STRATEGIC MANAGEMENT

CONTENTS:
• Strategic Management
•Developing a Strategic vision, Mission statement
•Establishing Objectives
•Strategic Intent
•Crafting a strategy
 Overview of Business Policy
Introduction
 A Business policy course seeks to integrate the knowledge gained in various
functional area courses like finance, marketing, operations, human Resources etc. so
as to develop a generalist approach in management studies.

 Such an approach is helpful in viewing organizational problems in their totality and

developing skills and attitudes required to identify, analyze and solve organization-wide
problems.
Definition And Nature Of Business Policy
There are several definitions of Business policy.

 According to Newman and Logan:

“Business policy represents the best thinking of the company management

as to how the Objectives may be achieved in the prevailing economic and
social conditions.”

 According to RE Thomas,

“Business policy, basically, deals with decisions regarding the future of an ongoing
enterprise. Such policy decisions are taken at the top level after carefully evaluating the
organizational strengths and weaknesses in relation to its environment”.
Features Of Business Policy
The following are the general features of Business policy:

1. Top Management Function

2. Understanding the “big picture”

3. Integration of functional areas

4. Resource focus

5. Externally Tuned

6. Wider application

7. Enhancement of analytical skills

 Why you are learning this subject?????????

Significance Of Business Policy Course

 The Business policy course is integrative in nature. It enables the learner to
understand the importance of looking at the organization as a unified whole.
It gives an opportunity to pull together the insights gained in introductory
courses as well as specialized functional courses like production, marketing,
finance, human Resources, etc.
 Secondly, the viewpoint adopted in Business policy is different from that adopted
in the functional courses. It helps managers to take a systems view of business.
 Thirdly, a course in Business policy also helps the learners to improve their
analytical Capabilities in a significant way.
 Fourthly, Business policy also helps the students to develop proper
knowledge, skills and attitude to make long-term strategic decisions.
In Terms of Knowledge
 Knowledge of various concepts like strategy, policies, plans etc.
 Knowledge of external and internal environment and how it affects the
functioning of the organization.
 To understand how strategies are developed to learn the problems in real-
life business and adopt a generalist approach to be adopted in problem- solving
and decision-making.
 To learn about the research taking place in the field of Business policy.
In Terms of Skills
 Develops analytical skills
 Develops decision-making skills
 Develops an ability to link theory with practice
 Develops communication skills.
In Terms of Attitude
 Develops a “generalist attitude” to approach and assess a situation from all
possible angles
 Develops a practical and professional approach to decision-making
 Develops a creative and innovative attitude when faced with a problematic
situation.
Business Policy And Strategic Management
Business policy and Strategic Management is an integrated discipline which is
concerned with the policy and strategic issues of an organization.

Focus of Business Policy Focus of Strategic Management

1. Traditional name of Strategic 1. The current name of Business Policy
management 2. Focus is on achieving a “fit” between
2. Focus is on integrating knowledge gained organizational capabilities and
in various functional areas environmental opportunities
3. Primarily looks outward
3. Primarily looks inward 4. Emphasis is on management of strategy
4. Emphasis is on integrated approach to to achieve competitive advantage
solve organization wide problems
Evolution of Strategic Management
we would briefly trace the historical development of strategic management,
which has basically arisen from the use of Planning techniques by
managers.
Planning
 Planning is the process of deciding in advance what should be accomplished and how it
should be realized. It involves selecting Objectives and deciding the means to achieve them.
 Planning had all along been a part and parcel of business activity. All business
enterprises, irrespective of size, have resorted to some kind of Planning. But over time, the
Planning task has become increasingly complex.
 Starting from day-to-day Planning in earlier times, managers, till recently, tried to
anticipate the future through the preparation of budgets and by using Control systems like
capital budgeting and management by Objectives.
 There are different phases in the Evolution of Strategic Management in line with the
changes in the business environment and also changes in the Planning techniques.
• Changes In Business Environment
 Mass Production Stage

 Phase of Major Environmental Change

 Age of ‘Discontinuity’

 Business Scenario after the 1960s

 New Competitive Landscape

• Phases In The Development Of Strategic
Management
According to Gluck, Maufman and Walleck, strategic
management in organizations appears to have evolved through four
sequential phases, as depicted in the four phases of evolution
below:

 Phase I – Annual Budgeting

 Phase II – Forecast-based Planning

 Phase III – Externally Oriented Planning

 Phase IV – Strategic Management

 Strategic Management In The 21st Century

• Strategic management will continue to face many challenges

in the coming decades of the 21st century. The turbulence and
complexity of the environment makes it difficult for the
management to project the future with confidence. The issues
in strategic management in the current millennium are:

 Ethics and Social Responsibility

 Global Perspective

 Knowledge-based Economy

 Technological Changes

 Complexity in Strategic Management Environment

 Definition And Nature
Of Strategic Management
Introduction

 Strategic Management is exciting and challenging. It makes fundamental

decisions about the future direction of a firm – its purpose, its resources
and how it interacts with the environment in which it operates.

 Every aspect of the organization plays a role in strategy – its people, its
finances, its production methods, its customers and so on.
 What Is Strategic Management?

 Strategic Management can be described as the identification of the

purpose of the organization and the plans and actions to achieve that
purpose.

 It is that set of managerial decisions and actions that determine the long-
term performance of a business enterprise.

 Strategic management involves those management processes in

organizations through which future impact of change is determined and
current decisions are taken to reach a desired future.

 In short, strategic management is about envisioning the future and

realizing it.
 Strategic Management And Operational Management
The table below summarizes important differences between strategic
management and operational management.

