Strategic Management and Planning in a Global Environment Chapter 4 Part 2 Planning Challenges in the 21st Century
Define strategic management and describe its purpose.
Explain the four stages of the strategic management process.
Identify and explain the components of strategic analysis, as well as explain the value of conducting this analysis.
Explain how an organization can develop a competitive advantage.
Explain the purpose of strategy formulation and describe the two levels of strategic alternatives.
LEARNING OBJECTIVES When you have finished studying this chapter, you should be able to:
Explain the role of strategy implementation.
Explain the importance of evaluation and control of strategy and its implementation.
Discuss the importance of strategic planning.
LEARNING OBJECTIVES (cont’d) When you have finished studying this chapter, you should be able to:
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.
Is a central concept of strategic planning.
Can only be sustained if an organization continues to out innovate competitors.
Figure 4.1 The Strategic Management Process
Overall, long-run management.
The process of making plans and decisions that are focused on long-run performance.
A comprehensive plan that provides overall direction for the organization.
Key Terms (cont’d)
An assessment of the external and internal environments of an organization.
Establishing strategy and tactics necessary to achieve the mission of the organization.
Benefits of Strategic Planning
Organizations that plan strategically outperform those that do not.
Identification of organizational and environmental conditions that may create problems in the long run.
Better decisions as a result of the group decision-making process.
Participation in the planning process increases participants understanding of how the plan is to be implemented and their willingness to change.
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
Figure 4. 2 The Components of Strategic Analysis
The combined internal and external strategic analysis is referred to as a SWOT analysis.
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:
The organization’s primary products or services.
The organization’s primary target markets.
The organization’s overall strategy for ensuring long-term success.
Direction of the organization toward success in the long run.
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
Table 4. 1 Ford Motor Company’s Mission Statement Ford Motor Company Our Vision To become the world’s 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 people’s 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 everyone’s 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.
Purpose of External Analysis
To identify aspects of the external environment that represent either an opportunity for or a threat to the organization.
Those environmental trends on which the organization can capitalize and improve its competitive position.
Conditions that jeopardize the organization’s ability to prosper and its competitive position in the long term.
External Analysis Factors
Includes environmental forces that are beyond the influence of the organization and over which it has no (or little) control.
Includes environmental forces that are within the organization’s operating environment and may be influenced to some degree.
The economic components of the general environment.
Figure 4. 3 Dimensions of the Global External Environment
Table 4.2 Sample Issues in the General Environment Economic • Inflation rates • Unemployment rates • Wage rates • Exchange rates • Stock market fluctuations • Per capita income • GDP trends • Economic development Sociocultural • Norms and values • 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 • Productivity improvements • Telecommunications infrastructure Political–Legal • Tax laws • Environmental protection • International trade regulation • Antitrust regulation • Federal Reserve policy • Intellectual property and patent laws
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): 137–145.
Purpose of Internal Analysis
To identify the assets, resources, skills, and processes that represent either strengths or weaknesses for the organization.
Aspects of the organization’s operations that represent potential competitive advantages or distinctive competencies .
Areas that are in need of improvement.
Table 4. 3 Internal Factors for Analysis Marketing Operations Product, service Productivity Brand equity Quality Market research Facilities Sales force Supply chain Market share Technology Size of market Purchasing Distribution channels Safety Price Ecological issues Promotion Finance Profitability Revenue Asset utilization Debt/leverage Equity Per unit costs Profit margins Cash flow Human Resources Skills Selection Training and development Leadership Motivation Communication Rewards Other Factors Organization culture Overall control Information system Information technology Organizational structure
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.
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.
Setting Strategic 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.