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2 students   Reflection and Discussion Forum Week 2(Chapter3) Assigned Readings:Chapter 3. Engineering Economic AnalysisInitial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.Also, provide a graduate-level response to each of the following questions: American businesses have often been criticized for short-term thinking that places too much emphasis on payback period and ROR. When Honda started making cars in the early 1970s, for example, the chief executive officer stated that the firm would be “willing to accept an ROR no greater than 2% or 3% for as long as it took to be recognized as the best car maker in the world.” In light of the success of many Japanese firms, is the criticism of American business justified? Most countries have a progressive income tax system whereby each dollar earned in incrementally higher tax brackets is taxed at an increasingly higher rate. Do you think that a flat tax system would be more fair? How about a proportional tax system? Explain your answer.   Activity 2 Activity I: A young engineer decides to save $240 per year toward retirement in 40 years. If he invests this sum at the end of every year at 9%, then how much will be accumulated by retirement time? If by astute investing the interest rate could be raised to 12%, then what sum could be saved? If he deposits one fourth of this annual amount each quarter ($60 per quarter) in an interest bearing account earning a nominal annual interest rate of 12%, compounded quarterly, how much could be saved by retirement time? In part (c), then what annual effective interest rate is being earned? Activity II: Maurice Micklewhite has decided to replant his garden. Show him what the cost is of making an erroneous decision at various stages of the project, starting with conceptual design and ending with the ongoing maintenance of the garden.The assignment is to answer the question provided above in narrative form. This is to be in narrative form and should be as thorough as possible. Bullet points should not to be used. The paper should be at least 1.5 - 2 pages in length, Times New Roman 12-pt font, double-spaced, 1 inch margins and utilizing at least one outside scholarly or professional source related to project management. The textbook should also be utilized. Do not insert excess line spacing. APA formatting and citation should be used.  1 student  Reflection and Discussion Week 2(Chapter 1,2) Assigned Readings:Chapter 1. The Nature of Strategic ManagementChapter 2. Business Vision and MissionInitial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.Also, provide a graduate-level response to each of the following questions: As cited in the chapter, Edward Deming, a famous businessman, once said, “In God we trust. All others bring data.” What did Deming mean in terms of developing a strategic plan? Critique the following vision statement by Stokes Eye Clinic:  “Our vision is to take care of your vision.” Project Management: Processes, Methodologies, and Economics Third Edition Chapter 3 Engineering Economic Analysis Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available) Figure 3-1 Standard Cash Flow Diagram Indicating Points in Time for P, F, A, and G Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-3 Cash Flow Diagram for Example 3-2 Showing Deferred Uniform and Gradient Series Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-4 Cash Flow Diagram for Example 3-3 Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-5 Relationship Between N P V and I R R for Example 3-12 Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-6 N P V Plot for More than One Change in Sign Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-7 Relationship between N P V and I R R for Independent Investment Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-8 Breakeven Chart Diagram for Example 3-16 Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-9 Breakeven Chart Diagram for Example 3-17 Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-10 Diagram for Utility Assessment Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Table 3-1 Assessed Utilities for Project Manager Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-11 Utility Function Obtained from Data in Table 3-1 Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Table 3-2 Payoff Matrix for New Product Development Example Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Table 3-3 Utility Matrix for New Product Development Example Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-12 Three General Types of Utility Functions Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-13 Arrangement of Rotary Combustor Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-14 Details of Rotary Combustor Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Figure 3-15 Preference Curve for Risk-Averse Decision Maker Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved Copyright Copyright © 2017, 2005, 1994 Pearson Education, Inc. All Rights Reserved 19 Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.1 Standard cash flow diagram indicating points in time for P, F, A, and G. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.2 Cash flow diagram for Example 3-1. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.3 Cash flow diagram for Example 3-2 showing deferred uniform and gradient series. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.4 Cash flow diagram for Example 3-3. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.5 Relationship between NPV and IRR for Example 3-12. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.6 NPV plot for more than one change in sign. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.7 Relationship between NPV and IRR for independent investment. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.8 Breakeven chart diagram for Example 3-16. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.9 Breakeven chart diagram for Example 3-17. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.10 Diagram for utility assessment. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Table 3.1 Assessed Utilities for Project Manager Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.11 Utility function obtained from data in Table 3.1. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Table 3.2 Payoff Matrix for New Product Development Example Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Table 3.3 Utility Matrix for New Product Development Example Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.12 Three general types of utility functions. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.13 Arrangement of rotary combustor. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.14 Details of rotary combustor. Copyright © 2017, 2005, and 1994 by Pearson Education, Inc. All Rights Reserved Project Management: Processes, Methodologies, and Economics, 3e Avraham Shtub, Moshe Rosenwein Figure 3.15 Preference curve for risk-averse decision maker. Strategic Management Concepts: A Competitive Advantage Approach Sixteenth Edition Chapter 2 The Business Vision and Mission Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available) Learning Objectives (1 of 2) 2.1 Describe the nature and role of vision statements in strategic management. 2.2 Describe the nature and role of mission statements in strategic management. 2.3 Discuss the process of developing a vision and mission statement. 2.4 Discuss how clear vision and mission statements can benefit other strategic-management activities. 2.5 Describe the characteristics of a good mission statement. 2.6 Identify the components of mission statements. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved After studying this chapter, you should be able to do the following: 1. Describe the nature and role of vision statements in strategic management. 2. Describe the nature and role of mission statements in strategic management. 3. Discuss the process of developing a vision and mission statement. 4. Discuss how clear vision and mission statements can benefit other strategic-management activities. 5. Describe the characteristics of a good mission statement. 6. Identify the components of mission statements. 7. Evaluate mission statements of different organizations and write effective vision and mission statements. Learning Objectives (2 of 2) 2.7 Evaluate mission statements of different organizations and write effective vision and mission statements. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved After studying this chapter, you should be able to do the following: 1. Describe the nature and role of vision statements in strategic management. 2. Describe the nature and role of mission statements in strategic management. 3. Discuss the process of developing a vision and mission statement. 4. Discuss how clear vision and mission statements can benefit other strategic-management activities. 5. Describe the characteristics of a good mission statement. 6. Identify the components of mission statements. 7. Evaluate mission statements of different organizations and write effective vision and mission statements. Vision Statement A vision statement should answer the basic question: “What do we want to become?” Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved It is especially important for managers and executives in any organization to agree on the basic vision that the firm strives to achieve in the long term. What Do We Want to Become? The vision statement should be short, preferably one sentence, and as many managers as possible should have input into developing the statement. The vision statement should reveal the type of business the firm engages. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Many organizations have both a vision and mission statement, but the vision statement should be established first and foremost. Vision Statement Examples General Motors’ vision is to be the world leader in transportation products and related services. (Author comment: Good statement) PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate-environment, social, economic creating a better tomorrow than today. (Author comment: Statement is too vague; it should reveal how the firm’s food and beverage business benefits people) Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Table 2-1 provides examples of vision statements with comments from the textbook author. Mission Statement (1 of 2) A declaration of an organization’s “reason for being.” It answers the pivotal question “What is our business?” It is essential for effectively establishing objectives and formulating strategies. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved An enduring statement of purpose that distinguishes one organization from other similar enterprises, the mission statement is a declaration of an organization’s “reason for being.” Mission Statement (2 of 2) It reveals what an organization wants to be and whom it wants to serve It is also called a creed statement, a statement of purpose, a statement of philosophy, a statement of beliefs, and a statement of business principles Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved All organizations have a reason for being, even if strategists have not consciously transformed this reason into writing. Figure 2-1 A Comprehensive Strategic-Management Model Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Relationships among major components of the strategic-management process are shown in the model, which appears in all chapters with appropriate areas shaded to show the particular focus of each chapter. Developing Vision and Mission Statements A widely used approach includes: Select several articles about these statements and ask all managers to read these as background information. Ask managers themselves to prepare a vision and mission statement for the organization. A facilitator or committee of top managers should then merge these statements into a single document and distribute the draft statements to all managers. A request for modifications, additions, and deletions is needed next, along with a meeting to revise the document. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Clear vision and mission statements are needed before alternative strategies can be formulated and implemented. As many managers as possible should be involved in the process of developing these statements because, through involvement, people become committed to an organization. Importance of Vision and Mission Statements To make sure all employees/managers understand the firm’s purpose or reason for being. To provide a basis for prioritization of key internal and external factors utilized to formulate feasible strategies. To provide a basis for the allocation of resources. To provide a basis for organizing work, departments, activities, and segments around a common purpose. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved King and Cleland recommend that organizations carefully develop a written mission statement in order to reap the following benefits: 1. To make sure all employees/managers understand the firm’s purpose or reason for being. 2. To provide a basis for prioritization of key internal and external factors utilized to formulate feasible strategies. 3. To provide a basis for the allocation of resources. 4. To provide a basis for organizing work, departments, activities, and segments around a common purpose. Table 2-2 Ten Benefits of Having a Clear Mission and Vision 1. Achieve clarity of purpose among all managers and employees. 2. Provide a basis for all other strategic planning activities, including internal and external assessment, establishing objectives, developing strategies, choosing among alternative strategies, devising policies, establishing organizational structure, allocating resources, and evaluating performance. 3. Provide direction. 4. Provide a focal point for all stakeholders of the firm. 5. Resolve divergent views among managers. 6. Promote a sense of shared expectations among all managers and employees. 7. Project a sense of worth and intent to all stakeholders. 8. Project an organized, motivated organization worthy of support. 9. Achieve higher organizational performance. 10. Achieve synergy among all managers and employees. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Ten benefits of having a clear mission and vision are provided in Table 2-2. Characteristics of a Mission Statement (1 of 4) A good mission statement allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity. A mission statement needs to be broad to reconcile differences effectively among, and appeal to, an organization's diverse stakeholders Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved A mission statement is a declaration of attitude and outlook. It usually is broad in scope for at least two major reasons. First, a good mission statement allows for the generation and consideration of a range of feasible alternative objectives and strategies without unduly stifling management creativity. Second, a mission statement needs to be broad to reconcile differences effectively among, and appeal to, an organization’s diverse stakeholders, the individuals and groups of individuals who have a special stake or claim on the company. Characteristics of a Mission Statement (2 of 4) Stakeholders include employees, managers, stockholders, boards of directors, customers, suppliers, distributors, creditors, governments (local, state, federal, and foreign), unions, competitors, environmental groups, and the general public. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Stakeholders are the individuals and groups of individuals who have a special stake or claim on the company. Characteristics of a Mission Statement (3 of 4) Broad in scope; does not include monetary amounts, numbers, percentages, ratios, or objectives Fewer than 150 words in length Inspiring Identifies the utility of a firm’s products Reveals that the firm is socially responsible Reveals that the firm is environmentally responsible Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved As indicated in Table 2-3, there are several characteristics of an effective mission statement. Characteristics of a Mission Statement (4 of 4) Includes nine components: customers, products or services, markets, technology, concern for survival/growth/profits, philosophy, self-concept, concern for public image, concern for employees Reconciliatory Enduring Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved As indicated in Table 2-3, there are several characteristics of an effective mission statement. A Customer Orientation (1 of 3) A mission statement should: Define what the organization is and what the organization aspires to be Be limited enough to exclude some ventures and broad enough to allow for creative growth Distinguish a given organization from all others Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved An effective mission statement describes an organization’s purpose, customers, products or services, markets, philosophy, and basic technology. According to Vern McGinnis, a mission statement should: (1) define what the organization is and what the organization aspires to be, (2) be limited enough to exclude some ventures and broad enough to allow for creative growth, (3) distinguish a given organization from all others, (4) serve as a framework for evaluating both current and prospective activities, and (5) be stated in terms sufficiently clear to be widely understood throughout the organization. A Customer Orientation (2 of 3) A mission statement should also: Serve as a framework for evaluating both current and prospective activities Be stated in terms sufficiently clear to be widely understood throughout the organization Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved A Customer Orientation (3 of 3) A good mission statement reflects the anticipations of customers. The operating philosophy of organizations should be to identify customers' needs and then provide a product or service to fulfill those needs. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The mission statement should reflect the anticipations of customers. Rather than developing a product and then trying to find a market, the operating philosophy of organizations should be to identify customers’ needs and then provide a product or service to fulfill those needs. Considerations (1 of 2) 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. Do not offer me C Ds. Offer me leisure and the sound of music. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The utility statements on the next 2 slides are relevant in developing a mission statement. Considerations (2 of 2) 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 © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The utility statements on these two slides are relevant in developing a mission statement. Mission Statement Components (1 of 2) Customers-Who are the firm’s customers? Products or services-What are the firm’s major products or services? Markets-Geographically, where does the firm compete? Technology-Is the firm technologically current? Survival, growth, and profitability-Is the firm committed to growth and financial soundness? Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Mission statements can and do vary in length, content, format, and specificity. Most practitioners and academicians of strategic management feel that an effective statement should include the nine mission statement components presented on these two slides. Mission Statement Components (2 of 2) Philosophy-What are the basic beliefs, values, aspirations, and ethical priorities of the firm? Self-concept (distinctive competence)-What is the firm’s major competitive advantage? Public image-Is the firm responsive to social, community, and environmental concerns? Employees-Are employees a valuable asset of the firm? Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Example Mission Statements (1 of 2) PepsiCo We aspire to make PepsiCo the world’s (3) premier consumer products company, focused on convenient foods and beverages (2). We seek to produce healthy financial rewards for investors (5) as we provide opportunities for growth and enrichment to our employees (9), our business partners and the communities (8) in which we operate. And in everything we do, we strive to act with honesty, openness, fairness and integrity (6). Author comment: Statement lacks three components: Customers (1), Technology (4), and Distinctive Competence (7); 62 words Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Note: The numbers in parentheses correspond to the nine components listed on page 49. Perhaps the best way to develop a skill for writing and evaluating mission statements is to study actual company missions. Thus, Table 2-5 provides a component-by-component critique of two actual mission statements from PepsiCo and Royal Caribbean. Example Mission Statements (2 of 2) Royal Caribbean We are loyal to Royal Caribbean and Celebrity and strive for continuous improvement in everything we do. We always provide service with a friendly greeting and a smile (7). We anticipate the needs of our customers and make all efforts to exceed our customers’ expectations. We take ownership of any problem that is brought to our attention. We engage in conduct that enhances our corporate reputation and employee morale (9). We are committed to act in the highest ethical manner and respect the rights and dignity of others (6). Author comment: Statement lacks six components: Customers (1), Products/Services (2), Markets (3), Technology (4), Survival/Growth/Profits (5), and Public Image (8); 86 words Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The Royal Caribbean statement includes only six of the nine components, comprises 86 words total, and lacks a customer perspective. The Royal Caribbean statement merely includes the word customer(s), which is inadequate to be considered written from a customer perspective. Exemplary Proposed Mission Statement (1 of 2) Avon Our mission is to provide women (1) quality fragrances, cosmetics, and jewelry (2) at reasonable prices backed by outstanding customer service provided by our thousands of door-to-door sales representatives (7, 9) operating globally (3). We use the latest technology (4) to profitably develop and market products desired by women all over the world (5). Avon representatives put integrity first (6) in setting a good example in every community (8) they operate-as they sell beauty. (58 words) Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Proposed, exemplary mission statements for Avon and L’Oreal are provided in Table 2-7. These rival firms have uniquely different competitive advantages in that Avon utilizes door-to-door sales representatives to gain competitive advantage, whereas L’Oreal markets products in thousands of retail outlets. The proposed Avon and L’Oreal statements have the characteristics described earlier, and include the nine components written from a customer perspective. Exemplary Proposed Mission Statement (2 of 2) L’Oreal Our mission is to design, produce, and distribute the world’s best fragrances, perfumes, and personal care products (2) to women, men, and children (1) by utilizing the latest technological improvements (4). We empower our highly creative team of researchers to develop safe, eco-friendly (7) products that will enable our firm to profitably grow (5) through thousands of retail outlets. We strive to be one of the most socially responsible (8) firms on the planet (3) and appreciate our employees (9) making that happen, while following the “golden rule” in all that we do (6). (85 words) Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategic Management Concepts: A Competitive Advantage Approach Sixteenth Edition Chapter 1 The Nature of Strategic Management Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved If this PowerPoint presentation contains mathematical equations, you may need to check that your computer has the following installed: 1) MathType Plugin 2) Math Player (free versions available) 3) NVDA Reader (free versions available) Learning Objectives (1 of 2) 1.1 Describe the strategic-management process. 