Management A Practical Introduction Third Edition

Angelo Kinicki & Brian K. Williams

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin

Chapter 6: Strategic Management How Star Managers Realize a Grand Design

The Dynamics of Strategic Planning The Strategic Management Process Establishing the Grand Strategy Formulating Strategy Execution

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Managers Toolbox
 Lesson #1: in an era of management fads, strategic planning is still tops  Lesson #2: a managers most valuable character trait: be willing to make large, painful decisions to suddenly alter strategy

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6.1 The Dynamics Of Strategic Planning

WHY IS IT IMPORTANT TO HAVE A STRATEGY?
Organizations need to know where they are going and how they will get there A large scale action plan that sets the direction for an organization is a strategy - it is an educated guess about what the organization has to do to survive The process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals is strategic management Strategic planning determines the organizations long term goals and how the organization should achieve them
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Strategy, Strategic Management, Strategic Planning

 Strategy: is a large scale action plan that sets the direction for the organization.  Strategic Management: is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals. (Middle managers)  Strategic Planning: determines not only the organizations long-term goals for the next 1-5 year regarding growth and profits, but also the ways the organization should achieve them

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 5

6.1 The Dynamics Of Strategic Planning

There are three reasons to adopt strategic management and strategic planning:

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 6

Why Strategic Management and Strategic Planning are Important

1) Providing direction & momentum
1) 2) Focuses on most critical problems, choices, & opportunities Creates teamwork, promotes learning, & builds commitment Stresses importance of innovation Ability to produce goods and services more effectively than competitors Sustainable competitive advantage is staying ahead in:
1) 2) 3) 4)
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2) 3)

Encouraging new ideas

1) 1) 2)

Developing a sustainable competitive advantage

Being responsive to customers Innovating Quality Effectiveness

Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 7

6.1 The Dynamics Of Strategic Planning

WHAT IS AN EFFECTIVE STRATEGY? Michael Porter argues strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 8

6.1 The Dynamics Of Strategic Planning

There are three key principles of strategic positioning: 1. An organizations strategic position comes from serving few needs to many customers like Jiffy Lube, serving broad needs of a few customers like Bessemer Trust, or serving broad needs of many customers 2. Companies have to choose what strategy to follow and also what strategy not to follow they have to make trade-offs 3. Creating a fit among activities is important - a companys activities should interact and reinforce one another

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Does Strategic Management Work for Small as Well as Large?

1)

Also appropriate for companies with fewer than 100 employees Improvement in financial performance for these companies was small and may not be worth the effort

2)

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 10

The Five Steps of the Strategic Management Process

WHAT IS THE STRATEGIC MANAGEMENT PROCESS? The strategic management process has five steps plus a feedback loop
1. Establish the mission and vision 2. Establish the grand strategy (using SWOT and forecasting) 3. Formulate the strategic plans (using e.g. Porter) 4. Carry out the strategic plan 5. Maintain strategic control

Feedback: Revise actions, if necessary, based on feedback

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 11

6.2 The Strategic-Management Process

Figure 6.1: The Strategic-Management Process

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 12

6.2 The Strategic-Management Process

Step 1: Establish The Mission & The Vision A good mission statement expresses the organizations purpose or reason for being A good vision statement describes the longterm goal of what the organization wants to become

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 13

Mission Statements

Does your companys mission statement answer the following questions?

         Who are our customers? What are our major products and services? In what geographical areas do we compete? What is our basic technology? What is our commitment to economic objectives? What are our basic beliefs, values, aspirations, and philosophical priorities? What are our major strengths and competitive advantages? What are our public responsibilities? What is our attitude toward our employees?
Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 14

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Vision Statements

Does your companys vision statement answer yes to the following questions?
      Is it appropriate for the organization and for the times? Does it set standards of excellence that reflect high ideals? Does it clarify purpose and direction? Does it inspire enthusiasm and encourage commitment? Is it well articulated and easily understood? Does it reflect the uniqueness of the organization, its distinctive competence, what it stands for, what its able to achieve? It is ambitious?

