Chap02 - The Three Strategy-Making Tasks

CHAPTER 2
THE THREE
STRATEGY-MAKING
TASKS
Screen graphics created by:
Jana F. Kuzmicki, PhD, Mississippi University for Women
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McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
“Management’s job is not to see the
company as it is….but as it can
become.”
John W. Teets
“A strategy is a commitment to
undertake one set of actions
rather than another.” “Quote”
Sharon M. Oster
Chapter Outline
 Developing a Strategic Vision / Mission
 Establishing Financial and Strategic

Objectives
 Crafting a Strategy
 Factors Shaping a Company's

Strategy
 Linking Strategy With Ethics
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Developing a Strategic Vision
First Direction-Setting Task
 Entails management efforts to
create a future-oriented roadmap
for a company that spells out
“where we are headed”
 Buyer needs we are moving to
satisfy
 Buyer groups and markets we
are going to target
 Kind of company we are trying
to become
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Strategic Management Principle
Effective strategy-making
begins with a vision of
where the organization
needs to head!
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Example: John Deere’s Strategic Vision
Who Are We?

John Deere has grown and prospered
through a long-standing partnership with
the world’s most productive farmers.
Today, John Deere is a global company
with several equipment operations and
complementary service businesses.
These businesses are closely
interrelated, providing the company with
significant growth opportunities and
other synergistic benefits.
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Where Are We Going?

 Deere is committed to providing genuine
value to the company’s stakeholders. In
support of that commitment, Deere aspires to:
 Grow and pursue leadership positions in
each of our businesses.
 Extend our preeminent leadership position
in the agricultural equipment market
worldwide.
 Create new opportunities to leverage the
John Deere brand globally.
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How Will We Get There?

 By pursuing the broader corporate goals of
profitable growth and continuous improvement,
each of the company’s businesses is expected to:
 Achieve world-class performance by attaining a
strong competitive position in target markets.
 Exceed customer expectations for quality and
value.
 Earn in excess of the cost of
capital over a business cycle.
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How Will We Get There?

 By growing profitably and continuously improving,
each of the company’s businesses will benefit from
and contribute to Deere’s unique intangible assets:
 Our distinguished brand.
 Our heritage of integrity and teamwork.
 Our advanced skills.
 The special relationships that have long existed
between the company and our employees,
customers, dealers and other business partners
around the world.
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How Will We Measure Our Performance?

 Each business will make a positive contribution to the
corporation’s objectives in the pursuit of creating
genuine value for our stakeholders. Our
“scorecard” includes:
 Human Resources--employee satisfaction,
training
 Customer Focus--loyalty, market leadership
 Business Processes--productivity, quality, cost,
environment
 Business Results--return on assets, sales growth
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Example: Delta Airline’s Strategic Vision
DELTA AIRLINES
. . . . . . we want Delta to be the

WORLDWIDE AIRLINE OF CHOICE.
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DELTA AIRLINES
WORLDWIDE, because we are and intend

to remain an innovative, aggressive, ethical,
and successful competitor that offers access to
the world at the highest standards of customer
service. We will continue to look for
opportunities to extend our reach through new
routes and creative global alliances.
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DELTA AIRLINES
AIRLINE, because we intend to stay in the

business we know best -- air transportation and
related services. We won’t stray from our roots.
We believe in the long-term prospects for profitable
growth in the airline industry, and we will continue
to focus time, attention, and investment on
enhancing our place in that business environment.
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DELTA AIRLINES
OF CHOICE, because we value the loyalty of

our customers, employees, and investors. For
passengers and shippers, we will continue to provide
the best service and value. For our personnel, we will
continue to offer an ever more challenging, rewarding,
and result-oriented workplace that recognizes and
appreciates their contributions. For our shareholders,
we will earn a consistent, superior financial return.
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Three Elements of a Strategic Vision
Use the mission statement as a

