Introduction to strategic management

Dr Bryan Mills

Topics

• Definitions

• Information

• Mission/vision/objectives• Gap analysis

• KPI

• Multinationals

• PLC• Benchmarking

Definitions

• Strategic Planning– Overall policies and objectives

• Management Control– Effective and efficient use of resources

• Operational Control– Specific tasks are effective and efficient

Definitions

• Planning………………………..

• Decision making…………………

• Strategic decisions………………..• Control………………….

Information

• Future Uncertainty– Forecasts and Estimates– Use of sensitivity analysis

– DCF• Project evaluation• Managing cash and operations

• Post implementation review

The issues:

• What makes estimating hard?– Financial Reporting– Treatment of overheads– Neat rather than useful– Internal focus– Infelxible– Historic costs– Strategic issues– Complex models

Mission versus Vision

• Vision – Where is the business going (to)?

• Mission – What is the business for?

Vision

• What the business is now

• What it could be in an ideal world

• What the ideal world would be like

• Our vision: to become the world's leading company for automotive products and services.

• Our mission: we are a global, diverse family with a proud heritage, passionately committed to providing outstanding products and services.

• Our values: We do the right thing for our people, our environment and our society, but above all for our customers.

Guess who

• to organize the world’s information and make it universally accessible and useful.

• and:– Leading in our chosen markets– Delivering an outstanding client experience based on excellence

in sales, service and solutions– Achieving a superior, ethically based, long-term return for our

shareholders– Building highly motivated, high-performance teams– Creating a challenging, rewarding and fun work environment

Mission

Elements of mission Detail

Purpose Why – for shareholders and satisfy stakeholders

Strategy Nature of business; products/services; competitive position; competence; competitive advantage

Policies and standards of behaviour Mission converted to practice

Value and Culture Basic (unstated?) beliefs

Mission

• Brief, flexible, distinctive and open-ended

• Identity of whom the organisation exist to benefit

• Nature of the firms business

• Ways of competing (price, etc.)

• Principles of business

• Commitment to customers

Mission and Planning

• Inspires planning

• Screens new plans

• Affects the implementation

Goals and Objectives

• Goals – long term • Objectives – short-term to achieve goals

• Goals expressed as SMART objectives– Specific– Measurable– Attainable– Result-oriented– Time-bound

Goal Congruence

• Across departments – horizontal• At all levels – vertical• Over time

Goal types

Goal Comment

Ideological Goals Organisation’s mission

Formal Goals Imposed by individuals/groups

Shared Personal Goals Individuals reach consensus

System Goals Independent of mission – derive from organisations existence as an organisation

Goal Setting

• Top-down

• Bottom-up

• By precedent- historic• By diktat

• By consensus

Goal Setting

• Political process involving bargaining– Shareholder – profits– Employees – salaries

– Managers – power– Customers – quality

• Conflict between these objectives?

Corporate Objectives

• Corporate – whole– Profit; market share; growth; cashflow; ROCE;

risk; Customer satisfaction; quality; Industrial relations; Added value; EPS

• Unit – individual unit– Commercial – increase number of customers

(sales dept.)– Public sector – more nursery places (LEA)– General – resources; market; staff development;

innovation; productivity; technology

Primary and Secondary Obj.

• ‘opportunity cost’ of objectives

• Limit to the number of objectives a manger can pursue

• Should be one primary core objective

• And other secondary objective– Primary – growth in profits– Secondary – sales growth; innovation; quality;

resource management

Secondary

• Financial• Technology

– Product design and development– R&D– Quality

• Product market– Market leader– Coverage (range)– Position– Expansion

Ranking objectives and trade-offs

• Never enough time

• Degrees of achievement– 15% sales growth; 10% profit growth, £2m

negative cashflow; reduced quality

– 8% sales growth; 5% profit growth, £0.5m positive cashflow; quality

Department plans and objectives

• Document the responsibility

• Prepare responsibility charts– Manager’s main objective

– Programme for achieving that– Sub-objectives– Critical assumptions

• Prepare activity schedules

Hierarchy of objectives

Social Audit

• Recognise rationale for engaging

• Identify programme which are congruent with mission

• Determine objectives and priorities

• Specify nature and range of resources required

• Evaluate company involvement in programmes past, present and future

Ethics and ethical conduct

• Social responsibilities – general stance• Ethics – how we (organisations) conduct

ourselves• Amoral – ACCA – condone any action that

help aim. Definition – right or wrong not valid• Legalistic – letter of law only• Responsive – see gain in ethics• Emerging ethical (ethically engaged) – active• Ethical organisations – total ethical profile

Impact of corporate code

• Commitment by senior management

• Discourage previous behaviour

• Staff need to be onboard• Tension between code and performance

• Statement of ethical conduct and specific codes of practice

Gap Analysis

• Gap analysis –compare ultimate objective with expected performance– Determine targets

– Establish what would happen if we did nothing

• Planning gap– Between forecast position from carrying on as

is (NOT where we are now) and forecast desired

Gap Analysis

Want

Carry on as is

Time

M Share

Gap and ANSOFF

Profit/market share

Target

Forecastmin

Improve existing

Product dev.