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 15

6.2 The Strategic-Management Process

Step 2: Establish The Grand Strategy The grand strategy explains how the organizations mission is to be accomplished Three common grand strategies are growth (involves expansion of sales revenue, market share, number of employees, or number of customers served), stability (involves little or no significant change), and defensive (involves reduction in the organizations efforts)

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How Companies Can Implement Grand Strategies

 Growth Strategy
      It can improve an existing product or service to attract more buyers It can increase its promotion and marketing efforts to try to expand its market share It can expand its operations, as in taking over distribution or manufacturing previously handled by someone else It can expand into new products or services It can acquire similar or complementary businesses It can merge with another company to form a larger company

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 17

How Companies Can Implement Grand Strategies (Cont.)

 Stability Strategy
  It can go for a no-change strategy It can go for a little-change strategy It can reduce costs It can sell off assets It can gradually phase out product lines or services It can divest part of its business It can declare bankruptcy It can attempt a turnaround

Defensive Strategy
     

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 18

Chapter 6: Strategic Management

CLASSROOM PERFORMANCE SYSTEM A grand strategy that involves little or no significant change is a _____ strategy. A) stability B) defensive C) reactive D) growth

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 19

6.2 The Strategic-Management Process

Step 3: Formulate Strategic Plans
The process of choosing among different strategies and altering them to best fit the organizations needs is strategy formulation The strategy formulation process can be completed using techniques like Porters competitive forces and strategies, and product life cycles Step 4: Carry Out The Strategic Plan Strategy implementation involves putting strategic plans into effect Managers need to ensure that the right people and control systems are in place to execute the plans
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6.2 The Strategic-Management Process

Step 5: Maintain Strategic Control: The Feedback Loop Monitoring the execution of strategy and making necessary adjustments is strategic control To keep strategic plans on track, managers need to encourage people, keep planning simple, stay focused, and keep moving

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Chapter 6: Strategic Management

CLASSROOM PERFORMANCE SYSTEM The process of choosing among different strategies and altering them to best fit the organizations needs is called A) strategy implementation B) strategy formulation C) the grand strategy D) mission development
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6.3 Establishing The Grand Strategy

HOW CAN A SWOT ANALYSIS HELP WITH STRATEGY? The starting point for a grand analysis is the SWOT analysis (a search for the Strengths, Weaknesses, Opportunities, and Threats affecting an organization) A SWOT analysis provides managers with a realistic understanding of where the organization is relative to its internal and external environments
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6.3 Establishing The Grand Strategy

Organizational strengths include the skills and capabilities that give the organization special competencies and competitive advantages in executing strategies in pursuit of its mission Organizational weaknesses include the drawbacks that hinder an organization in executing strategies in pursuit of its mission Organizational opportunities include environmental factors that the organization may exploit for competitive advantage Organizational threats include environmental factors that hinder an organizations achieving a competitive advantage
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6.3 Establishing The Grand Strategy

Figure 6.2: SWOT Analysis

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Chapter 6: Strategic Management

CLASSROOM PERFORMANCE SYSTEM Outdated facilities and obsolete technology are examples of A) organizational strengths B) organizational weaknesses C) organizational opportunities D) organizational threats
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6.3 Establishing The Grand Strategy

After completing the SWOT analysis, managers need to make forecasts (visions or projections of the future) There are two types of forecasts: A hypothetical extension of a past series of events into the future is a trend analysis The creation of alternative hypothetical but equally likely future conditions is contingency planning or scenario planning
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6.4 Formulating Strategy

HOW IS STRATEGY FORMULATED? Organizations can use many techniques to formulate strategy including Porters five competitive forces, Porters four competitive strategies, the product life cycle, diversification and synergy, and competitive intelligence

Kinicki/Williams, Management: A Practical Introduction 3e 2008, McGraw-Hill/Irwin 28

6.4 Formulating Strategy

Porters Five Competitive Forces include: 1. The threat of new entrants
New competitors can shake-up an industry virtually overnight

2. The bargaining power of suppliers

Companies that rely on a single supplier are vulnerable

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6.4 Formulating Strategy

3. The bargaining power of buyers

Major customers, and customers that shop around can negotiate better prices

4. The threat of substitute products or services

When there are substitute products or services available, firms have less power

5. Rivalry among competitors

Intense rivalry is a threat to companies

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6.4 Formulating Strategy

Porters four competitive strategies or generic strategies include:
1. The cost leadership strategy - involves trying to keep costs and prices below those of competitors and targeting a wide market Examples of companies with this strategy include Bic, Home Depot, and Dell 2. The differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a wide market Examples of companies using a differentiation strategy include Ritz-Carlton Hotels
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6.4 Formulating Strategy