Strategic Management Operational Management

1. Long range planning 1. Short range planning

2. Time frame (3 or more years) 2. Time frame (1 year or less)
3. Top management responsibility 3. Middle and Lower level responsibility
4. Decisions are taken in ambiguous, uncertain 4. Mostly routine decisions
and complex conditions 5. Implications at functional or work unit level
5. Organization wide implications 6. The issues are immediate, concrete and
6. The issues are long-term, abstract and may be familiar
unfamiliar 7. Examples are:
7. Examples are: Production planning, sales planning, etc.
Diversification, mergers, joint ventures,
differentiation etc.
 Why Strategic Management?
• “We are tackling 20-year problems with five-year plans staffed with two-year
personnel funded by one –year appropriations”
• – Harlan Cleveland
 The above quotation sums up why today’s decision-makers must plan and manage
strategically. In developing as well as in industrialized countries, the increasingly
rapid nature of change as well as a greater openness in the political and
economic environments, requires a different set of perspective from that needed
during more stable times.
 It is important to note that strategic planning goes far beyond the planning
process. Unlike traditional planning, strategic planning involves a long-range
planning under conditions of uncertainty and complexity. Such a planning
involves:
• Strategic thinking
• Strategic decision-making
• Strategic approach
• Definition Of Strategic Management
1. “Strategic management is concerned with the determination of the basic
long-term goals and the objectives of an enterprise, and the adoption of
courses of action and allocation of resources necessary for carrying out
these goals”
• – Alfred Chandler, 1962
2. “Strategic management is a stream of decisions and actions which lead to
the development of an effective strategy or strategies to help achieve
corporate objectives”
• – Glueck and Jauch, 1984
3. “Strategic management is a process of formulating, implementing and
evaluating cross-functional decisions that enable an organization to
achieve its objective”.
• – Fed R David, 1997
 Characteristics Of Strategic Management
• The following are the fundamental characteristics of strategic management.

 Long-term Direction

 Recognizes Change

 Oriented Towards the Future

 External Emphasis

 Concerned with Scope of the Organization

 Major Impact on the Organization

 Significant Risk

 Major Financial or other resources implications

 “Matching” resources with the environment

 “Stretching” resources and competences

 Influenced by stakeholders

 Affect operational decisions

 Competitive advantage
 PROCESS OF
STRATEGIC MANAGEMENT
Elements Of Strategic Management

• Developing an organizational strategy involves four main elements –

 Strategic Analysis

 Strategic Choice

 Strategy Implementation

 Strategy Evaluation and Control

 Steps in Strategic Management Process

Elements in strategy Questions Description

process
STRATEGY FORMULATION
Strategic analysis
Defining organizational What is our purpose? Organizational purpose is generally
purpose What kind of organization do articulated in vision and mission
we want to be? statements. The first task is, therefore,
to identify vision and mission of the
organization.
Environmental analysis involves the
gathering and analysis of intelligence on
the business environment. This
encompasses the external environment
(general and competitive forces), the
internal environment (resources,
competences, performance relative to
competitors), and stakeholder
expectations.
 Strategic choice
Objectives Where do we want to Objectives provide a more detailed
be? articulation of purpose and a basis for
monitoring performance.
Options analysis Are there alternative Alternative strategic options may be
routes? identified; options require to be appraised in
order that the best can be selected.
Strategies How are we going to get Strategies are the means or courses of
there? action to achieve the purpose of the
organization.
STRATEGY IMPLEMENTATION
Actions How do we turn plans A specification of the operational activities
into reality? and tasks required to enable strategies to
be implemented.
STRATEGY EVALUATION AND CONTROL
Monitoring and control How will we know if we Monitoring performance and progress in
are getting there? meeting objectives, taking corrective action
as necessary and reviewing strategy.
 Part- I : Introduction

Ch-2: Evolution of Strategic Management

Strategic Management Process

A General Framework of Strategic Management Process
Agreement on and initiation of the
Strategic management process

The organization determines vision, mission,

goals and objectives. F
The organization analyzes both
e
external and internal environment. e
The organization establishes long -term d
goals and objectives b
The organization chooses from alternative a
courses of action. c
The organization implements the choices k
to achieve strategic fit

The organization monitors the

implementation activity.
Copyright © 2008, C Appa Rao, B Parathiswara Rao, K Sivaramakrishna

2– 22 C Appa Rao, B Parathiswara Rao, K

Strategic Management and Business Policy Text and Cases Sivaramakrishna
Excel Books
 Part- I : Introduction

Ch-2: Evolution of Strategic Management

Strategic Management Model

The strategic management process can be better understood by using a model as
shown in the figure.

Analyse
External
Strategic Management Model
Environment

Develop Establish Generate, Implement Evaluate and

vision and long-term Analyze and Strategies Control
` mission objectives Select Strategies
Strategies

Analyse
Internal
Environment

Copyright © 2008, C Appa Rao, B Parathiswara Rao, K Sivaramakrishna

2– 23 C Appa Rao, B Parathiswara Rao, K

Strategic Management and Business Policy Text and Cases Sivaramakrishna
Excel Books
 Benefits And Limitations
Importance Of Strategic Management

1. It helps the firm to be more proactive than reactive in shaping its own future.

2. It provides the roadmap for the firm. It helps the firm utilize its resources in
the best possible manner.

3. It allows the firm to anticipate change and be prepared to manage it.

4. It helps the firm to respond to environmental changes in a better way.

5. It minimizes the chances of mistakes and unpleasant surprises.

6. It provides clear objectives and direction for employees.

 Benefits Of Strategic Management
A structured approach to strategy planning brings several benefits (Smith,
1995; Robbins, 2000)
1. It reduces uncertainty: Planning forces managers to look ahead, anticipate
change and develop appropriate responses. It also encourages managers
to consider the risks associated with alternative responses or options.
2. It provides a link between long and short terms: Planning establishes a
means of coordination between strategic objectives and the operational
activities that support the objectives.
3. It facilitates control: By setting out the organization’s overall strategic
objectives and ensuring that these are replicated at operational level,
planning helps departments to move in the same direction towards the
same set of goals.
4. It facilitates measurement: By setting out objectives and standards,
planning provides a basis for measuring actual performance.
Strategic management has thus both financial and non-financial benefits;
 Financial Benefits: Research indicates that organizations that engage in
strategic management are more profitable and successful than those that
do not. Businesses that followed strategic management concepts have
shown significant improvements in sales, profitability and productivity
compared to firms without systematic planning activities.
 Non-financial benefits: Besides financial benefits, strategic management
offers other intangible benefits to a firm. They are;
1. Enhanced awareness of external threats
2. Improved understanding of competitors’ strategies
3. Reduced resistance to change
4. Clearer understanding of performance-reward relationship
5. Enhanced problem-prevention capabilities of organization
6. Increased interaction among managers at all divisional and functional
levels
7. Increased order and discipline.
 Reasons For Poor Strategic Planning

• Some firms do not engage in strategic planning or do poor strategic planning.

