1. business and industrial

CHAPTER
2
The Strategic
Management Process
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Part 1 Strategy Analysis
.
2–2
LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving
long-term goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.
2-3
Chapter Case 2
Teach For America: Inspiring Future Leaders
• TFA Mission: Eliminate educational inequality
 Started by an undergraduate student,
Wendy Kopp
 Inspiring mission

Provide a meaningful service option for bright young people
• Make teaching to the neediest high prestige
 Over 45,000 applicants for 4,500 jobs
TFA Video
Vision, Mission, and Values
• What are visionary organizations?
 Begin with the end in mind

Similar to designing & building a home
Frank Lloyd Wright
 Vision – what to ultimately accomplish?
 Mission – what is the firm about?
 Values – how to accomplish goals?
2–5
STRATEGY HIGHLIGHT 2.1
Winning Through Strategic
Intent: The “Pocketable” Radio
• Small Japanese Company after WWII,
founded by Masura Ibuka
 Invented an electric rice cooker
 Wanted to license the transistor from Bell Labs in U.S.

Japanese Government & Bell Labs both said NO
 Persisted with request – Finally,1953 got transistor.

“Beat Bell Labs” to pocket-sized radio
 1957 – Launched world’s FIRST pocket radio
 1958 – Changed company name to….
1–6
LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission
statements and competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for longterm success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.
2-7
Vision, Mission, and Values
• Customer-Oriented Missions
• Define the firm in terms of solutions for customers
 Disney: "Make People Happy"
 Enhanced strategic flexibility
 NOT the same as listening to customers
• Product-Oriented Missions
• Define the firm in terms of products or services
 U.S. Railroads: "Safest… North American railroad”

Missed the opportunity to move into delivery before
UPS & Federal Express
2–8
Defining the Business:
The Starting Point of Strategy
• Example: Fall of the Railroads
 “They let others take customers away from them because
they assumed themselves to be in the railroad business
rather than in the transportation business. The reason
they defined their industry wrong was because they were
railroad oriented instead of transport oriented; they were
product oriented instead of customer oriented.”
Theodore Levitt “Market Myopia”
2–9
Mission Statements and
Competitive Advantage
• Do mission statements help gain and sustain
competitive advantage?
 Results are inconclusive
 Need strategic commitments to succeed
(e.g., Boeing Dreamliner)
• Positive associations – Visionary firms, like Merck
• Negative associations – Better World Books
• No associations – Intel
LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for
long-term success.
LO 2-6 Compare and contrast strategic planning, scenario planning, and
strategy as planned emergence, and discuss strategic implications.
2–11
Living the Values
• Ethical standards and norms that govern behavior.
• McKesson (health care) – ICARE
 Shared principles a framework for daily interactions
• Dark side of values
 Bernard Madoff

Ponzi scheme estimated at $65 billion in fraud
 Enron
One of the largest bankruptcies in U.S. history
 Over 50,000 jobs lost (Enron and Arthur Andersen)

LO 2-1 Explain the role of vision, mission, and values in the strategic
management process.
LO 2-2 Describe and evaluate the role of strategic intent in achieving longterm goals.
LO 2-3 Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
LO 2-4 Critically evaluate the relationship between mission statements and
competitive advantage.
LO 2-5 Explain why anchoring a firm in ethical values is essential for long
term success.
LO 2-6 Compare and contrast strategic planning, scenario planning,
and strategy as planned emergence, and discuss strategic
implications.
2–13
Strategy as Strategic Planning
• Top-down rational planning
 Define mission, vision, and goal (strategic intent)
 External analysis of opportunities and threats
 Internal analysis of strengths and weaknesses
 Create strategic fit through SWOT
 Formulate appropriate strategy
 Implement chosen strategy
 Monitor performance and modify if necessary
2–14
assess
environmental
factors
Identify
current
mission
and
strategic
goals
Strategy formulation Strategy implementation
Conduct
competitive
analysis:
•strengths
•weakness
•opportunity
•threats
Develop
specific
strategies:
•corporate
•business
•functional
carry out
strategic
plans
maintain
strategic
control
assess
organisational
factors
6
Fundamental Question of the Choice of Goals:
Planning for what Purpose(s)?
• Profitability (net profits)
• Efficiency (low costs)
• Market Share
• Growth (e.g., increase in total
assets, sales, etc)
• Shareholder Wealth (dividends
plus stock price appreciation)
• Utilization of Resources
(e.g., ROE, ROI)
• Reputation
• Contribution to Stakeholders
(e.g., employees, society)
• Survival (avoid bankruptcy)
Strategy as Scenario Planning
• Scenario planning
 Envision different "what-if" plans
 Generates a dominant plan

