQUES

IMPLEMENTIMPLEMENTATION
ATION

1950s
1950s

1960s
1960s

Early-mid
Early-mid
1970s
1970s

Late1970s
Late1970s
early
early1980s
1980s

Budgetary
Budgetary
planning
planning&&
control
control

Corporate
Corporate
planning
planning

Corporate
Corporate
strategy
strategy

Analysis
Analysisofof
industry
industry&&
competition
competition

Financial
Financialcontrol
control

Planning
Planninggrowth
growth

DiversificaDiversifica- Positioning
Positioning
ion
ion

Competitive
Competitive
advantage
advantage

Budgeting
Budgeting
project
projectappraisal
appraisal

Forecasting &
Forecasting &
investment
investment
planning
planning

Portfolio
Portfolio
planning.
planning.
Synergy
Synergy
market
market
share
share

Resource
Resource
analysis.
analysis.
Case
Case
competences
competences

Emphasis
Emphasison
on
financial
financial
management
management

Rise
Riseofof
corporate
corporateplanning
planning
departments
departments
&&formal
formal
planning
planning

DiversifiIndustry/market
DiversifiIndustry/market
cation.
selectivity.
cation.
selectivity.
Quest
for
Active
Quest for
Activeasset
asset
global
management
global
management
market
marketshare
share

Analysis of
Analysis of
industry
industry&&
competition
competition

Late
Late1980s
1980s
early
1990s
early 1990s

Late
Late1990s
1990s
early
2000s
early 2000s

Quest
Questfor
for
competitive
competitive
advantage
advantage

Strategic
Strategic
innovation
innovation
The New
The New
Economy
Economy
Innovation
Innovation&&
knowledge
knowledge
Dynamic
Dynamic
sources
sourcesofof
advantage
advantage
Knowledge
Knowledge
management
management
cooperation
cooperation

Restructuring
Restructuring Virtual
VirtualorgaorgaBPR.
nization.
BPR.
nization.
Refocusing
Refocusing Alliances
Alliances
Outsourcing
Outsourcing Quest
Questfor
for
critical
criticalmass
mass

17

Strategy as Strategic Planning

Top-down rational planning
Define mission, vision, and goal (strategic intent)
External analysis of opportunities and threats
Internal analysis of strengths and weaknesses
Create strategic fit through SWOT
Formulate appropriate strategy
Implement chosen strategy
Monitor performance and modify if necessary

assess
environmental
factors

Identify
current
mission
and
strategic
goals

Strategy formulation Strategy implementation

Conduct
competitive
analysis:
strengths
weakness
opportunity
threats

Develop
specific
strategies:
corporate
business
functional

carry out
strategic
plans

maintain
strategic
control

assess
organisational
factors
619

Fundamental Question of the Choice of

Goals: Planning for what Purpose(s)?
Profitability (net profits)
Efficiency (low costs)
Market Share
Growth (e.g., increase in total
assets, sales, etc)
Shareholder Wealth
(dividends
plus
stock price appreciation)
Utilization of Resources
(e.g., ROE,
ROI)
Reputation
Contribution to Stakeholders
(e.g., employees, society)
Survival (avoid bankruptcy)
20

Strategy as Scenario Planning

Scenario planning
Envision different "what-if" plans
Generates a dominant plan

Must implement the most probable option

Keeps other scenarios in the event of changes

"Arab Spring" impact on the oil industry?

Good example of the AFI framework

Scenario planning at Shell

EXHIBIT 2.2

Scenario Planning in the AFI Strategy Framework

STRATEGY
STRATEGY HIGHLIGHT
HIGHLIGHT 2.2
2.2

Shells Future Scenarios

Petroleum industry use of scenario planning

Shell made right move in the 1960s
Again in the 1980s
Communism might fall in Soviet Union
Now projecting 20% energy from renewables by 2025

123

Strategy as Planned Emergence

Strategic Initiative
Google 50% of the firm's new products come from the

"20% rule" (one day a week on own ideas)

Enron Wind investment by GE

Mintzberg Planned Emergence

Strategy can come from top or bottom:
Some intended strategies drop off in the process
Allows for new emerging ideas to become realized
Resource allocation process
Serendipity can have dramatic effects

Strategic Initiatives and Serendipity

Japan Railways
Constructing a bullet train through the

mountains north of Tokyo, which

required many tunnels
Persistent flooding
Complex engineering plans to drain the water
Maintenance worker suggested that the fresh water off the mountains

should not be drained, but rather should be bottled

1,000 vending machines on 1,000 railroad platforms in and around Tokyo,

and home delivery of water, juices, and coffee followed.

The employees proposal had turned this bottom-up strategy into a multi-

million dollar business.