As quoted by Fred R. David, the reasons for poor or no strategic planning are:

1. Poor Reward Structures 8. Overconfidence

2. Fire-Fighting 9. Prior Bad Experience

3. Waste of Time 10. Self-interest

4. Too Expensive 11. Fear of the Unknown

5. Laziness 12. Honest Difference of Opinion

6. Content with Success 13. Suspicion

7. Fear of Failure
 Limitations And Pitfalls Of Strategic Management
• Strategic management is not, therefore, a guarantee for success; it can be
dysfunctional if conducted haphazardly. The following are its limitations.
• Limitations of Strategic Management
1. It is a costly exercise in terms of the time that needs to be devoted to it by
managers. The negative effect of managers spending time away from their
normal tasks may be quite serious
2. A negative effect may arise due to the non-fulfillment of the expectations
of the participating managers, leading to frustration and disappointment.
3. Another negative effect of strategic management may arise if those
associated with the formulation of strategy are not intimately involved in
the implementation of strategies. The participants in formulation of the
policy may shirk their responsibility for the decisions taken.
 Pitfalls in Strategic Management
• As quoted by Fred R. David, some pitfalls to watch for and avoid in
strategic planning are:
1. Using strategic planning to control over decisions and resources
2. Doing strategic planning only to satisfy accreditation or regulatory
requirements
3. Moving too hastily from mission development to strategy formulation
4. Failing to communicate the strategic plan to the employees, who continue
working in the dark
5. Top managers making many intuitive decisions that conflict with the
formal plan
6. Top managers not actively supporting the strategic planning process
7. Failing to use plans as a standard for measuring performance
 Guidelines For Effective Strategic Management
1. Even the most technically perfect strategic plan will serve little purpose if
it is not implemented. Organizations should, therefore, take strategy
seriously.
2. Strategic management must not become a self-perpetuating bureaucratic
mechanism. Rather, it must be a self reflective learning process for all
employees in the organization resolving strategic issues.
3. Keep the strategic management process as simple and non-routine as
possible.
4. Eliminate jargon and arcane planning language
5. The process should not be predictable and settings must be changed to
stimulate creativity.
6. If a strategy is not working, managers need to know it.
7. No organization can pursue all the strategies that potentially could benefit
the firm.
8. Strategic decisions require trade-offs such as long range versus short-
range considerations.
The Managerial Process of Crafting
and Executing Strategy
 “If you don’t know where you
are going, any road will take you
there.”
The Koran

“Management’s job is not to

see the company as it is . . .
but as it can become.”
John W. Teets
 Concept Of Strategy
The concept of strategy is central to the understanding of strategic
management. Strategy is basically the long-term direction of an
organization. The term ‘strategy’ is derived from the Greek word
“strategos”, which means “the art of the general” or “to command an
army”. In other words, strategy involves the general who
commands the army, and his or her art of winning in the battlefield
(Clausewitz).
 The military concept of strategy is not unique to the Western world. In
ancient China, Sun Tzu wrote a treatise “The Art of War”, interpreting
strategy as the ability to win the war without fighting, by being combat-
ready. Similarly, in ancient India, Kautilya wrote a treatise “Arthasastra”,
where he addressed the concept of strategy from a military perspective.
 Strategy And Tactics

Strategy Tactics

1 Comprehensive plan developed by top Sub-strategies developed by lower levels of

management to achieve organizational management to achieve short-range
purposes and long-range objectives objectives

2 Generally, the focus is on The focus is on short–term gains

long-term gains

3 Uncertainty level is quite high Decisions are more certain and are taken
within the framework of strategies

4 Affects various parts of the organization The effect is limited to specific departments
in a significant way of the organization
Definition of Strategy
 Chandler: Strategy is the determination of the basic long-term goals and
objectives of an enterprise and the adoption of the courses of action and the
allocation of resources necessary for carrying out these goals (1962).
 William F. Glueck: Strategy is a unified, comprehensive and integrated plan
designed to assure that the basic objectives of the enterprise are achieved (1972).
 Henry Mintzberb: Strategy is a consistent stream of decisions and actions
to deal with the environment (1987).
 Prahlad and Hamel: Strategy is more than just fit and allocation of
resources. It is stretch and leveraging of resources (1993).
 Michael Porter: Strategy means developing and communicating the
company’s unique position, making trade-off and forging fit among activities.
(1996).
 Elements of A Strategy
• According to Saloner et al, any strategy should have four important
elements:
 Goals: A strategy invariably indicates the long-term goals towards which
all efforts are directed. So, a strategy is basically the long-term direction
of a company.
 Scope: A strategy defines the scope which includes the kind of products it
will produce, the markets it will pursue, and the broad areas of activity it
will undertake.
 Competitive Advantage: A strategy also contains a clear statement of
what competitive advantages the firm will pursue and sustain.
 Logic: This is the most important element of strategy. The ‘why’ is the
logic of strategy.
 Nature Of Strategy

 Strategy is complex in nature This is especially so in organizations with wide

geographical scope (MNCs) or wide range of products or services.
 Strategy may have to be developed in situations of uncertainty. It involves
taking decisions for future about which it is impossible for managers to be
sure.
 Strategy demands an integrated approach to managing the organization. Unlike
functional problems, there is no one area of expertise or one perspective that
can resolve the problems. Managers, therefore, have to cross functional and
operational boundaries to deal with strategic problems.
 Strategy requires to manage and perhaps change relationships and
networks, for example, with suppliers, distributors and customers.
 Strategy very often involves change in organization which may prove
difficult because of the heritage of resources and culture.
The first task in the process of strategic management is to formulate the

organization’s vision and mission statements. These statements define the

organizational purpose. Together with objectives, they form a “hierarchy of goals.”