starting point
Develop a strategic vision that

spells out a course to pursue
Communicate the vision in a

clear and exciting manner
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Characteristics of a Mission Statement
 Defines current business activities
 Highlights boundaries of current business
 Conveys
 Who we are,
 What we do, and
 Where we are now
 Company specific, not generic —
so as to give a company its own identity
A company’s mission is not to make a profit !
The real mission is always—“What will we do to
make a profit?”
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Defining a Company’s Business
 A good business definition
incorporates three factors
 Customer needs -- What is being
satisfied
 Customer groups -- Who is
being satisfied
 Technologies and competencies
employed -- How value is
delivered to customers to satisfy
their needs
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Business Mission: Cardinal Health
 Cardinal Health is a leading provider of

services supporting health care worldwide.
 The company offers a broad array
of services for health-care providers
and manufacturers to help them improve
the efficiency and quality of health care.
 These services include pharmaceutical distribution,
health-care product manufacturing and distribution,
drug delivery systems development, . . . , retail
pharmacy franchising, and health-care information
systems development.
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Business Mission:
 JDS Uniphase is the leading provider of advanced fiber
optic components and modules.
 These products are sold to the world’s leading
telecommunications and cable television system
providers . . .
 Our products perform both optical-only functions and
optoelectronic functions within fiber option networks.
 Our products include semiconductor lasers, . . . , and
isolators for fiber optic applications.
 In addition, we design, manufacture, and market laser
subsystems for a broad range of OEM applications,
which include . . .
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Business Mission: Russell Corp.
 Russell Corporation is a vertically integrated
international designer, manufacturer, and marketer
of athletic uniforms, . . . , and a comprehensive line
of lightweight, yarn-dyed woven fabrics.
 The Company’s manufacturing operations include
the entire process of converting raw fibers into
finished apparel and fabrics.
 Products are marketed to sporting goods
dealers, department and specialty
stores, mass merchandisers, . . . ,
and other apparel manufacturers.
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Broad or Narrow Mission Statements?
 Narrow enough to specify real arena of
interest
 Serve as
 Boundary for what to do and not do
 Beacon of where top management intends
to take firm
 Diversified companies
have broader business
definitions than single-business
enterprises
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Definitions: Broad vs. Narrow Scope
Broad Definition  Narrow Definition

 Wrought-iron lawn
 Furniture
furniture
 Telecommunications  Long-distance
telephone service
 Beverages  Soft drinks
 Overnight package
 Global mail delivery
delivery
 Travel & tourism  Caribbean cruises
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Business Mission: The McGraw Hill Companies
(a diversified firm)
 The McGraw-Hill Companies is a global publishing,
financial, information and media services company with
such renowned brands as Standard & Poor’s,
Business Week, and McGraw-Hill educational
and professional materials.
 The Company provides information via various media

platforms: books, magazines and newsletters; on-line;
via television, satellite and FM sideband broadcast; and
software, videotape, facsimile and CD-ROM products.
 The Company now creates more than 90 % of its

information on digital platforms and its business
units are represented on more than 75 Web sites.
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Business Mission: FDX Corporation
(a diversified firm)
 FDX is composed of a powerful family of companies:
FedEx, RPS, Viking Freight, FDX Global Logistics and
Roberts Express.
 These companies offer logistics and distribution
solutions on a regional, national and global scale: fast,
reliable, time-definite express delivery; . . . expedited
same-day delivery; . . . ; and integrated information and
logistics solutions
 With all this expertise under one umbrella, the FDX
companies can provide businesses with the
competitive advantage they need by providing
streamlined solutions that are on the
cutting edge of technology.
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Example: Mission Statement
Pfizer Inc.
Pfizer is a research-based, global pharmaceutical
company.
We discover and develop innovative, value-added
products that improve the quality of life of people
around the world and help them enjoy longer, healthier,
and more productive lives.
The company has three business segments: health
care, animal health and consumer health care. Our
products are available in more than 150 countries.
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Ritz-Carlton Hotels
The Ritz-Carlton Hotel is a place where the genuine

care and comfort of our guests is our highest mission.
We pledge to provide the finest personal service and
facilities for our guests who will always enjoy a warm,
relaxed yet refined ambiance.
The Ritz-Carlton experiences enlivens the senses,
instills well-being, and fulfills even the unexpressed
wishes and needs of our guests.
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Apple Computer
Apple Computer, Inc., ignited the personal computer

revolution in the 1970s with the Apple II, and
reinvented the personal computer in the 1980s with the
Macintosh.
Apple is now committed to its original mission--to
bring the best personal computing products and
support to students, educators, designers, scientists,
engineers, business persons and consumers in over
140 countries around the world.
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The Gillette Company