Must implement the most probable option
 Keeps other scenarios in the event of changes…

"Arab Spring" impact on the oil industry?
 Good example of the AFI framework

Scenario planning at Shell
2–17
EXHIBIT 2.2
Scenario Planning in the AFI Strategy Framework
2–18
STRATEGY HIGHLIGHT 2.2
Shell’s Future Scenarios
• Petroleum industry use of scenario planning
 Shell made right move in the 1960s
 Again in the 1980s
 Communism might fall in Soviet Union
 Now projecting 20% energy from renewables by 2025
1–19
Strategy as Planned Emergence
• Strategic Initiative
 Google 50% of the firm's new products come from
the "20% rule" (one day a week on own ideas)
 Enron Wind investment by GE
• Mintzberg Planned Emergence
• Strategy can come from top or bottom:
 Some intended strategies drop off in the process
 Allows for new emerging ideas to become realized
 Resource allocation process
 Serendipity can have dramatic effects
2–20
Strategic Initiatives and Serendipity
• Japan Railways
 Constructing a bullet train through the
mountains north of Tokyo, which
required many tunnels
 Persistent flooding
 Complex engineering plans to drain the water
 Maintenance worker suggested that the fresh water off the
mountains should not be drained, but rather should be bottled
 1,000 vending machines on 1,000 railroad platforms in and around
Tokyo, and home delivery of water, juices, and coffee followed.
 The employee’s proposal had turned this “bottom-up” strategy
into a multi-million dollar business.
2–21
EXHIBIT 2.3
Mintzberg’s Planning Framework
2–22
Strategy
Strategy Making
Making :: Design
Design or
or Process?
Process?
Strategy as Design
Strategy as Process
Planning and
rational choice
Many decision makers
responding to multitude of
external and internal forces
INTENDED
STRATEGY
EMERGENT
STRATEGY
REALIZED STRATEGY
Mintzberg’s
Mintzberg’sCritique
Critiqueof
ofFormal
FormalStrategic
StrategicPlanning:
Planning:
•The
fallacy
of
prediction
–
the
future
•The fallacy of prediction – the futureisisunknown
unknown
•The
fallacy
of
detachment
-impossible
•The fallacy of detachment -- impossibleto
todivorce
divorceformulation
formulationfrom
from
implementation
implementation
•The
•Thefallacy
fallacyof
offormalization
formalization--inhibits
--inhibitsflexibility,
flexibility,spontaneity,
spontaneity,
intuition
intuitionand
andlearning.
learning.
23
STRATEGY HIGHLIGHT 2.3
“It’s Not What We Do!”
• Starbucks
 Autonomous action of mid-level manager
 Tenacity and persistence of a store manager in
Southern California

Risk of failure

Possible career-limiting action
 Organization must be willing to accept new ideas
 Frappuccino was born!

Contributing 20% of the $11billion in revenues for Starbucks
in 2010.
1–24
An
An optimal
optimal decision
decision
isis possible
possible
All
All relevant
relevant information
information
isis available
available
All
All relevant
relevant information
information isis
understandable
understandable
All
All alternatives
alternatives are
are known
known
Managers
Managers as
as
decision
decision makers
makers
Assumptions
Assumptions of
of the
the
Rational
Rational Model
Model
Rational
Rational
decision
decision
making
making
All
All possible
possible outcomes
outcomes known
known
9
BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E
© McGraw-Hill Australia 2001
25
Time
Time constraints
constraints
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors
Inadequate
Inadequate base
base
of
of information
information
Limited
Limited memory
memory of
of
decision-makers
decision-makers
Managers
Managers as
as
decision
decision makers
makers
Satisficing
Satisficing
‘Satisficing’
‘Satisficing’
decision
decision
making
making
Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
10
BARTOL, MANAGEMENT: A PACIFIC RIM FOCUS 3E
© McGraw-Hill Australia 2001
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2–30