Module -2

Strategy Formulation ( Syllabus )

 1. Developing Strategic vision and Mission for a company

 2. Setting Objectives

 3. Strategic Objectives and Financial Objectives

 4. Balance score Card, Company goals and Company

Philosophy.

 5. The hierarchy of Strategic Intent

 6. Merging the Strategic Vision Objective and Strategy into a

Strategic Plan
Fig. 2.1: The Strategy-Making, Strategy-Executing Process
 Developing a Strategic Vision
Phase 1 of the Strategy-Making Process
• Involves thinking strategically about
– Future direction of company
– Changes in company’s product/market/customer
technology to improve
• Current market position
• Future prospects
A strategic vision describes the route a company intends
to take in developing and strengthening its business. It
lays out the company’s strategic course in preparing for
the future.
 Key Elements of a Strategic Vision
• Delineates management’s aspirations for the business
• Provides a panoramic view of “where we are going”
• Charts a strategic path
• Is distinctive and specific to
a particular organization
– Avoids use of generic language that is dull
and boring and that could apply to most
any company
• Captures the emotions of employees
and steers them in a common
direction
• Is challenging and a bit beyond a
company’s immediate reach
 Role of a Strategic Vision
• A well-conceived and well-communicated vision functions as a
valuable managerial tool to
– Give the organization a sense of direction, mold organizational identity,
and create a committed enterprise
– Inform company personnel and other stakeholders what management
wants its business to look like and “where we are going”
– Spur company personnel to action
– Provide managers with a reference point to
• Make strategic decisions
• Translate the vision into hard-edged objectives
and strategies
• Prepare the company for the future

A strategic vision exists only as words and has no organizational impact unless and until it
wins the commitment of company personnel and energizes them to act in ways that move the
company along the intended strategic path!
 Examples of Strategic Visions
H. J. Heinz Company
Be the world’s premier food company, offering nutritious,
superior tasting foods to people everywhere. Being the
premier food company
does not mean being the biggest, but it does
mean being the best in terms of consumer value, customer
service, employee talent, and
consistent and predictable growth.

eBay
Provide a global trading platform where practically anyone can
trade practically anything.
 Examples of Strategic Visions
Dental Products Division
of 3M Corporation
Become THE supplier of choice to the global dental professional
markets, providing world-class quality and innovative products.
[All employees of the division wear badges bearing these words,
and when- ever a new product or business procedure is being
considered, management asks “Is this representative of THE
leading dental company?”]

Caterpillar
Be the global leader in customer value.
 Strategic Vision vs. Mission
• A
The
strategic
missionvision
statement
concerns
of a afirm
firm’s
focuses
futureonbusiness
its present
path -
“where purpose - “who we are and what we do”
business
– Current
we are going”
product and service offerings
– Markets
Customertoneeds
be pursued
being served
– Technological
Future product/market/
customer/technology
and business focus
– capabilities
Kind of company management is
trying to create
 Characteristics of a Mission Statement

• Identifies the boundaries of the current

business and highlights
– Present products and services
– Types of customers served
– Geographic coverage
• Conveys
– Who we are,
– What we do, and
– Why we are here
A well-conceived mission statement distinguishes a company’s business
makeup from that of other profit-seeking enterprises in language specific
enough to give the company its own identify!
 Key Elements of a Mission Statement
• Three factors need to be identified
for completeness
– Customer needs being met
What is being satisfied
– Customer groups or markets being served
Who is being satisfied
– What the organization does (in terms of business
approaches, technologies used, and activities performed) to
satisfy the target needs of the target customer groups
How customer needs are satisfied
A company’s mission is not to make a profit! Its true mission is its
answer to “What will we do to make a profit?” Making is profit is an
objective or intended outcome!
 Trader Joe’s Mission Statement

(a unique grocery store chain)

To give our customers the best food and beverage values that
they can find anywhere and to provide them with the
information required for ‘ informed ’ buying decisions. We
provide these with a dedication to the highest quality of
customer satisfaction delivered with a sense of warmth,
friendliness, fun, individual pride, and company spirit.
 Communicating the Strategic Vision
• Winning support for the vision involves
– Putting “where we are going and why” in writing
– Distributing the statement organization-wide
– Having executives explain vision to the workforce
• An engaging, inspirational vision
– Challenges and motivates workforce
– Articulates a compelling case for where company is headed
– Evokes positive support and excitement
– Arouses a committed organizational
effort to move in a common direction
 Examples: Vision Slogans
Levi Strauss & Company
“We will clothe the world by marketing the most appealing and
widely worn casual clothing in the world.”