The Gillette Company is a globally focused consumer
products company that seeks competitive advantage in
quality, value-added personal care and personal use
products. We compete in four large, worldwide businesses:
personal grooming products, consumer portable power
products, stationery products and small electrical
appliances.
As a company, we share skills and resources among
business units to optimize performance. We are committed
to a plan of sustained sales and profit growth that
recognizes and balances both short- and long-term
objectives.
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The Gillette Company

Our mission is to achieve or enhance clear leadership, worldwide, in
the existing or new core consumer product categories in which we
choose to compete. Current core categories are:
 Male grooming products - blades and razors, electric shavers,
shaving preparations and deodorants . . .
 Female grooming products - wet shaving products, hair removal
and hair care appliances and deodorants . . .
 Alkaline and specialty batteries and cells.
 Writing instruments and correction products.
 Certain areas of the oral care market - toothbrushes . . .
 Selected areas of the high-quality small household appliance
business - coffeemakers . . .
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Mission Statements for
Functional Departments
 Spotlights department’s
 Role and scope of

activities
 Direction which
department needs to
pursue
 Contribution to firm’s
overall mission
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Mission Statements of
Functional Departments
HUMAN RESOURCES
To contribute to organizational success by developing
effective leaders, creating high performance teams,
and maximizing the potential of individuals.
CORPORATE SECURITY
To provide services for the protection of corporate
personnel and assets through preventive
measures and investigations.
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Characteristics of a Strategic Vision
 Charts a company’s future
strategic course
 Defines the business makeup for
5 years (or more)
 Specifies future technology-
product-customer focus
 Indicates capabilities to be
developed
 Requires managers to exercise
foresight
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Questions to Address in
Developing a Strategic Vision
1. What changes are occurring in the market arena(s)
where we operate and what implications do these
changes have for our future direction?
2. What new or different customer needs should we
be moving to satisfy?
3. What new or different buyer segments should we
be concentrating on?
4. What new geographic or product markets should
we be pursuing?
5. What should the company’s business makeup look
like in 5 years?
6. What kind of company should we be trying to
become?
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Entrepreneurial Challenges in
Forming a Strategic Vision
 How to creatively prepare a company
for the future
 How to keep the company responsive
to
 Evolving customer needs
 Competitive pressures
 New technologies
 New market opportunities
 Growing or shrinking
opportunities
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Intel’s “Strategic Inflection Points”
 Prior to mid-1980s
 Focus on memory chips
 Starting in mid-1980s
 Abandon memory chip business and
 Become preeminent supplier of
microprocessors to PC industry
 Make PC central appliance in
workplace and home
 Be undisputed leader in driving
PC technology forward
 1998
 Shift focus from PC technology to
becoming the preeminent building
block supplier to the Internet economy
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Communicating the Vision
 An exciting, inspirational vision
 Challenges and motivates workforce
 Arouses strong sense of organizational
purpose
 Induces employee buy-in
 Galvanizes people to live the business
36
Managerial Value of a Well-Conceived
Strategic Vision and Mission
 Crystallizes long-term direction
 Reduces risk of rudderless decision-
making
 Conveys organizational
purpose and identity
 Keeps direction-related actions of
lower-level managers on common path
 Helps organization prepare for the
future
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Establishing Objectives
Second Direction-Setting Task
 Represent commitment to
achieve specific performance
targets by a certain time
 Should be stated in quantifiable

terms and contain a deadline for
achievement
 Spell-out how much of what

kind of performance by when
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Purpose of Objective-Setting
 Substitutes results-oriented
decision-making for
aimlessness over what to
accomplish
 Provides a set of
benchmarks for judging
organizational performance
39
Two Types of Objectives Are Required
Financial Objectives Strategic Objectives