Hierarchy of Goals

Vision
Mission
Goals
Objectives
Plans
 The Strategy-Making,
Strategy-Executing Process
 Developing a Strategic Vision
Phase 1 of the Strategy-Making Process

• Involves thinking strategically about

– Future direction of company
– Changes in company’s product-market-
customer-technology to improve
• Current market position
• Future prospects

A strategic vision 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.
 Key Elements of a
Strategic Vision

• Delineates management’s aspirations for the business –

• Charts a strategic path for the future
“Where are we going?”
• Steers energies of employees
in a common direction
• Molds organizational identity
• Is distinctive and specific to
a particular organization
• Avoids use of generic language
• Triggers strong emotions
• Is challenging, uncomfortable, nail biting
 Vision
• Vision can be defined as “a mental image of a possible and desirable future
state of the organisation” (Bennis and Nanus). It is “a vividly descriptive image
of what a company wants to become in future”.

 “The critical point is that a vision articulates a view of a realistic, credible,

attractive future for the organization, a condition that is better in some
important ways than what now exists.”

 Vision, therefore, not only serves as a backdrop for the development of the
purpose and strategy of a firm, but also motivates the firm’s employees to achieve
it.

 According to Collins and Porras, a well-conceived vision consists of two major

components.

• Core ideology

• Envisioned future
 Definitions of Vision

• Johnson: Vision is “clear mental picture of a future goal created jointly by a group for the

benefit of other people, which is capable of inspiring and motivating those whose support is

necessary for its achievement”.

• Kirkpatrick et al : Vision is “an ideal that represents or reflects the shared values to which

the organization should aspire”.

• Thornberry: Vision is “a picture or view of the future. Something not yet real, but

imagined. What the organization could and should look like. Part analytical and part

emotional”.

• Shoemaker: Vision is “the shared understanding of what the firm should be and how it must

change”.

• Kanter et al: Vision is “a picture of a destination aspired to, an end state to be achieved via

the change. It reflects the larger goal needed to keep in mind while concentrating on concrete

daily activities”.

• Stace and Dunphy: Vision is “an ambition about the future, articulated today, it is a process

of managing the present from a stretching view of the future”.

Characteristics of Vision Statements

As may be seen from the above definitions, many of the characteristics of vision given by
these authors are common such as being clear, desirable, challenging, feasible and easy to
communicate. Nutt and Backoff have identified four generic features of visions that are likely
to enhance organizational performance:
1. Possibility means the vision should entail innovative possibilities for dramatic
organizational improvements.
2. Desirability means the extent to which it draws upon shared organizational
norms and values about the way things should be done.
3. Actionability means the ability of people to see in the vision, actions that they can take
that are relevant to them.
4. Articulation means that the vision has imagery that is powerful enough to
communicate clearly a picture of where the organization is headed.
 The main difference between vision, mission, philosophy, goals and
strategy.

How Does Vision Compare

Vision Vision usually paints a picture of the future and is inspirational
Mission Mission depicts what the organization is and does….. not where it
is headed in the future.
Philosophy Philosophy articulates values and beliefs of an organization….
without prescribing what the future will look like.
Goals and Goals and strategy statements define specific outcomes. They
Strategy articulate how the organization will progress towards the future…

not what the actual future will be.

 Advantages of Vision
• Several advantages accrue to an organization having a vision. Parikh and
Neubauer point out the following advantages:
 Good vision fosters long-term thinking.
 It creates a common identity and a shared sense of purpose.
 It is inspiring and exhilarating.
 It represents a discontinuity, a step function and a jump ahead so that the
company knows what it is to be.
 It fosters risk-taking and experimentation.
 A good vision is competitive, original and unique. It makes sense in the market
place.
 A good vision represents integrity. It is truly genuine and can be used for the
benefit of people.
 Developing the Vision
Implementing Vision Retreat (Nanus, Strategic Vision and Developing the
strategic Vision 1996) Core Capabilities Vision (Pendiebury
(Gratton, 1996) 1992:67) et al., 1998:63–67)
1. Articulate the Phase 1: Preparation. 1. Generate 1. Formalize the need
long-term vision Establish purpose and scenarios of for change
2. Identify strategic goals of the retreat possible futures 2. Identify the issues
people and Phase 2: Initial meeting. the organization that need to be
processes critical may face addressed
Two-day meeting with
to achieving the discussion on vision audit 2. Do a competitive 3. Develop multiple
vision (character of organization), analysis of the visions
3. Assess alignment vision scope (who it industry
4. Choose an
of the vision with includes and desired vision 3. Analyze the core appropriate vision
current characteristics), and vision capabilities of the
5. Formalize the
capabilities context (environmental company and its
vision, ensuring it
issues) competitors
is clear and
communicable

Cont….
 Phase 3: Analysis and
report cycle. Facilitator 4. Develop a
prepares three scenarios of strategic vision
4. Prioritize key
the future that are discussed (best) aligned to
actions to bridge
among participants over a the strategic
from current
number of weeks options
reality to vision
of the future Phase 4: Final meeting generated from
One-day discussion and steps 1–3
evaluation of vision
alternatives and their
strategic implications
Phase 5: Post-retreat
activities. Conclusions
communicated throughout
the organization including
ways of implementing it
 Exelon’s
Strategic Vision
One Company, One Vision.
Exelon strives to build exceptional value - by
becoming the best and most consistently profitable
electricity and gas company in the United States.
To succeed, we must . . .