Nike
“To bring innovation and inspiration
to every athlete in the world.

Mayo Clinic
“The best care to every patient every day.”
 Examples: Vision Slogans
Scotland Yard
“To make London the safest major city in the world.”

Greenpeace
“To halt environmental abuse and
promote environmental solutions.”

Charles Schwab
“To provide customers with the most useful and
ethical financial services in the world.”
 Overcoming Resistance to
a New Strategic Vision
• Mobilizing support for a new vision entails

– Reiterating basis for the new direction

– Addressing employee concerns head-on

– Calming fears

– Lifting spirits

– Providing updates and progress

reports as events unfold
 Overcoming Resistance to
a New Strategic Vision
• Mobilizing support for a new vision entails

– Reiterating basis for the new direction

– Addressing employee concerns head-on

– Calming fears

– Lifting spirits

– Providing updates and progress

reports as events unfold
 Linking the Vision with Company Values
• Companies often develop a statement of values to guide a
company’s pursuit of its vision and strategy and paint the white
lines for how the company’s business is to be conducted

– Company values statements typically

contain four to eight beliefs, traits, and
behaviors relating to such things as
• Integrity, doing the right thing, product quality,
customer satisfaction, treatment
of people teamwork, operating
excellence, giving back to the
community
Linking the Vision with Company Values
• But values statements remain a bunch of nice words until
the espoused beliefs, traits, and behaviors
– Are incorporated into company’s operations and work
practices
– Are used as the benchmark for job appraisal, promotions,
and rewards

If company personnel are not held accountable

for displaying company values in doing their jobs, then the
company values statement is an empty box!
 Example: Company Values
Kodak
Respect for the dignity of the individual

Uncompromising integrity

Unquestioned trust

Constant credibility

Continual
Continual improvement
improvement and
and personal
personal renewal
renewal

Open
Open celebration
celebration of
of individual
individual and
and team
team achievements
achievements
 Example: Company Values
Home Depot

Entrepreneurial spirit
Creating shareholder Excellent customer
value service

Building strong Giving back to the

relationships community

Respect for all

Taking care of people
people

Doing the right thing

 Example: Company Values
Du Pont

Safety Ethics

Respect for Environmental

people stewardship
 Example: Company Values
Heinz
Passion
Passion .. .. .. to
to be
be passionate
passionate about
about winning
winning and
and about
about our
our brands,
brands, products
products and
and people,
people,
thereby delivering superior value to our shareholders.
thereby delivering superior value to our shareholders.

Risk
Risk Tolerance
Tolerance .. .. .. to
to create
create aa culture
culture where
where entrepreneurship
entrepreneurship and
and prudent
prudent risk
risk taking
taking are
are
encouraged
encouraged and
and rewarded.
rewarded.

Excellence
Excellence .. .. .. to
to be
be the
the best
best in
in quality
quality and
and in
in everything
everything we
we do.
do.

Motivation
Motivation .. .. .. to
to celebrate
celebrate success,
success, recognizing
recognizing and
and rewarding
rewarding the
the achievements
achievements of
of
individuals
individuals and
and teams.
teams.

Innovation
Innovation .. .. .. to
to innovate
innovate in
in everything,
everything, from
from products
products to
to processes.
processes.

Empowerment
Empowerment .. .. .. to
to empower
empower our
our talented
talented people
people to
to take
take the
the initiative
initiative and
and to
to do
do
what’s right.
what’s right.