EXHIBIT 2.3

Mintzbergs Planning Framework

Strategy
Strategy
Making
Design
or
Process?
StrategyMaking
Making:::Design
Designor
orProcess?
Process?
Strategy
Strategyas
asDesign
Design

Strategy
Strategyas
asProcess
Process

Planning
Planningand
and
rational
rationalchoice
choice

Many
Manydecision
decisionmakers
makers
responding
respondingto
tomultitude
multitudeof
of
external
externaland
andinternal
internalforces
forces

INTENDED
INTENDED
STRATEGY
STRATEGY

EMERGENT
EMERGENT
STRATEGY
STRATEGY

REALIZED
REALIZEDSTRATEGY
STRATEGY
Mintzbergs
Critique
of
Formal
Strategic
Planning:
Mintzbergs
Critique
of
Formal
Strategic
Planning:
Mintzbergs
Critique
of
Formal
Strategic
Planning:
The
fallacy
of
prediction
the
future
isisunknown
The
fallacy
of
prediction
the
future
The
fallacy
of
prediction

the
future
isunknown
unknown
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
The
fallacy
of
detachment
-impossible
to
divorce
formulation
from
implementation
implementation
implementation
The
fallacy
of
formalization
--inhibits
flexibility,
spontaneity,
The
fallacy
--inhibits
flexibility,
spontaneity,
of
formalization
The
fallacy
of
formalization
--inhibits
flexibility,
spontaneity,
intuition
and
learning.
intuition
and
learning.
intuition and learning.
27

STRATEGY
STRATEGY HIGHLIGHT
HIGHLIGHT 2.3
2.3

Its Not What We Do!

Starbucks
Autonomous action of mid-level manager
Tenacity and persistence of a store manager in

Southern California

Risk of failure

Possible career-limiting action

Organization must be willing to accept new ideas

Frappuccino was born!

Contributing 20% of the $11billion in revenues for Starbucks

in 2010.

128

An
An optimal
optimal decision
decision
isis possible
possible
All
All relevant
relevant information
information
isis available
available
All
All relevant
relevant information
information isis
understandable
understandable
All
All alternatives
alternatives are
are known
known

Managers
Managers as
as
decision
decision makers
makers
Assumptions
Assumptions of
of the
the
Rational
Rational Model
Model

Rational
Rational
decision
decision
making
making

All
All possible
possible outcomes
outcomes known
known
9

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

29

Time
Time constraints
constraints
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors
Inadequate
Inadequate base
base
of
of information
information
Limited
Limited memory
memory of
of
decision-makers
decision-makers

Managers
Managers as
as
decision
decision makers
makers
Satisficing
Satisficing

Satisficing
Satisficing
decision
decision
making
making

Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
10

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

30

Improving Strategic
Decision-Making

1-40

Illusion
of
Control
Prior
Hypothesis
Bias

Reasoning
by
Analogy

Escalating
Commitment

Representativeness
31Copyright

Symptoms of Groupthink and How to

Prevent It
Symptoms
Groupthink

Illusion of invulnerability
Belief in the inherent morality of the group
Stereotyped views of members of
opposing groups
Application of pressure to members who
express doubts about the groups shared
allusions or question the validity of
arguments proposed
Practice of self-censorship
Appointment of mindguards

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14-25

32

Using Conflict-Inducing Decision-Making

Techniques in Case Analysis
Devils
Advocacy

Dialectical
Inquiry

Groupthink
Use conflict-inducing decision-making techniques to
help prevent groupthink and lead to better decisions.
Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14-24

33

Two Conflict-Inducing Decision-Making

Processes

Adapted from Exhibit 14.4 Two Conflict-Inducing Decision-Making Processes

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

14-29

Take-Away Concepts
Explain the role of vision, mission, and values in the strategic
management process.
LO 2-1

A vision captures an organizations aspirations. An effective vision inspires

members of the organization.
A mission statement describes what an organization actually does and why it
does it.
Values define the ethical standards and norms that should govern the behavior
of individuals within the firm.
Success is created twice: first analyzing a mental model and second formulating
and implementing a strategy to make a vision a reality.

Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-2

Strategic intent finds its expression in stretch goals that exceed the firms existing
resources and capabilities by a large margin.
Effective use of strategic intent creates at all levels of the organization an
obsession with winning that can help companies ascend to global leadership.

Take-Away Concepts
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
Customer-oriented missions define businesses providing solutions to
customer needs.
Product-oriented missions define a business in terms of a good or
service provided.
Customer-oriented missions provide managers with more strategic
flexibility than product-oriented missions.
LO 2-4 Critically evaluate the relationship between mission

statements and competitive advantage.

Mission statements can help a firm achieve superior performance,
but mission statements by themselves do not directly affect firm
performance.
To be effective, mission statements need to be backed up by hard-toreverse/irreversible commitments.

Take-Away Concepts
LO 2-5

Explain why anchoring a firm in ethical values is essential for

long-term success.

Ethical core values enable employees to make day-to-day decisions that

are guided by correct principles.

Values are guardrails to keep a company on track for competitive

advantage.

LO 2-6

Compare and contrast strategic planning, scenario planning,

and strategy as planned emergence, and discuss strategic
implications.

Top-down strategic (long-range) planning works reasonably well when the

environment does not change much.

In scenario planning, managers envision different what-if scenarios and

prepare contingency plans that can be called upon when necessary.

Strategic initiatives can be the result of top-down planning by executives

or can emerge through a bottom-up process from deep within the
organization.

A firms realized strategy is generally a combination of its top-down