Chapter 1 The Nature of Strategic Management

Chapter 1 The Nature of Strategic Management

Business Strategy 050 322 Instructor: Michael Cooke E-mail Address: [email protected] Office: IC room 817 Class hours: Friday 09:00-12:00 Class Location: IC room 822

Copyright 2011 Pearson Education, Inc. Ch 2 -2 Vision The last thing IBM needs right now is a vision. (July 1993) What IBM needs most right now is a vision. (March 1996) Louis V. Gerstner, Jr., CEO, IBM Corporation Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -3 Vision

Agreement on the basic vision for which the firm strives to achieve in the long term is especially important. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -4 Vision What do we want to become? Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -5 Vision Statement Examples

Tyson Foods vision is to be the worlds first choice for protein solutions while maximizing shareholder value. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -6 Vision Statement Examples General Motors vision is to be the world leader in transportation products and related services. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 2 -7 Vision Statement Examples PepsiCos responsibility is to continually improve all aspects of the world in which we operate environment, social, economic creating a better tomorrow than today. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -8 Vision Statement Examples NIKE Inc: To Bring Inspiration and

innovation to every athlete in the world. Wells Fargo Mission and Strategy Our vision is: We want to satisfy all our customers financial needs and help them succeed financially. Goals: If we had to select only one goal, it would be revenue growth. Its the most important measure of service, sales and customer satisfaction. Its the vote our customers cast every day with their pocketbooks. When they rave about our service, theyll give us more of their business, increasing revenue. Theyll refer new customers to us. Theyll stay with us for life. We cant control the economy, interest rates, the markets or world events. We focus on what we can control and what we can sustain long term: our core performance, our revenue growth.

Strategy : Having a vision is not enough. You need a strategy to achieve that vision, along with a business model that can succeed in any economic cycle. You also need extraordinary execution. In fact, its all about execution. A good strategy perfectly executed will beat a great strategy poorly executed every time. The customer value of cross-selling :The core of our vision-based strategy is cross-selling the process of offering customers the products and services they need, when they need them, to help them succeed financially. The more we give our customers what they need, the more we know about them. The more we know about their financial needs, the easier it is for us to work together for them to bring us more of their business. The more business they do with us, the better value they receive and the more loyal they become. The longer they stay with us, the more opportunities we have to satisfy even more of their financial needs. Thats the mutual benefit of cross-sell. https://www.wellsfargo.com/invest_relations/vision_values Wells Fargo Strategic Priorities

Our vision is: We want to satisfy all our customers financial needs and help them succeed financially. Putting customers first :Serving our customers starts with knowing our customers. The more we know about our customers needs, the more we can offer them the choice, convenience and price benefits they look for. They want us to know them, respect them, appreciate them and reward them for doing business with us. The winners in financial services will be companies that know the most about their customers, obtain that information efficiently and securely, treat it respectfully and use it most wisely. Growing revenue: Wells Fargo is a growth company, and the most important measure of growth is revenue. Thats the measure that shows us how well we serve all of our customers needs, earn their trust and grow our market share. There are only three ways a company can grow You have to show you can grow revenue internally first. Thats called organic growth. You cant buy your way to greatness. You have to earn it from your current customers. Reducing expenses: We should live by a simple test: If our customers, or our shareholders,

knew we were spending money this way, would they approve? If they wouldnt, we shouldnt. When we find wise ways to reduce our expenses, we free up funds to benefit our customers, invest in the future and reward our shareholders. Living our vision and values: Every day when we come to work, we have the opportunity to bring our vision and values to life. Thats what we do every time we help a customer or support a fellow team member. Thats where our vision and values need to livein our everyday behaviors. Connecting with communities and stakeholders: Were here to serve all of our customers, to help them succeed financially, to invest in our communities and to help our nation grow stronger.

https://www.wellsfargo.com/invest_relations/vision_values/9 Incentives can have Unintended Results Example: A goal is to manage expenses, the vision is to deliver value to the customer Salary/wage increase guidelines are set, and managed by HR Incumbent salaries allowed to rise x% per year But market salaries go up x%+ Result is increased employee turnover, less value to customers Need to have employee retention & development incentives

Studies have found that most accounting fraud began as consequence of incentives Growing Through M&A Cultures are resistant to change Global companies often grow through mergers or acquisitions