Outcomes that improve Outcomes that
a firm’s financial strengthen a firm’s
performance competitiveness and
long-term market
position
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Every company needs
both strategic and
financial objectives!
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Examples: Financial Objectives
 Achieve revenue growth of 10% per year
 Increase earnings by 15% annually
 Increase dividends per share by 5% per year
 Increase net profit margins from 2% to 4%
 Attractive EVA performance
 Stronger bond and credit ratings
 A rising stock price (outperform the S&P 500)
 Attractive increases in MVA
 Recognition as a “blue chip” company
 A more diversified revenue base
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Examples: Strategic Objectives
 A bigger market share
 Quicker design-to-market times than rivals
 Higher product quality than rivals
 Lower costs relative to key competitors
 Broader product line than rivals
 Better e-commerce and Internet sales capabilities
than rivals
 Better customer service than rivals
 Recognition as a leader in technology
 Wider geographic coverage than rivals
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Examples: Corporate Objectives
Citigroup (strategic objective)
To attain one billion customers worldwide.
McDonald’s (strategic objective)
To achieve 100 percent total customer

satisfaction . . . everyday . . . in every
restaurant . . . for every customer.
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Example: Corporate Objectives
General Electric (strategic objectives)
 Become the most competitive enterprise in

the world.
 Be number one or number two in each
business we are in.
 Globalize every activity in the company.
 Embrace the Internet and become a global
e-business.
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Anheuser-Busch
(strategic & financial objectives)
 To make all our companies leaders in their industries in
quality while exceeding customer expectations.
 To achieve a 50% share of the U.S. beer market.
 To establish and maintain a dominant leadership
position in the international beer market.
 To provide all our employees with challenging and
rewarding work, . . . , and opportunities for personal
development, advancement, and competitive
compensation.
 To provide our shareholders with superior returns by
achieving double-digit annual earnings per share
growth, . . .
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Exodus Communications
(strategic objectives)
 Extend our market leadership and position

Exodus as the leading brand name in the
category.
 Enhance our systems and network management
and Internet technology services.
 Accelerate our domestic and international growth.
 Leverage our technical expertise to address new
market opportunities in e-commerce.
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Motorola (financial objectives)
 Self-funding revenue growth of 15%

annually.
 An average return on assets of 13 to 15%.
 An average return on shareholders’ equity

investment of 16 to 18%.
 A strong balance sheet.
48
McCormick & Company

(financial objectives)
 To achieve a 20% return on equity.
 To achieve a net sales growth rate of 10% per year.
 To maintain an average earnings per share growth rate
of 15% per year.
 To maintain total debt-to-total capital at 40% or less.
 To pay out 25% to 35% of net income in dividends.
 To make selective acquisitions which complement our
current businesses and can enhance our overall returns.
 To dispose of those parts of our businesses which do
not or cannot generate adequate returns or do not fit
with our business strategy.
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Strategic or Financial Objectives --
Which Take Precedence?
 Pressures for better short-term financial performance
become pronounced when
 Firm is struggling financially
 Resource commitments for new strategic initiatives
may hurt bottom-line for several years
 Proposed strategic moves are risky
 Otherwise strategic objectives merit top priority—a
firm that consistently passes up opportunities to
strengthen its long-term competitive position
 Risks diluting its competitiveness
 Risks losing momentum in its markets
 Hurts its ability to fend off rivals’ challenges
50
Building a stronger long-term

competitive position benefits
shareholders more lastingly than
improving short-term
profitability!
51
Concept of Strategic Intent
A company exhibits strategic intent when it

relentlessly pursues an ambitious strategic
objective and concentrates its competitive
actions and energies on achieving that
objective!
52
Characteristics of Strategic Intent
 Indicates firm’s intent to