Market pen.

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Strategic choice

• Strategic Options Generation– Creative

• Strategic Options Evaluation– Acceptable– Sustainable– Feasible– Environmentally fit

• Strategic Selection– Competitive strategy

• How to– Market strategy

• Where to– Institutional strategy

• Method (relationship with other organisations)

Assessment

Mission

Objectives

Evaluate

Create Corporate Plan

Assess external environment, Opportunities and Threats, Political, Economic, Social and Technological

Assess the internal environment,Strengths and Weaknesses

Develop mission statement, or if one already exists establish how it relates to the above assessment

Develop objectives using mission and assessment

Consider alternative ways of achieving these objectives

Develop a corporate plan featuring the above objectives and mission.

What do you think are the differences between Strategic and

Operational?

Discuss

• Unrealistic plans

• Inconsistent goals

• Poor communication• Inadequate performance measurement

Not everything that counts can be counted, and not everything that

can be counted counts • False alarms

– Disproportionate focus on direct costs– Efficiency v effectiveness– Machine standard hour irrelevant as long as

capacity exists

• Gaps missed– New products– Customer satisfaction– Employee involvment

Strategic control

Time-lag

Source of comp. adv.

risks

linkages

Influencers

Critical Success Factors• Money: positive cash flow, revenue growth, and profit

margins. • Your future: Acquiring new customers and/or distributors. • Customer satisfaction: How happy are they? • Quality: How good is your product and service? • Product or service development: What's new that will

increase business with existing customers and attract new ones?

• Intellectual capital: Increasing what you know that's profitable.

• Strategic relationships: New sources of business, products and outside revenue.

• Employee attraction and retention: Your ability to do extend your reach.

• Sustainability: Your personal ability to keep it all going.

• Four basic types of CSFs according to Rockart: – Industry CSFs resulting from specific industry

characteristics; – Strategy CSFs resulting from the chosen competitive

strategy of the business; – Environmental CSFs resulting from economic or

technological changes; and

– Temporal CSFs resulting from internal organizational needs and changes.

• http://www.e-competitors.com/Strategy/SBUPlanning/SBUPositioning/SBU_Critical.htm

Strategic Performance Measures

• Desirable Features– Focus on long run – Identify and communicate drivers of success– Support organisational learning– Basis for reward

• Characteristics– Measurable; Meaningful; Defined by Srtat.;

Consistent; Re-evaluated Regularly; Acceptable

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PLCIntro. Growth Maturity Decline

Financial High risk High risk Medium Low

CSF Time to Launch

Market share/comp. Adv

Retention Timely exit

Info Research Market share

Costs Exit

Control Milestones DCF ROI Free cash flow

Cash User User Generator Generator

Ret on Cap Not Imp. Not Imp. Important Important

Growth Vital Vital New Uses Negative

Profit None important Important V Imp.

Multinationals

• Central headquarters in one country and subsidiaries on others– Extend PLCycle

– Less competition– High growth– Reduce risk

Competitive Strategy (multinational)

• Cost Leadership – economies of scale

• Differentiation – new product for overseas

• Focus – core segment of customers

• Pre-empt competition from overseas

Can you think of some other reasons/problems?

Control and Structure

Global

Opportunities

High Global Product structure

Global hierarchy

Low International Division (single division)

Global geographic structure(multiple)

Low High

Multidomestic Opportunities

Global Matrix

Protectionism• Tariffs – tax on import. %of value (ad

valorem) or per unit (specific)• Quota – limit on quantity• Minimum local content rules• Minimum prices – anti-dumping• Embargos• Subsidies for domestic• Bureaucracy• Exchange Controls and Policy

Benchmarking

• Internal

• Functional – regardless of industry

• Competitive- direct competition• Strategic – action and change

Stages of Benchmarking

1. Set objectives

2. KPI

3. Select organisations

4. Measure

5. Comapre

6. Design improvements

7. Monitor

Risk and Uncertainty

Physical

Economic

Business

PLC

Political

Financial

Where next?

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GE McKinsey Matrix

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http://theexecutiveperspective.com/2010/06/01/igor-ansoffs-strategy-development-process/

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