Live up to our commitments . . .

Perform at world-class levels . . .

Invest in our consolidating industry . . .

 Examples of Strategic Visions

Red Hat Linux

To extend our position as the most trusted Linux and open
source provider to the enterprise. We intend to grow the
market for Linux through a complete range of enterprise
Red Hat Linux software, a powerful Internet management
platform, and associated support and services.

Wells Fargo
We want to satisfy all of our customers’ financial needs,
help them success financially, be the premier provider
of financial services in every one of our markets, and
be known as one of America’s great companies.
 Examples of Strategic Visions

Wyeth
Our vision is to lead the way to a healthier world. By
carrying out this vision at every level of our organization,
we will be recognized by our employees, customers, and
shareholders as the best pharmaceutical company in the
world, resulting in value for all. We will achieve this by:

 Leading the world in innovation by linking

pharmaceutical, biotech, and vaccines technologies
 Making quality, integrity, and excellence hallmarks
of the way we do business
 Attracting, developing, and motivating the best people
 Continually growing improving our business
 Examples of Strategic Visions

Dental Products Division of 3M Corporation

Become THE supplier of choice to the global dental
professional markets, providing world-class quality and
innovative products. [All employees of the division wear
badges bearing these words, and whenever a new product
or business procedure is being considered, management
asks “Is this representative of THE leading dental
company?”]

Nike
To bring innovation inspiration to every athlete in the world.
 Examples of Strategic Visions

Intel
Our vision: Getting to a billion connected computers
worldwide, millions of servers, and trillions of
dollars of e-commerce. Intel’s core mission is being
the building block supplier to the Internet economy
and spurring efforts to make the Internet more
useful. Being connected is now at the center of
people’s computing experience. We are helping to
expand the capabilities of the PC platform and the
Internet . . . We have seen only the early stages of
deployment of digital technologies.
 Examples of Strategic Visions

Heinz
Our vision, quite simply, is to be the world’s premier food
company, offering nutritious, superior tasting foods to
people everywhere. Being the premier food company does
not mean being the biggest but it does mean being the best
in terms of consumer value, customer service, employee
talent, and consistent and predictable growth.

General Electric
We will become number one or number two in every market
we serve, and revolutionize this company to have
the speed and agility of a small enterprise.
 Strategic Vision vs. Mission
• A strategic vision concerns a
firm’s future business path -
“where we are going”
– Markets to be pursued
– Future technology-
product-customer focus
– Kind of company
management is
trying to create
• The mission statement of
most companies focuses
on current business
activities - “who we are
and what we do”
– Current product and
service offerings
– Customer needs being
served
– Technological
and business
capabilities
 Characteristics of
a Mission Statement
• Defines current business activities,
highlighting boundaries of current business
– Present products and services
– Types of customers served
• Conveys
– Who we are,
– What we do, and
A– Why we mission
company’s are here
is not to make a profit! Its true mission
is its answer to “What will we do to make a profit?”
Making is profit is an objective or intended outcome!
 Key Elements of
a Mission Statement
• Three factors to consider

– Customer needs –
What is being satisfied

– Customer groups –
Who is being satisfied

– Technologies/resources/business approaches used

and activities performed –
How customer needs are satisfied
 Mission

“A mission statement is an enduring statement of purpose”. A clear mission

statement is essential for effectively establishing objectives and formulating
strategies.

Defining Mission

Thompson defines mission as “The essential purpose of the organization,

concerning particularly why it is in existence, the nature of the business it is in,
and the customers it seeks to serve and satisfy”. Hunger and Wheelen simply
call the mission as the “purpose or reason for the organization’s existence”.
 Importance of Mission Statement
• The purpose of the mission statement is to communicate to all the
stakeholders inside and outside the origanization what the company stands
for and where it is headed. It is important to develop a mission statement
for the following reasons:
1. It helps to ensure unanimity of purpose within the organization.
2. It provides a basis or standard for allocating organizational resources.
3. It establishes a general tone or organizational climate.
4. It serves as a focal point for individuals to identify with the organization’s
purpose and direction.
5. It facilitates the translation of objectives into tasks assigned to
responsible people within the organization.
6. It specifies organizational purpose and then helps to translate this purpose
into objectives in such a way that cost, time and performance parameters
can be assessed and controlled.
Characteristics of a Mission Statement
A good mission statement should be short, clear and easy to understand. It should
therefore possess the following characteristics:
 Not lengthy
 Clearly articulated
 Broad, but not too general
 Inspiring
 It should arouse positive feelings and emotions
 Reflect the firm’s worth
 Relevant and Current
 Unique, Enduring and Dynamic
 Basis for guidance
 Customer orientation
 A declaration of social policy
 Values, beliefs and philosophy
Components of a Mission Statement
 Basic product or service
 Primary markets
 Principal technology
 Customers
 Concern for survival, growth and profitability
 Company philosophy
 Company self-concept
 Concern for public image
 Concern for employees
 Concern for quality
 Examples of Mission Statements
 Ranboxy Petrochemicals: “To become a research based global company”.
 Reliance Industries: “To become a major player in the global chemicals business
and simultaneously grow in other growth industries like infrastructure”.
 ONGC: “To stimulate, continue and accelerate efforts to develop and
maximize the contribution of the energy sector to the economy of the country”.
 Hindustan Lever: “Our purpose is to meet everyday needs of people
everywhere – to anticipate the aspirations of our consumers and customers,
and to respond creatively and competitively with branded products and services
which raise the quality of life”.
 McDonald: “To offer the customer fast food prepared in the same high quality
worldwide, tasty and reasonably priced, delivered in a consistent low key
décor and friendly manner”.
Distinction Between Vision and Mission
Vision Mission

1. A mental image of a possible and desirable 1. Enduring statement of philosophy, a

future state of the organization. creed statement.
2. A dream. 2. The purpose or reason for a firm’s
3. Broad. existence .