stake out a particular
position over the long-term
 Involves establishing a
BHAG - ”big, hairy,
audacious goal”
 Signals relentless
commitment to winning
53
Short-Range Versus
Long-Range Objectives
 Short-Range objectives
 Targets to be achieved soon
 Serve as stair steps for reaching
long-range performance
 Long-Range objectives
 Targets to be achieved within
3 to 5 years
 Prompt actions now that will
permit reaching targeted
long-range performance later
54
Objectives Are Needed at All Levels
Objective-setting process is top-down, not

bottom-up!
1. First, establish organization-wide
objectives and performance targets
2. Next, set business and
product line objectives
3. Then, establish functional
and departmental objectives
4. Individual objectives are established last
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Objective-setting needs to be more of a

top-down than a bottom-up process in
order to guide lower-level managers and
organizational units toward outcomes
that support the achievement of overall
business and company objectives.
56
Crafting a Strategy
Third Direction-Setting Task
 An organization’s strategy deals with
 How to make the strategic vision a reality
and achieve target objectives
 The game plan for
 Pleasing customers
 Conducting operations
 Building a sustainable competitive
advantage
 Strategy constitutes management’s business
model for producing good profitability
57
Strategizing Involves HOW To . . .
 Achieve performance targets

 Out-compete rivals and Our game plan
for running the
achieve a sustainable company will
competitive advantage be . . .
 Respond to changing market
conditions and new customer
requirements
 Make the strategic vision
a reality
58
Characteristics of Strategy-Making
 Strategy is action-
oriented
 Strategy evolves
over time
 Strategy-making is a
never-ending, ongoing
task
59
Rule-Breaking Strategies
 Challenge fundamental conventions by
 Reconceiving a product or service
(Creating a single-use disposable camera)

 Redefining the marketplace
(Detouring retailers by selling online at the

company’s website)
 Redrawing industry boundaries
(Getting credit cards from Shell

Oil or General Motors or AOL)
60
Figure 2.1: Levels of Strategy-Making in
a Diversified Company
Corporate-Level Corporate
Managers Strategy
Two-Way Influence
Business-Level
Managers Business Strategies
Two-Way Influence
Functional
Managers Functional Strategies
Two-Way Influence
Operating
Managers Operating Strategies
61
Figure 2-1: Levels of Strategy-Making in
a Single-Business Company
Executive-Level
Managers Business
Strategy
Two-Way Influence
Functional
Managers Functional Strategies
Two-Way Influence
Operating
Managers Operating Strategies
62
Figure 2.2: Corporate Strategy for
a Diversified Company
Narrow or broad-based diversification
Is diversification
Approach to
related, unrelated
capital allocation
or a mix?
Scope of
Efforts to capture Corporate geographic
cross-business
strategic fits
Strategy operations
Moves to divest Moves to add new

weak business units new businesses
Moves to build positions

in new industries
63
Tasks of Corporate Strategy
 Moves to achieve diversification
 Actions to boost performance of individual
businesses
 Capturing valuable cross-business strategic
fits that result in 1 + 1 = 3 effects!
 Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
64
Figure 2.3: Identifying the Components of
a Single-Business Company’s Strategy
Planned, proactive moves to outcompete rivals
Efforts to build Responses to

competitive changing
advantage conditions
Scope of
R&D strategy Business geographic
Supply chain Fu Strategy coverage
management nc
strategy tio
na
Manufacturing lS Collaborative
strategy tra partnerships and
Marketing te
gi strategic alliances
strategy es
Human Finance strategy
resources strategy
65
What Business Strategy Involves
 Forming responses to changes in industry and
competitive conditions, buyer needs and
preferences, economy, regulations, etc.
 Crafting competitive moves to produce
sustainable competitive advantage
 Building competitively valuable
competencies and capabilities
 Uniting strategic initiatives of functional areas
 Addressing strategic issues facing the
company
66
Functional Strategies
 Game plan for a strategically-relevant
function, activity, or business process
 Details how key activities

will be managed
 Provide support for business

strategy
 Specify how functional objectives

are to be achieved
67
Operating Strategies
 Concern narrower
strategies for managing
grassroots activities and
strategically-relevant
operating units
 Add detail to business