3. The cost-focus strategy - keep costs and prices below those of competitors and target a narrow market Examples of companies with a cost-focus strategy include regional gas stations 4. The focused-differentiation strategy - offer products or services that are of unique and superior value compared to those of competitors, and sell to a narrow market Examples of companies with this strategy include Ferrari and Lamborghini
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Chapter 6: Strategic Management

CLASSROOM PERFORMANCE SYSTEM
Which of the following is not one of Porters four competitive strategies? A) cost leadership B) diversification C) cost-focus D) focused-differentiation

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The Product Life Cycle

Stage 1 Introduction

Stage 2 Growth

Stage 3 Maturity
4. Carry out the strategic plan

Stage 4 Decline

3. Formulate the strategic plans (using e.g. Porter)

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 34

6.4 Formulating Strategy

The four stages a product or service goes through over its life are known as the product life cycle In the introduction stage, the product is introduced to the marketplace In the growth stage, customer demand increases, sales grow, and competitors may enter the market In the maturity stage, the product starts to fall out of favor and sales and profits drop In the decline stage, the product falls out of favor and is withdrawn from the marketplace

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6.4 Formulating Strategy

A company that makes and sells only one product in its market follows a single-product strategy This strategy has both benefits (the firm can focus on just one product) and risks (the firm is vulnerable to competitors) The diversification strategy involves operating several businesses in order to spread the risk There are two kinds of diversification: unrelated (operating several businesses that are not related to each other) and related (operating several businesses that are related)
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6.4 Formulating Strategy

There are three advantages to related diversification: 1. reduced risk because the firm sells more than one product 2. management efficiencies because administration is spread over several businesses 3. synergy because the economic value of separate, related companies operating under one roof is greater than the companies are worth separately
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6.4 Formulating Strategy

When companies gain information about their competitors so that they can anticipate their moves and react appropriately, the companies are practicing competitive intelligence

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Competitive Intelligence  Gaining Competitive Intelligence:  Public and print advertising  Investor information  Informal sources

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Kinicki/Williams, Management: A Practical Introduction 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3e 2008, McGraw-Hill/Irwin 39

Chapter 6: Strategic Management

CLASSROOM PERFORMANCE SYSTEM
Which of the following is not a good source of competitive intelligence? A) press release B) investor information C) trade shows D) text books

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6.5 Implementing & Controlling Strategy: Execution

WHY IS EFFECTIVE EXECUTION IMPORTANT? The execution stage of strategy involves getting things done Execution is a central part of strategy that consists of using questioning, analysis, and follow-through to mesh strategy with reality, align people with goals, and achieve promised results

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6.5 Implementing & Controlling Strategy: Execution

There are three building blocks underlying effective execution:

1. Develop seven essential behaviors

1. 2. 3. 4. 5. 6. 7. Effective leaders: know their people and their business insist on realism set clear goals and priorities follow through reward the doers expand peoples capabilities know themselves
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6.5 Implementing & Controlling Strategy: Execution

2. Create a framework for cultural change
Leaders must understand how to change the behavior and beliefs of people who are directly linked to bottom-line results To do this, tell people what results are necessary, how to get the results, and what the reward is for achieving the results

3. Select & evaluate people

Leaders should personally select the right people to get the job done

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6.5 Implementing & Controlling Strategy: Execution

The three building blocks are the foundation for the three core processes of execution The First Core Process: People Effective leaders evaluate talent using specific milestones, develop future leaders, and deal with non-performersthey get the people part right The Second Core Process: Strategy A good strategic plan considers the how of execution

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6.5 Implementing & Controlling Strategy: Execution

The Third Core Process: Operations Strategy defines where the organization wants to go, the people process assigns responsibility for getting there, and the operating plan shows how to get there The success of strategy execution depends on how well leaders manage the three processes of strategy, people, and operations

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