1.2 Discuss the three stages of strategy formulation, implementation, and evaluation activities. 1.3 Explain the need for integrating analysis and intuition in strategic management. 1.4 Define and give examples of key terms in strategic management. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved After studying this chapter, you should be able to: Describe the strategic-management process. Discuss the three stages of strategy formulation, implementation, and evaluation activities. Explain the need for integrating analysis and intuition in strategic management. Define and give examples of key terms in strategic management. Learning Objectives (2 of 2) 1.5 Illustrate the comprehensive strategic-management model. 1.6 Describe the benefits of engaging in strategic management. 1.7 Explain why some firms do no strategic planning. 1.8 Describe the pitfalls in actually doing strategic planning. 1.9 Discuss the connection between business and military strategy. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Illustrate the comprehensive strategic-management model. Describe the benefits of engaging in strategic management. Explain why some firms do no strategic planning. Describe the pitfalls in actually doing strategic planning. Discuss the connection between business and military strategy. Defining Strategic Management (1 of 3) Strategic Management The art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategic management is defined as the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives. It focuses on integrating management, marketing, finance and accounting, production and operations, research and development (R&D), and information systems to achieve organizational success. Defining Strategic Management (2 of 3) Strategic management is used synonymously with the term strategic planning in this course. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategic management in this text is used synonymously with the term strategic planning. Sometimes the term strategic management is used to refer to strategy formulation, implementation, and evaluation, with strategic planning referring only to strategy formulation. The purpose of strategic management is to exploit and create new and different opportunities for tomorrow. Defining Strategic Management (3 of 3) A strategic plan is a company’s game plan. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved A strategic plan is, in essence, a company’s game plan. Just as a football team needs a good game plan to have a chance for success, a company must have a good strategic plan to compete successfully. A strategic plan results from tough managerial choices among numerous good alternatives, and it signals commitment to specific markets, policies, procedures, and operations in lieu of other, “less desirable” courses of action. Stages of Strategic Management (1 of 4) Strategy formulation Strategy implementation Strategy evaluation Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The strategic-management process consists of three stages: strategy formulation, strategy implementation, and strategy evaluation. Stages of Strategic Management (2 of 4) Strategy Formulation developing a vision and mission identifying an organization’s external opportunities and threats determining internal strengths and weaknesses establishing long-term objectives generating alternative strategies choosing particular strategies to pursue Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategy formulation includes developing a vision and mission, identifying an organization’s external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objectives, generating alternative strategies, and choosing particular strategies to pursue. Strategy-formulation decisions commit an organization to specific products, markets, resources, and technologies over an extended period of time. Strategy Formulation Decisions What new businesses to enter What businesses to abandon Whether to expand operations or diversify Whether to enter international markets Whether to merge or form a joint venture How to avoid a hostile takeover Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategy formulation involves many types of decisions including: What new businesses to enter What businesses to abandon Whether to expand operations or diversify Whether to enter international markets Whether to merge or form a joint venture How to avoid a hostile takeover. Stages of Strategic Management (3 of 4) Strategy Implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed often called the action stage Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategy implementation requires a firm to establish annual objectives, devise policies, motivate employees, and allocate resources so that formulated strategies can be executed and is often called the action stage. Strategy implementation includes developing a strategy-supportive culture, creating an effective organizational structure, redirecting marketing efforts, preparing budgets, developing and using information systems, and linking employee compensation to organizational performance. Stages of Strategic Management (4 of 4) Strategy Evaluation Determining which strategies are not working well Three fundamental activities: reviewing external and internal factors that are the bases for current