and functional strategies
68
Example: Operating Strategy
Improving Delivery & Order-Filling
Manufacturer of plumbing equipment emphasizes
quick delivery and accurate order-filling as
keystones of its customer service approach.
Warehouse manager took following approaches:
 Inventory stocking strategy allowing 99%

of all orders to be completely filled
without backordering any item
 Staffing strategy of maintaining workforce

capability to ship any order within 24 hours
69
Example: Operating Strategy
Boosting Worker Productivity
To boost productivity by 10%, managers of firm with
low-price, high-volume strategy take following actions:
 Recruitment manager develops selection process
designed to weed out all but best-qualified
candidates
 Information systems manager devises way to use
technology to boost productivity of office workers
 Compensation manager devises improved
incentive compensation plan
 Purchasing manager obtains new
efficiency-increasing tools and equipment
70
Uniting the Company’s Strategy-Making
Effort
 A company’s strategy is a collection

of strategies and initiatives being
acted on by managers at various
organizational levels
 Separate levels of strategy must be

unified into a cohesive, company-
wide action plan
 Pieces of strategy should fit together

like the pieces of a puzzle
71
Figure 2.4: Networking of Missions,
Objectives, and Strategies
Level 1 Corporate-wide Corporate Corporate
Strategic Level Level
Corporate-Level Vision Objectives Strategy
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 2 Business Business Business

Business-Level Level Strategic Level Level
Vision Objectives Strategies
Managers
Level 3
Functional Functional Functional Functional
Missions Objectives Strategies
Managers
Level 4
Plant Managers, Operating Operating Operating
Lower-Level Missions Objectives Strategies
Supervisors
72
Objectives and strategies that

are unified from top to bottom of
the strategy-making managerial
hierarchy require a team effort!
73
Figure 2.5: Factors Shaping the
Choice of Company Strategy
Social,
political, Competitive
Company  External Factors
opportunities
regulatory conditions
and threats to
and and industry
company’s
community attractiveness
well-being
factors
Determine
relevance Identify
Craft
of internal and
Company’s Strategic Situation and evaluate
the
strategy
external alternatives
factors
Resource
strengths, Influences of Shared values
capabilities, key and company
and
weaknesses
executives culture
 Internal Factors
74
Social, Political, Regulatory,
and Community Factors
 Pressures from special interest groups
 Glare of investigative reporting
 Health and nutrition concerns
 Concerns about alcohol and drug abuse
 Sexual harassment
 Corporate downsizing
 Impact of plant closings on communities
 Rising/falling interest rates
 Economic conditions (good or bad)
 Trade restrictions, tariffs, and import quotas
75
What Do We Mean by
“Corporate Social Responsibility?”
 Conducting company activities within bounds of
what is considered ethical and in public interest
 Responding positively to emerging societal
priorities and expectations
 Demonstrating willingness to take needed
action ahead of regulatory confrontation
 Balancing stockholder interests against larger
interest of society as a whole
 Being a “good citizen” in community
76
Competitive Conditions and
Industry Attractiveness
 A company’s strategy has to be
responsive to
 Fresh moves of rival competitors
 Changes in industry’s
price-cost-profit economics
 Shifting buyer needs and expectations
 New technological developments

 Pace of market growth
77
A company’s strategy can’t

produce real market success
unless it is well-matched to
industry and competitive
conditions!
78
Company Opportunities and Threats
 For strategy to be
successful, it has to
 Be well matched to
capturing a company’s
best opportunities
 And help counteract

threats to the company’s
well-being
79
Company Strengths, Competencies, and
Competitive Capabilities
 A company must have or be able to

acquire the resources, competencies,
and competitive capabilities needed to
execute the chosen strategy
 Resource deficiencies, gaps in skills,

and weaknesses in competitive
position make pursuit of certain
strategies risky or altogether unwise
80
A company’s strategy ought to be