New hires or transfers adopt the cultural norm Cultures are stable through time Visions and mission statements may be ignored Need for a communication document to far flung regions or to integrate new organizations into the company culture Company visions and goals can be marketing documents as well: example WFB http://home.kku.ac.th/michco/business_strategy/Ten Reasons People Resist C hange.docx Aligning Vision with Goals and Incentives

Vision statements are often crafted by a small group of senior executives after much debate, and then forgotten. They may be intended as communication material to the outside world of government bodies or markets To be effective internally visions must have some role in daily workplace activities Visions must be aligned with goals. Goals must be aligned with incentives. Companies may have multiple goals with varying importance (revenue may be most important this year, profit next year) Incentives must support the goals (alignment). Employees are

deeply attuned to incentives, and will ignore visions if incentives point in a different direction Eastman Kodak Company Background information Founded in 1880s, once an iconic US firm In 1976 Kodak sold between 85-90% of all film and cameras in the USA Fuji of Japan took market share in 1980s (economy segment) In 1994 Kodak 20th ranked US company by sales Kodak spins off Eastman Chemical, now thriving Apple launched a digital camera made by Kodak Kodak stops selling film cameras in 2004, becomes biggest retailer of digital cameras in 2005

Falls to 7th biggest digital camera retailer by 2010 Declares bankruptcy in 2012 15 Eastman Kodak Company Transition from Film Gross margins in the film business estimated at 75% Compare with computers and peripherals at 33% George Eastman wanted rapid succession of changes and improvements Kodak had technological lead in film backed by patents Vertical integration and cost leadership Film sales immensely profitable Digital imaging a disruptive technology Kodak executives aware of digital camera trend from 1993* CEO Fisher from Motorola and Bell Labs hired 1993, a technologist Resistance by customers (film development business) Resistance from investors (legacy business as cash cow) Company culture resistance (film business, not imaging)

Public image of support for film business through 1990s CEOs aware of competitive environment, no barriers to entry in digital, lower margins Collaboration with Canon in 2000 (professional segment) Collaboration with Fuji, HP, IBM, others to develop digital image storage By late 1990s Kodak was leader in digital color management and electronic image sensors due to huge digital R&D effort **http://www.blackwellpublishing.com/grant/docs/06Kodak.pdf 16 Eastman Kodak Company What Went Wrong? Conflicts between film and digital began to ebb around 2005 More collaborative culture Ten years elapsed since CEO Fisher began determined push to digital Leader in digital sales in 2005 Losing money on each camera

Legacy labor costs* Vertical integration impossible in digital business (JVs, alliances instead) Diminished film business (would have been used to subsidize transition) Tried to buy time by selling film in developing markets But Asian film sales dropped as rapidly as elsewhere Falls to seventh rank in digital camera sales in 2010 Capable competitors Canon, Sony, Samsung, and Nikon in Asia and others Pace of change in digital camera business rapid and unpredictable, with rapidly declining prices Could Kodaks culture adapt to digitals pace of change? Did they miss a product cycle in 2007? What happened in their R&D organization? Marketing? *Http://www.consultingcase101.com/kodak-to-improve-profit-margin-for-digital-cameras/ 17

The Importance of Execution John Stumpf, WFC Chairman and CEO: Having a vision is not enough. You need a strategy to achieve that vision, along with a business model that can succeed in any economic cycle. You also need extraordinary execution. In fact, its all about execution. A good strategy perfectly executed will beat a great strategy poorly executed every time. Look at the 2012 US elections Both sides had resources constraints Both needed to find and reach target voter (market) segments to allocate resources The side with 14 months of planning and preparation had tested systems in place Strategy execution failed due to lack of system testing for the losing side Kodak arguably had a sound strategy for going digital Miscalculation of the speed of decline of the film business in China

Unable to milk the business to subsidize a money losing digital business Institutional barriers hindered the speed of progress in the transition Failed in the execution Ch 2 -18 Vision Clear Business Vision Comprehensive Mission Statement Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -19 Mission Statement

Answers the question: What is our business? Reveals: what the organization wants to be whom we want to serve Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -20

Mission Statement An enduring statement of purpose that distinguishes one organization from other similar enterprises A declaration of an organizations reason for being Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -21 Mission Statements are also called Creed statement Statement of purpose Statement of philosophy