Respect
Respect .. .. .. to
to act
act with
with integrity
integrity and
and respect
respect towards
towards all.
all.
 Setting Objectives
Phase 2 of the Strategy-Making Process
• Purpose of setting objectives
– Converts vision into specific performance targets
– Creates yardsticks to track performance
• Well-stated objectives are
– Quantifiable
– Measurable
– Contain a deadline for achievement
• Spell-out how much of what kind
of performance by when
Importance of Setting Stretch Objectives

• Objectives should be set at levels that

stretch an organization to
– Perform at its full potential,
delivering the best possible results
– Push firm to be more inventive
– Exhibit more urgency to improve its business
position
– Beno
There’s intentional and
better way to focused
avoid ho-humin its actions
results (sub standard) than
by setting stretch objectives and using compensation incentives to
motivate organization members to
achieve the stretch performance targets!
 Types of Objectives Required
Financial Objectives Strategic Objectives
Outcomes focused Outcomes focused on
on improving financial improving competitive vitality
and future business position
performance

$
 Financial Objectives
(Examples)
• X % increase in annual revenues
• X % increase annually in after-tax profits
• X % increase annually in earnings per share
• Annual dividend increases of X %

• Profit margins of X %
• X % return on capital employed (ROCE)
• Increased shareholder value
• Strong bond and credit ratings

• Sufficient internal cash flows to fund 100% of new capital

investment
• Stable earnings during periods of recession
 Strategic Objectives
(Examples)

• Winning an X % market share

• Achieving lower overall costs than rivals
• Overtaking key competitors on product performance
or quality or customer service

• Deriving X % of revenues from sale of new products

introduced in past 5 years
• Achieving technological leadership
• Having better product selection than rivals

• Strengthening company’s brand name appeal

• Having stronger national or global sales and distribution capabilities than rivals
• Consistently getting new or improved products to market ahead of rivals
 A Balanced Scorecard Approach –
Setting Strategic and Financial Objectives
• A balanced scorecard for measuring
company performance is optimal; it entails (necessitates)
– Setting financial and strategic objectives
– Placing balanced emphasis on achieving
both types of objectives
(However, if a company’s financial performance is dismal or if its very
survival is in doubt because of poor financial results, then stressing the
achievement of the financial objectives and temporarily de-emphasizing
the strategic objectives may have merit)
• Just tracking financial performance overlooks the importance of
measuring whether a company is strengthening its
competitiveness and market position.
The surest path to sustained future profitability year after
year is to relentlessly pursue strategic outcomes
that strengthen a company’s business position and
give it a growing competitive advantage over rivals!
 Short-Term vs.
Long-Term Objectives
• Short-term objectives
– Targets to be achieved soon
– Milestones or stair steps for reaching long-range performance
• Long-term objectives
– Targets to be achieved within
3 to 5 years
– Prompt actions now that will
permit reaching targeted
long-range performance later
 Concept of Strategic Intent
A company exhibits strategic intent when
it relentlessly* pursues an ambitious
strategic objective, concentrating the full
force of its resources and competitive
actions on achieving that objective!
(* Relaxing rigid procedures, practices etc,)
Characteristics of Strategic Intent
• Indicates firm’s intent to making quantum gains in
competing against key rivals and to establishing itself as a
winner in the marketplace, often against long odds

• Involves establishing a grandiose performance target

(=Planned in large scale) out of proportion to immediate
capabilities and market position but then devoting a firm’s
full resources and energies to achieving the target over time

• Signals relentless commitment to

achieving a particular market position
and competitive standing
 Objectives Are Needed at All Levels
The process is more top-down than bottom up
1. First, establish organization-wide objectives and
performance targets
2. Next, set business and
product line objectives
3. Then, establish functional
and departmental objectives
4. Individual objectives are established last
 Importance of Top-Down Objectives

• Provides guidelines for objective-setting and strategy-

making in lower-level organizational units
• Ensures financial and strategic performance targets for
all business units, divisions, and departments are directly
connected to achieving company-wide objectives
• Top-down objective-setting has two advantages
– Leads to cohesive and compatible objectives
and strategies up and down the organization
– Helps unify internal efforts to move
company along the chosen strategic path
 Crafting a Strategy
Phase 3 of the Strategy-Making Process
• Strategy-making involves entrepreneurship
– Actively searching for opportunities to do new things
or
– Actively searching for opportunities to do
existing things in new or better ways
• Strategizing involves
– Developing timely responses to happenings
in the external environment
and
– Steering company activities in new directions dictated by
shifting market conditions