Part 2 Planning Challenges in the 21st Century

Chapter

4
Strategic Management and Planning in a Global Environment

PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.

LEARNING OBJECTIVES
When you have finished studying this chapter, you should be able to:
1. Define strategic management and describe its purpose.
2. Explain the four stages of the strategic management process. 3. Identify and explain the components of strategic analysis, as well as explain the value of conducting this analysis.

4. Explain how an organization can develop a competitive advantage.

5. Explain the purpose of strategy formulation and describe the two levels of strategic alternatives.
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LEARNING OBJECTIVES (contd)

When you have finished studying this chapter, you should be able to:
6. Explain the role of strategy implementation.
7. Explain the importance of evaluation and control of strategy and its implementation. 8. Discuss the importance of strategic planning.

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Strategic Planning
Strategic Planning
The process by which an organization makes

decisions and takes actions that affect its long-run performance. Strategic plan: the output of the strategic planning process that provides direction by defining its strategic approach to business.

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Figure 4.1

The Strategic Management Process

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Key Terms
Strategic Management
Overall, long-run management.

Strategic Planning
The process of making plans and decisions that are

focused on long-run performance.

Strategic Plan
A comprehensive plan that provides overall direction

for the organization.

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Key Terms (contd)

Strategic Analysis
An assessment of the external and internal

environments of an organization.

Strategy Formulation
Establishing strategy and tactics necessary to

achieve the mission of the organization.

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Strategic Analysis: Assessment in a Global Environment

The purpose of strategic analysis is to evaluate the present situation of the organization.
Analysis requires three primary activities:

Assessing the mission of the organization Internal environmental analysis External environmental analysis

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Figure 4.2

The Components of Strategic Analysis

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SWOT Analysis
The combined internal and external strategic analysis is referred to as a SWOT analysis. Strengths Weaknesses Opportunities Threats

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Assessing the Mission of an Organization

The mission of an organization reflects its fundamental reasons for existence. Though mission statements vary greatly, every mission statement should describe three primary aspects of an organization:
1. The organizations primary products or services. 2. The organizations primary target markets.

3. The organizations overall strategy for ensuring long-

term success.

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Key Terms
Strategic Direction
Direction of the organization toward success in the

long run.

Vision
The ability to predict opportunities and threats in the

future.
A vision statement is intended to guide the organization in the future, what the organization wants to become or where it wants to be. Vision is derived from a careful analysis of the external and internal environments

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Table 4.1

Ford Motor Companys Mission Statement

Ford Motor Company

Our Vision To become the worlds leading consumer company for automotive products and services.

Our Mission We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world. We anticipate consumer need and deliver outstanding products and services that improve peoples lives. Our Values Our business is driven by our consumer focus, creativity, resourcefulness, and entrepreneurial spirit. We are an inspired, diverse team. We respect and value everyones contribution. The health and safety of our people are paramount. We are a leader in environmental responsibility. Our integrity is never compromised and we make a positive contribution to society. We constantly strive to improve in everything we do. Guided by these values, we provide superior returns to our shareholders.

Source: Ford Motor Co. website (http://www.ford.com), 30 June 2005. 2007 Thomson/South-Western. All rights reserved.

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External Analysis
Purpose of External Analysis
To identify aspects of the external environment that

represent either an opportunity for or a threat to the organization. Opportunities:

Those environmental trends on which the organization can capitalize and improve its competitive position.
Conditions that jeopardize the organizations ability to prosper and its competitive position in the long term.

Threats

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External Analysis Factors

General Environment
Includes environmental forces that are beyond the

influence of the organization and over which it has no (or little) control.

Task Environment
Includes environmental forces that are within the

organizations operating environment and may be influenced to some degree.

Economic Environment
The economic components of the general

environment.
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Figure 4.3

Dimensions of the Global External Environment

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Table 4.2 Economic

Sample Issues in the General Environment Sociocultural

Norms and values

Inflation rates

Unemployment rates
Wage rates Exchange rates Stock market fluctuations Per capita income GDP trends Economic development

Demographic trends
Age groups Regional shifts in population Household composition Diversity Ecological awareness Life expectancy

Technological
Spending on research and development Internet availability Availability of information technology Production technology trends

PoliticalLegal
Tax laws Environmental protection International trade regulation Antitrust regulation

Productivity improvements
Telecommunications infrastructure
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Federal Reserve policy

Intellectual property and patent laws
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External Environment
General Environment
Economic factors Technological factors Socio-cultural factors

Task Environment
Customer Profiles Competitive Structure Resource Availability

Political-legal factors

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Figure 4.4

Five Forces Model of Industry Analysis

Source: Adapted from Michael E. Porter, How Competitive Forces Shape Strategy, Harvard Business Review 57, no. 2 (March/April 1979): 137145. 2007 Thomson/South-Western. All rights reserved. 419

Internal Analysis
Purpose of Internal Analysis
To identify the assets, resources, skills, and

processes that represent either strengths or weaknesses for the organization. Strengths

Aspects of the organizations operations that represent potential competitive advantages or distinctive competencies.
Areas that are in need of improvement.