4. Answers the question “what we want to 3. More specific than vision

become?” 4. Answers the question “what is our
business”.
 Trader Joe’s
Mission Statement

(a unique grocery store chain)

To give our customers the best food and beverage

values that they can find anywhere and to provide
them with the information required for informed
buying decisions. We provide these with a
dedication to the highest quality of customer
satisfaction delivered with a sense of warmth,
friendliness, fun, individual pride, and company
spirit.
 Linking the Vision
With Company Values
• A statement of values is often provided to
guide the company’s pursuit of its vision
• Values – Beliefs, business principles, and ways
of doing things that are incorporated into
– Company’s operations
– Behavior of workforce
• Values statements
– Contain between four and eight values
– Are ideally tightly connected to and reinforce
company’s vision, strategy, and operating practices
 Example: Company Values
Home Depot
Entrepreneurial
Creating spirit Excellent customer
shareholder value service

Building strong Giving back to the

relationships community

Taking care of Respect for all

people people
Doing the right
thing
 Example: Company Values
Du Pont

Safety Ethics

Respect for Environmental

people stewardship
 Communicating the
Strategic Vision
• An exciting, inspirational vision
– Contains memorable language
– Clearly maps company’s future direction
– Challenges and motivates workforce
– Provokes emotion and enthusiasm
• Winning support for the vision involves
– Putting “where we are going and why” in writing
– Distributing the statement organization-wide
– Having executives explain the vision
to the workforce
 Examples: Vision Slogans
Levi Strauss & Company
“We will clothe the world by marketing the most appealing
and widely worn casual clothing in the world.”

Microsoft Corporation
“Empower people through great software—any time, any
place, and on any device.”

Mayo Clinic
“The best care to every patient every day.”
 Examples: Vision Slogans
Scotland Yard
“To make London the safest major city in the world.”

Greenpeace
“To halt environmental abuse and
promote environmental solutions.”

Charles Schwab
“To provide customers with the most useful and
ethical financial services in the world.”
 Overcoming Resistance to
a New Strategic Vision
• Mobilizing support for a new vision entails
– Reiterating basis for the new direction

– Addressing employee concerns head-on

– Calming fears

– Lifting spirits

– Providing updates and progress

reports as events unfold
 Payoffs of a
Clear Strategic Vision
• Crystallizes an organization’s long-term direction

• Reduces risk of rudderless decision-making

• Assists in gaining support of

organizational members for
changes to make the vision a reality

• Helps keep strategy-related actions

of managers on common path

• Helps an organization prepare for the future

 Setting Objectives
Phase 2 of the Strategy-Making Process
• Purpose of setting objectives
– Converts vision into specific performance targets
– Creates yardsticks to track performance
– Pushes firm to be inventive, intentional, and
focused in its actions
• Setting challenging, achievable
objectives guards against
– Complacency
– Internal confusion
– Status quo performance
 Characteristics of Objectives
• Represent commitment to achieve specific
performance targets
• Spell-out how much of what kind
of performance by when
• Well-stated objectives are
– Quantifiable
– Measurable
– Contain a deadlineobjectives
Establishing for achievement
converts the
vision into concrete performance outcomes!
 Types of Objectives Required
Financial Objectives Strategic Objectives
Outcomes focused Outcomes focused on
on improving financial improving long-term
performance competitive business
position

$
 Examples: Financial
Objectives
• X % increase in annual revenues
• X % increase annually in after-tax profits
• X % increase annually in earnings per share
• Annual dividend increases of X %
• Profit margins of X %
• X % return on capital employed (ROCE)
• Increased shareholder value
• Strong bond and credit ratings
• Sufficient internal cash flows to fund 100% of
new capital investment
• Stable earnings during periods of recession
 Examples: Strategic
Objectives
• Winning an X % market share
• Achieving lower overall costs than rivals
• Overtaking key competitors on product performance or quality or
customer service
• Deriving X % of revenues from sale of new products introduced in
past 5 years
• Achieving technological leadership
• Having better product selection than rivals
• Strengthening company’s brand name appeal
• Having stronger national or global sales and distribution capabilities
than rivals
• Consistently getting new or improved products to market ahead of
rivals
 Unilver’s Strategic and Financial
Objectives

• Grow annual revenues by 5-6% annually

• Increase operating profit margins from 11% to
16% within 5 years
• Trim company’s 1200 food, household, and
personal care products down to 400 core
brands
• Focus sales and marketing efforts on those
brands with potential to become respected,
market-leading global brands
• Streamline company’s supply chain
 The Kroger Company’s Strategic and
Financial Objectives

• Reduce our operating and administrative

cost by $500 million by year-end 2003
• Leverage our $51 billion size to achieve
greater economies of scale
• Reinvest in our core business to
increase sales and market share
• Grow earnings per share by 10-12% in 2002-
2003 and by 13-15% annually starting in
2004.
 Seagate Technology’s
Strategic Objectives

• Solidify the company’s No. 1 position in

the overall market for hard-disk drives
• Get more Seagate drives into popular consumer
electronics products (i.e. video recorders)
• Take share away from Western Digital in providing
disk drives for Microsoft’s Xbox
• Capture a 10% share of the market for 2.5-inch
hard drives for notebook computers by 2004
 Heinz’s Financial and
Strategic Objectives

• Achieve earnings per share in the range

of $2.15-$2.25 in 2004
• Increase operating cash flow by 45% to $750 million
• Reduce net debt by $1.3 billion in 2003 and further
strengthen the company balance sheet in 2004
• Continue to introduce new and improved food products
• Remove the clutter in the company product offerings by
reducing the number of SKUs
• Increase spending on trade promotion and advertising by
$200 million to strengthen the recognition and market
shares of the company’s core brands
• Divest non-core underperforming product lines
 DuPont’s Financial and
Strategic Objectives

