CHAPTER

The Strategic Management Process

McGraw-Hill/Irwin

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

Part 1 Strategy Analysis

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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.

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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

Vision, Mission, and Values

What are visionary organizations?
Begin with the end in mind

Similar to designing & building a home

Frank Lloyd Wright

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

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STRATEGY HIGHLIGHT 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.
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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.

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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

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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

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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.

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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.

213

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
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assess environmental factors

Strategy formulation Strategy implementation

Identify current mission and strategic goals

Conduct competitive analysis: strengths weakness opportunity threats

Develop specific strategies: corporate business functional

carry out strategic plans

maintain strategic control

assess organisational factors

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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)

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

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EXHIBIT 2.2

Scenario Planning in the AFI Strategy Framework

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STRATEGY HIGHLIGHT 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

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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
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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.

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EXHIBIT 2.3

Mintzbergs Planning Framework

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Strategy Strategy Making Making :: Design Design or or Process? Process?

Strategy as Design Planning and rational choice Strategy as Process Many decision makers responding to multitude of external and internal forces EMERGENT STRATEGY

INTENDED STRATEGY

REALIZED STRATEGY
Mintzbergs MintzbergsCritique Critiqueof ofFormal FormalStrategic StrategicPlanning: Planning: The Thefallacy fallacyof of prediction predictionthe thefuture futureis isunknown unknown The fallacy of detachment -impossible The fallacy of detachment -- impossibleto todivorce divorceformulation formulationfrom from implementation implementation The Thefallacy fallacyof offormalization formalization--inhibits --inhibitsflexibility, flexibility,spontaneity, spontaneity, intuition and learning. intuition and learning.

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STRATEGY HIGHLIGHT 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.

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An An optimal optimal decision decision is is possible possible All All relevant relevant information information is is available available All All relevant relevant information information is is understandable understandable All All alternatives alternatives are are known known All All possible possible outcomes outcomes known known
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Managers Managers as as decision decision makers makers

Assumptions Assumptions of of the the Rational Rational Model Model

Rational Rational decision decision making making

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

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Time Time constraints constraints

Managers Managers as as decision decision makers makers

Satisficing Satisficing

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 Poor Poor perception perception of of factors factors to to be be considered considered in in decision decision process process
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Satisficing Satisficing decision decision making making

BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E

McGraw-Hill Australia 2001

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