Statement of beliefs Statement of business principles A statement defining our business Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -22 Mission Statement Examples Fleetwood Enterprises will lead the recreational vehicle and manufactured housing industries in providing quality products with a passion for customer-driven innovation. We will emphasize training, embrace diversity and provide growth opportunities for our associates and our dealers. We will lead our industry in the application of appropriate technologies. We will operate at the highest levels of

ethics and compliance with a focus on exemplary corporate governance. We will deliver value to our shareholders, positive operating results and industryleading earnings. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -23 Mission Statement Examples We aspire to make PepsiCo the worlds premier consumer products company, focused on convenient foods and beverages. We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, openness, fairness

and integrity. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -24 Mission Statement Examples Dells mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet consumer expectations of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 2 -25 Mission Statement Examples Proctor & Gamble will provide branded products and services of superior quality and value that improve the lives of the worlds consumers. As a result, consumers will reward us with industry leadership in sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -26 Mission Statement Examples

At LOreal, we believe that lasting business success is built upon ethical standards which guide growth and on a genuine sense of responsibility to our employees, our consumers, our environment and to the communities in which we operate. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -27 Vision & Mission Great benefits can be achieved if an organization

Systematically revisits their vision and mission statement Treats them as living documents Considers them to be an integral part of the firms culture Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -28 Vision & Mission Profit & vision are necessary to effectively motivate a workforce Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 2 -29 Vision & Mission Shared vision creates a community of interests Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -30 Developing Vision & Mission A clear mission is needed before alternative strategies can be formulated and implemented

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -31 Developing Vision & Mission Participation by as many managers as possible is important in developing the mission because through involvement people become committed to an organization Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -32 Steps to Developing Vision & Mission Statements

1. 2. 3. 4. 5. Have managers read related articles Have managers prepare a vision and mission statement for the organization Merge the documents into one and distribute Gather feedback from managers Meet to revise the final document Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -33

Benefits of Mission Statements Better financial results Unanimity of purpose Resource allocation Establishment of culture Focal point for individuals Establishment of work structure Basis of assessment and control Resolution of divergent views

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -34 Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -35 Resolution of Divergent Views A genuine decision must be based on divergent views to have a chance to be a right and effective decision

Considerable disagreement over vision and mission statements can cause trouble if not resolved Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -36 Vision & Mission Statements Provide unity of direction Promote shared expectations Consolidate values Project a sense of worth and intent Affirm the companys commitment to responsible action Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall

Ch 2 -37 Declaration of Attitude Broad Broadin inscope scope Generate Generatestrategic strategicalternatives alternatives Not Notoverly overlyspecific

specific Reconciles Reconcilesinterests interestsamong among diverse diversestakeholders stakeholders Finely Finelybalanced balancedbetween between specificity specificity&&generality generality Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall Ch 2 -38 Declaration of Attitude Arouse Arousepositive positivefeelings feelings&& emotions emotions Motivate Motivatereaders readersto toaction

action Generate Generatefavorable favorableimpression impression of ofthe thefirm firm Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -39 Declaration of Attitude

Reflect Reflectfuture futuregrowth growth Provide Providecriteria criteriafor forstrategy strategy selection selection Basis Basisfor forgenerating generating&& evaluating

evaluatingstrategic strategicoptions options Dynamic Dynamicin innature nature Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -40 Mission & Customer Orientation Vern McGinnis

Define what the organization is Define what it aspires to be Limited to exclude some ventures Broad enough to allow for growth Distinguishes firm from all others Framework for evaluating activities Stated clearly understood by all Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -41 Mission & Customer Orientation

An effective mission statement: Anticipates customer needs Identifies customer needs Provides product/service to satisfy needs Identifies the utility of a firms products to its customers Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -42 Utility of Firms Products to Customers

Do not offer me things. Do not offer me clothes. Offer me attractive looks. Do not offer me shoes. Offer me comfort for my feet and the pleasure of walking. Do not offer me a house. Offer me security, comfort, and a place that is clean and happy. Do not offer me books. Offer me hours of pleasure and the benefit of knowledge. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -43

Utility of Firms Products to Customers Do not offer me CDs. Offer me leisure and the sound of music. Do not offer me tools. Offer me the benefits and the pleasure that come from making beautiful things. Do not offer me furniture. Offer me comfort and the quietness of a cozy place.

Do not offer me things. Offer me ideas, emotions, ambience, feelings, and benefits. Please, do not offer me THINGS. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -44 Customers Employees Public Image Products or Services Markets

Mission Components Technology Survival, Growth, Profits Self-Concept Philosophy Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 2 -45 Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall Ch 2 -46

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