• To achieve annual revenue growth of 5 to 6% and

annual earnings-per-share growth averaging 10%
• Grow per-share profits faster than revenues by
(a)Increasing productivity,
(b)Selling enough new products each year that
average prices and average margins rise, and
(c)Using surplus cash to buy back shares
• Sell the company’s low-margin textiles and interiors
division (with sales of $6.6 billion and operating
profits of only $114 million)
 3M Corporation’s Financial
and Strategic Objectives

• To achieve annual growth in earnings per

share of 10% or better, on average
• A return on stockholders’ equity
of 20-25%
• A return on capital employed
of 27% or better
• Have at least 30% of sales come from
products introduced in the past four years
 Strategic Performance Fosters Better
Financial Performance
• A company’s achievement of satisfactory financial performance, by
itself, is not enough
– Financial performance measures are “lagging indicators” reflecting
results of past decisions and actions
• Of equal or greater importance is a company’s performance on
measures of its strategic well-being —
its competitiveness and market position
– Strategic performance measures are “leading indicators” of a
company’s future financial performance and business prospects
– Achievement of strategic performance targets
• Signals growing competitiveness
• Signals growing strength in the marketplace
 Balanced Scorecard Approach – Strategic
and Financial Objectives
• Balanced scorecard approach for measuring
company performance requires both –
– Financial objectives
– Strategic objectives
• Emphasis on financial performance may assume
priority over strategic performance when company’s
– Financial performance is dismal and
– Survival is threatened
• Otherwise, management is advised to put more emphasis
on achieving strategic objectives
The surest path to sustained future profitability
year after year is to relentlessly pursue strategic outcomes
that strengthen a company’s business position and
give it a growing competitive advantage over rivals!
 Short-Term vs.
Long-Term Objectives
• Short-term objectives
– Targets to be achieved soon
– Milestones or stair steps for reaching long-range
performance
• Long-term objectives
– Targets to be achieved within
3 to 5 years
– Prompt actions now that will
permit reaching targeted
long-range performance later
 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!
 Characteristics of
Strategic Intent
• Indicates firm’s intent to making quantam gains in
competing against key rivals and to establishing itself
as a winner in the marketplace, often against long odds
• Involves establishing a grandiose performance target
that is out of proportion to its immediate capabilities
and market position but then devoting the company’s
full resources and energies to achieving the target over
time
• Signals relentless commitment to
achieving a particular market position
and competitive standing
 Objectives Are Needed
at All Levels
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

 Importance of
Top-Down Objectives
• Guide objective-setting and strategy-making at lower
levels
• Ensures financial and strategic performance targets for
all business units, divisions, and departments are
directly connected to achieving company-wide
objectives
• Integration of objectives has two advantages
– Helps produce cohesion among objectives and
strategies of different parts of organization
– Helps unify internal efforts to move a
company along the chosen strategic path
Goals And Objectives
Goals
 The terms “goals and objectives” are used in a variety of ways, sometimes in a
conflicting sense.
 The term “goal” is often used interchagebly with the term “Objective”. But
some authors prefer to differentiate the two terms.

The distinction between goals and objectives is summarized below:

Goals Objectives
1. General Specific
2. Qualitative Quantative, measurable
3. Broad organization–wide target Narrow targets set by operating divisions
4. Long term results Immediate, short term results
 Objectives
Objectives are the results or outcomes an organization wants to achieve in pursuing its
basic mission. The basic purpose of setting objectives is to convert the strategic vision
and mission into specific performance targets.
Characteristics of Objectives
Well – stated objectives should be:
 Specific
 Quantifiable
 Measurable
 Clear
 Consistent
 Reasonable
 Challenging
 Contain a deadline for achievement
 Communicated, throughout the organization
 Role of Objectives
• Objectives play an important role in strategic management. They are essential
for strategy formulation and implementation because:
 They provide legitimacy
 They state direction
 They aid in evaluation
 They create synergy
 They reveal priorities
 They focus coordination
 They provide basis for resource allocation
 They act as benchmarks for monitoring progress
 They provide motivation
• Management by Objectives (MBO)
• Another approach to objective – setting is Management by Objectives (MBO). This
concept was popularized by Peter Drucker in 1960s. MBO is a “process whereby
the superior and subordinate managers of an organization jointly identify common
goals, define each individuals’ major areas of responsibility in terms of results
expected of them”.
• The salient features of MBO are:
1. Joint setting of goals
2. Emphasis on what must be accomplished rather than how it is to be
accomplished.
3. Integration of individual goals with organizational goals
4. Focus on key result areas
5. Evaluation and feedback.
Strategic Intent
 Prahlad and Hamel coined the term “strategic intent”. It means an
“ambitious goal” of a firm to acquire a desired leadership position.
 A company exhibits strategic intent when it relentlessly pursues an
ambitious goal and concentrates its full resources and actions on achieving
that goal.
Strategic intent, vision, mission and objectives
 From the foregoing discussion, it is clear that the term “strategic intent” has
a definite meaning in strategic management. However, some authors have
tried to explain vision, mission and objectives in terms of strategic intent.
 According to them, vision, mission and objectives are, in a way, the
components of the strategic intent, and when placed at different levels and
linked to each other, these take the shape of a “hierarchy of goals”; such a
hierarchy of goals reflects nothing but the strategic intent of a firm.
• According to some authors, an explicit structuring of a hierarchy of
strategic intent has important implications for strategic management.
 Firstly, it serves as a character of the aims an organization plans to
achieve.
 Secondly, it helps in laying down the aims of different subsystems within
an organization.
 Thirdly, it is a powerful means of communicating the organizational intent
down the line.
 Finally, it ensures the creation of result oriented organizational systems
set to attain the mission and realize the vision of the organization.
• It encompasses an active management process which includes:
1. Focusing the organization on the essence of winning
2. Motivating people by communicating the value of the target
3. Creating opportunities for individual and team contributions
4. Sustaining enthusiasm as circumstances change
5. Using intent consistently to guide resource allocations.
 Crafting a Strategy
Phase 3 of the Strategy-Making Process
• Strategy-making involves entrepreneurship –
searching for opportunities
– To do new things or
– To do existing things in new or better ways