Weaknesses

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Table 4.3 Marketing

Internal Factors for Analysis Operations

Productivity Quality Facilities Supply chain Technology Purchasing Safety Ecological issues

Finance
Profitability Revenue Asset utilization Debt/leverage Equity Per unit costs Profit margins Cash flow

Product, service Brand equity Market research Sales force Market share Size of market Distribution channels Price Promotion

Human Resources
Skills Selection Training and development Leadership Motivation Communication Rewards

Other Factors
Organization culture Overall control Information system Information technology Organizational structure

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Strategy Formulation
Answers the question:
Where does the organization want to be?

Steps in strategy formulation include:

Casting the vision for the organization.

Setting strategic goals.

Identifying strategic alternatives. Evaluating and choosing strategies that provide a

competitive advantage and optimize the performance of the organization in the long term.
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Casting the Vision for the Organization

The development of a vision for the organization is central to any strategic plan. Vision versus Mission
A vision statement describes what the organization

aspires to be in the long run.

A mission statement describes the products, services,

and target markets for an organization.

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Setting Strategic Goals

Goals
Are very broad statements of the results that an

organization wishes to achieve in the long run.

Relate to the mission and vision of the organization

and specify the level of performance that the organization wants to achieve.

SMART goals are:

SpecificMeasurableAchievableResults-

orientedTimeline

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Identifying Strategic Alternatives

Strategic Alternatives
Are developed in light of the organizational mission

considering its strengths, weaknesses, opportunities, and threats, and its vision and strategic goals.

Grand Strategies
Stability strategies: intended to ensure continuity in

the operations and performance of the organization. Growth strategies: designed to increase the sales and profits of the organization. Retrenchment strategies: designed to reverse negative sales and profitability trends.
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Identifying Strategic Alternatives (contd)

Generic Strategies
The primary ways in which an organization can

compete in its chosen market(s).

Cost leadership: competing on the basis of price. Differentiation: offering products or services that are differentiated from those of competitors in some way. Focus: avoiding competing in broad markets by targeting a narrow market segment. Best-Cost provider: competing on the basis of both low-cost and differentiation.

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Figure 4.5

Generic Strategies Matrix

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Evaluating and Choosing Strategy

Portfolio Assessment
Provides a mechanism for evaluating an

organizations portfolio of business, products and services.

Boston Consulting Group (BCG) Growth-Share matrix General Electric Industry AttractivenessBusiness Strength matrix

Decision Matrices
A decision matrix provides a method for evaluating

alternative strategies according to the criteria that the organizations leaders consider more important.

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Strategy Implementation: Focusing on Results

The best-formulated strategy is virtually worthless if it cannot be implemented effectively.
A direct, specific, clear strategy must be developed. Strategies must be established at all levels of the

organization to align each part of the organization with the organizations overall mission and goals.
The organizations system must be designed to

ensure that strategies can be institutionalized in its culture.

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Evaluation and Control: Achieving Effectiveness and Efficiency

Strategic Control
Involves monitoring the implementation of the

strategic plan to ensure quality and effectiveness in terms of organizational performance. Feedforward controls

Are designed to identify changes in the external environment or internal operations that affect organizations ability to fulfill its mission and meet its strategic goals. Compare the actual performance of the organization to its planned performance.

Feedback Controls

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Information Technology and Strategic Planning

Positive
The increasing availability of information technology

has had a tremendous impact on the ability of organizations to develop effective strategic plans.

Negative
Many organizations fail to use the information made

available by management information systems to ensure effective strategic planning.

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Organizational Leadership
The Importance of Leadership
If an organization is to implement its strategy

effectively, it must have the appropriate leadership.

Without effective leadership, an organization is

unlikely to realize the benefits of its selected strategy.

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Implications for Leaders

Understand the realities of the external environment in which you operate.

Understand the importance of a thorough and accurate assessment of the current situation of the organization.
A plan will be only as good as the analysis upon which it is based. Strategic vision is critical for ensuring a common strategic direction for the organization.

Make sure that the mission statement is a working document that provides direction for the members of the organization.
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Implications for Leaders (contd)

Strategic goals serve as targets for achievement. Make sure that they are specific, measurable, results oriented, and have a established time for their achievement. Strategy should be designed to provide the organization with a distinctive competitive advantage in the long run.

A strategic plan is meaningless if it is not implemented well.

Provide for evaluation and control to be sure that operations are on track for accomplishment of the organizations mission.

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