grounded in its resource strengths and
in what it is good at doing (its
competencies and competitive
capabilities); it is perilous to discount
the competitive liabilities of company’s
resource deficiencies and skills gaps!
81
Ambitions, Philosophies, and
Ethics of Key Executives
 Managers generally stamp strategies
they craft with their own personal
Ambitions I believe we
should be
Values #1!
Business philosophies
Attitudes toward risk
Ethical beliefs
82
Shared Values and Company Culture
 Values and culture often shape
the strategic moves a company will
 Consider
 Reject
 It is generally unwise for a
company to undertake strategic
moves which conflict with
 Its culture
 Values widely shared by managers
and employees
83
Hewlett-Packard’s
Basic Values: “The HP Way”
 Sharing firm’s success with employees
 Showing trust and respect for employees
 Providing customers with products or services
of the greatest value
 Being genuinely interested in providing customers
with effective solutions to their problems
 Making profit a high stockholder priority
 Avoiding use of long-term debt to finance growth
 Individual initiative, creativity, & teamwork
 Being a good corporate citizen
84
Linking Strategy With Ethics
 Ethical and moral standards go beyond
Prohibitions of law and
Language of “thou shalt not”
 Ethical and moral standards involve
 Issues of duty and
Language of “should and

should not do”
85
A Firm’s Ethical Responsibilities
to Its Stakeholders
Owners/shareholders – Rightfully expect some
form of return on their investment
Employees - Rightfully expect respect for their

worth and devoting their energies to firm
Customers - Rightfully expect a seller to provide

them with a reliable, safe product or service
Suppliers - Rightfully expect to have an equitable

relationship with firms they supply
Community - Rightfully expect businesses to be

good citizens in their community
86
Tests of a Winning Strategy
 GOODNESS OF FIT TEST
 How well is strategy matched

to firm’s situation?
 COMPETITIVE ADVANTAGE TEST
 Does strategy lead to sustainable

competitive advantage?
 PERFORMANCE TEST
 Does strategy boost firm performance?

87
To be a real winner, a strategy must

1. Fit the enterprise’s internal and
external situation
2. Build sustainable competitive
advantage
3. Improve company performance
88

Chap02 - The Three Strategy-Making Tasks

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Chap02 - The Three Strategy-Making Tasks

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CHAPTER 2

 Developing a Strategic Vision / Mission

 Establishing Financial and Strategic

 Factors Shaping a Company's

Who Are We?

Where Are We Going?

How Will We Get There?

How Will We Get There?

How Will We Measure Our Performance?

. . . . . . we want Delta to be the

WORLDWIDE, because we are and intend

AIRLINE, because we intend to stay in the

OF CHOICE, because we value the loyalty of

Use the mission statement as a

Develop a strategic vision that

Communicate the vision in a

 Cardinal Health is a leading provider of

Broad Definition  Narrow Definition

 The Company provides information via various media

 The Company now creates more than 90 % of its

The Ritz-Carlton Hotel is a place where the genuine

Apple Computer, Inc., ignited the personal computer

The Gillette Company

The Gillette Company

 Role and scope of

 Should be stated in quantifiable

 Spell-out how much of what

Financial Objectives Strategic Objectives

Every company needs

both strategic and

Citigroup (strategic objective)

To attain one billion customers worldwide.

McDonald’s (strategic objective)

To achieve 100 percent total customer

General Electric (strategic objectives)

 Become the most competitive enterprise in

 Extend our market leadership and position

Motorola (financial objectives)

 Self-funding revenue growth of 15%

 An average return on shareholders’ equity

McCormick & Company

Building a stronger long-term

A company exhibits strategic intent when it

 Indicates firm’s intent to

Objective-setting process is top-down, not

Objective-setting needs to be more of a

 Achieve performance targets

 Reconceiving a product or service

(Creating a single-use disposable camera)

(Detouring retailers by selling online at the

(Getting credit cards from Shell

Moves to divest Moves to add new

Moves to build positions

Efforts to build Responses to

 Details how key activities

 Provide support for business

 Specify how functional objectives

 Add detail to business

 Inventory stocking strategy allowing 99%

 Staffing strategy of maintaining workforce

 A company’s strategy is a collection

 Separate levels of strategy must be

 Pieces of strategy should fit together