• Strategizing involves
– Picking up on happenings in the external environment
and
– Steering company activities in new directions dictated
by shifting market conditions
 Activities Involved in
Crafting a Strategy
• Studying market trends and actions of competitors
• Listening to customers, anticipating their changing
needs
• Scrutinizing business possibilities
based on new technology Our strategy will
be . . .
• Building firm’s market position
via acquisitions or new products
• Pursuing ways to strengthen
firm’s competitive capabilities
 Who Participates in Crafting
a Company’s Strategy?

• Chief executive officer - CEO

• Senior corporate executives
• Chief financial officer - CFO
• Managers of business divisions and
major product lines
• Key VPs for production, marketing, human
resources, and other
Every company functional
manager departments
has a strategy-making,
strategy-executing role – ranging from minor to major –
for the area he or she heads!
 Strategizing: An Individual
or Team Responsibility?
• Teams are increasingly used because
– Finding market- and customer-driven solutions is
necessary
– Complex strategic issues cut across
functional areas and departmental units
– Ideas of people with different
backgrounds and experiences
strengthen strategizing effort
– Groups charged with crafting the
strategy often include the people
charged with implementing it
Levels Of Strategy
Strategies exist at a number of levels in an organization. There are basically four levels
of strategy.
Hierarchy of Strategies
1. Corporate-level strategy
Corporate Strategy
2. Business-level strategy
Business
(Division Level)
3. Functional strategy Strategy

4. Operational strategy Functional

Strategy
 Introduction

• The first task in the process of strategic management is to formulate the

organization’s vision and mission statements. These statements define the
organizational purpose of a firm. Together with objectives, they form a “hierarchy
of goals.”
Hierarchy of Goals

Vision
Mission
Goals
Objectives
Plans
Fig. 2.2: A Company’s Strategy-Making Hierarchy
 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
Functional Strategies
Managers
Two-Way Influence

Operating
Managers Operating Strategies
 Levels of Strategy-Making in
a Single-Business Company

Business-Level
Business
Managers Strategy

Two-Way Influence

Functional
Functional Strategies
Managers

Two-Way Influence

Operating
Managers Operating Strategies
 Tasks of Corporate Strategy
• Moves to achieve diversification

• Actions to boost performance of individual businesses

• Capturing valuable cross-business synergies to provide

1 + 1 = 3 effects!

• Establishing investment
priorities and steering
corporate resources into the
most attractive businesses
 Tasks of Business Strategy
• Initiating approaches to produce successful
performance in a specific business
• Crafting competitive moves to build
sustainable competitive advantage
• Developing competitively valuable
competencies and capabilities
• Uniting strategic activities of functional areas
• Gaining approval of business strategies by
corporate-level officers and directors
 Tasks of Functional Strategies
• Game plan for a strategically-relevant
function, activity, or business process

• Detail how key activities

will be managed

• Provide support for

business strategy

• Specify how functional objectives

are to be achieved
 Tasks of Operating Strategies

• Concern narrower strategies for

managing grassroots activities and
strategically-relevant operating units

• Add detail to business

and functional strategies

• Delegation of responsibility
to frontline managers
 Uniting the Company’s
Strategy-Making Effort
• A firm’s strategy is really a collection of
initiatives undertaken by managers at all levels
in the organizational hierarchy

• All the various strategic initiatives must be

unified into
a cohesive, company-wide action plan

• Pieces of strategy should fit

together like the pieces of a puzzle
 What Is a Strategic Plan?

Its strategic vision

and business mission
A
Company’s
Strategic Its strategic and
Plan financial objectives
Consists
of

Its strategy
 Implementing and Executing Strategy

Phase 4 of the Strategy-Making Process

• Action-oriented, operations-driven activity aimed
at shaping performance of core business activities
in a strategy-supportive manner

• Tougher and more time-consuming

than crafting strategy

• Key tasks include

– Improving efficiency of the strategy being executed

– Showing measurable progress in achieving targeted

results
 What Does Strategy Implementation
Involve?
• Building a capable organization
• Allocating resources to strategy-critical activities
• Establishing strategy-supportive policies
• Instituting best practices and programs for
continuous improvement
• Installing information, communication, and operating systems
• Motivating people to pursue the target objectives
• Tying rewards to achievement of results
• Creating a strategy-supportive corporate culture
• Exerting the leadership necessary to drive the process forward
and keep improving
 Characteristics of Good Strategy
Execution
• Involves creating strong “fits” between strategy and
– Organizational capabilities
– Reward structure
– Internal operating systems
– Organization’s work climate and culture
• The stronger the “fits” the
– Better the execution
– Higher a company’s odds of achieving its performance
targets
 Evaluating Performance and
Making Corrective Adjustments
Phase 4 of the Strategy-Making Process
• Tasks of crafting and implementing the strategy
are not a one-time exercise
– Customer needs and competitive conditions change
– New opportunities appear; technology
advances; any number of other
outside developments occur
– One or more aspects of executing the
strategy may not be going well
– New managers with different ideas take over
– Organizational learning occurs
• All these trigger the need for corrective actions
and adjustments on an as-needed basis
 Monitoring, Evaluating, and
Adjusting as Needed
• Taking actions to adjust to the march of events
tends to result in one or more of the following
– Altering long-term direction and/or
redefining the mission/vision

– Raising, lowering, or changing

performance objectives

– Modifying the strategy

– Improving strategy execution