strategies measuring performance taking corrective actions Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategy evaluation is the final stage in strategic management. Managers desperately need to know when particular strategies are not working well; strategy evaluation is the primary means for obtaining this information. All strategies are subject to future modification because external and internal factors constantly change. Key Terms in Strategic Management (1 of 6) Competitive Advantage any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire. A firm must strive to achieve sustained competitive advantage Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategic management is all about gaining and maintaining competitive advantage. This term can be defined as any activity a firm does especially well compared to activities done by rival firms, or any resource a firm possesses that rival firms desire. A firm must strive to achieve sustained competitive advantage by (1) continually adapting to changes in external trends and events and internal capabilities, competencies, and resources; and (2) effectively formulating, implementing, and evaluating strategies that capitalize on those factors. Key Terms in Strategic Management (2 of 6) Strategists Individuals most responsible for the success or failure of an organization Help an organization gather, analyze, and organize information Vision and Mission Statements A vision statement answers the question “What do we want to become?” A mission statement answers the question “What is our business?” Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategists are the individuals most responsible for the success or failure of an organization. They have various job titles, such as chief executive officer, president, owner, chair of the board, executive director, chancellor, dean, and entrepreneur. Many organizations today develop a vision statement that answers the question “What do we want to become?” Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Mission statements are “enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm’s operations in product and market terms.” Key Terms in Strategic Management (3 of 6) External Opportunities and Threats economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization Internal Strengths and Internal Weaknesses an organization’s controllable activities that are performed especially well or poorly determined relative to competitors Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved External opportunities and threats are largely beyond the control of a single organization—thus the word external. Internal strengths and weaknesses are an organization’s controllable activities that are performed especially well or poorly and are determined relative to competitors. Some Opportunities and Threats Availability of capital can no longer be taken for granted. Consumers expect green operations and products. Marketing is moving rapidly to the Internet. Commodity food prices are increasing. An oversupply of oil is driving oil and gas prices down. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Table 1-2 in the textbook lists several categories of external opportunities and threats. Key Terms in Strategic Management (4 of 6) Long-Term Objectives specific results that an organization seeks to achieve in pursuing its basic mission long-term means more than one year should be challenging, measurable, consistent, reasonable, and clear Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Objectives are essential for organizational success because they provide direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Key Terms in Strategic Management (5 of 6) Strategies the means by which long-term objectives will be achieved may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Strategies are the means by which long-term objectives will be achieved. They may include geographic expansion, diversification, acquisition, product development, market penetration, retrenchment, divestiture, liquidation, and joint ventures. Strategies are potential actions that require top-management decisions and large amounts of the firm’s resources. Key Terms in Strategic Management (6 of 6) Annual objectives short-term milestones that organizations must achieve to reach long-term objectives should be measurable, quantitative, challenging, realistic, consistent, and prioritized should be established at the corporate, divisional, and functional levels in a large organization Policies the means by which annual objectives will be achieved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives. They should be measurable, quantitative, challenging, realistic, consistent, and prioritized. They should be established at the corporate, divisional, and functional levels in a large organization. A set of annual objectives is needed for each long-term objective. These objectives are especially important in strategy implementation, whereas long-term objectives are particularly important in strategy formulation. Policies include guidelines, rules, and procedures established to support efforts to achieve stated objectives. The Strategic-Management Model Where are we now? Where do we want to go? How are we going to get there? Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved There are three important questions to answer in developing a strategic plan: Where are we now? Where do we want to go? How are we going to get there? Figure 1-1 Comprehensive Strategic-Management Model Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The framework illustrated in Figure 1-1 is a widely accepted, comprehensive model of the strategic-management process. This model does not guarantee success, but it does represent a clear and practical approach for formulating, implementing, and evaluating strategies. Relationships among major components of the strategic-management process are shown in the model, which appears in all subsequent chapters with appropriate areas shaped to show the particular focus of each chapter. Benefits of Strategic Management Strategic management allows an organization to be more proactive than reactive in shaping its own future; It allows an organization to initiate and influence (rather than just respond to) activities-and thus to exert control over its own destiny. Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Historically, the principal benefit of strategic management has been to help organizations formulate better strategies through the use of a more systematic, logical, and rational approach for decision making. Figure 1-2 Benefits to a Firm That Does Strategic Planning Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Figure 1-2 illustrates the intrinsic benefit of a firm engaging in strategic planning. Communication is a key to successful strategic management. Communication may be the most important word in management. Financial Benefits Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Businesses using strategic-management concepts show significant improvement in sales, profitability, and productivity compared to firms without systematic planning activities. High-performing firms tend to do systematic planning to prepare for future fluctuations in their external and internal environments. High-performing firms seem to make more informed decisions with good anticipation of both short- and long-term consequences. Nonfinancial Benefits Enhanced awareness of external threats Improved understanding of competitors’ strategies Increased employee productivity Reduced resistance to change Clearer understanding of performance-reward relationships Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Besides helping firms avoid financial demise, strategic management offers other tangible benefits, such as enhanced awareness of external threats, improved understanding of competitors’ strategies, increased employee productivity, reduced resistance to change, and a clearer understanding of performance–reward relationships. Strategic management enhances the problem-prevention capabilities of organizations because it promotes interaction among managers. Why Some Firms Do No Strategic Planning (1 of 2) No formal training in strategic management No understanding of or appreciation for the benefits of planning No monetary rewards for doing planning No punishment for not planning Too busy “firefighting” (resolving internal crises) to plan ahead View planning as a waste of time, since no product/service is made Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Ten reasons (excuses) often given for poor or no strategic planning in a firm are as follows: 1. No formal training in strategic management 2. No understanding of or appreciation for the benefits of planning 3. No monetary rewards for doing planning 4. No punishment for not planning 5. Too busy “firefighting” (resolving internal crises) to plan ahead 6. View planning as a waste of time, since no product/service is made Why Some Firms Do No Strategic Planning (2 of 2) Laziness; effective planning takes time and effort; time is money Content with current success; failure to realize that success today is no guarantee for success tomorrow; even Apple Inc. is an example Overconfident Prior bad experience with strategic planning done sometime/somewhere Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Additional reasons include: 7. Laziness; effective planning takes time and effort; time is money 8. Content with current success; failure to realize that success today is no guarantee for success tomorrow; even Apple Inc. is an example 9. Overconfident 10. Prior bad experience with strategic planning done sometime/somewhere Pitfalls in Strategic Planning (1 of 2) Using strategic planning to gain control over decisions and resources Doing strategic planning only to satisfy accreditation or regulatory requirements Too hastily moving from mission development to strategy formulation Failing to communicate the plan to employees, who continue working in the dark Top managers making many intuitive decisions that conflict with the formal plan Top managers not actively supporting the strategic-planning process Failing to use plans as a standard for measuring performance Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Being aware of potential pitfalls and being prepared to address them is essential to success. Here are some pitfalls to watch for and avoid in strategic planning: • Using strategic planning to gain control over decisions and resources • Doing strategic planning only to satisfy accreditation or regulatory requirements • Too hastily moving from mission development to strategy formulation • Failing to communicate the plan to employees, who continue working in the dark • Top managers making many intuitive decisions that conflict with the formal plan • Top managers not actively supporting the strategic-planning process • Failing to use plans as a standard for measuring performance Pitfalls in Strategic Planning (2 of 2) Delegating planning to a “planner” rather than involving all managers Failing to involve key employees in all phases of planning Failing to create a collaborative climate supportive of change Viewing planning as unnecessary or unimportant Becoming so engrossed in current problems that insufficient or no planning is done Being so formal in planning that flexibility and creativity are stifled Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Additional pitfalls include: • Delegating planning to a “planner” rather than involving all managers • Failing to involve key employees in all phases of planning • Failing to create a collaborative climate supportive of change • Viewing planning as unnecessary or unimportant • Becoming so engrossed in current problems that insufficient or no planning is done • Being so formal in planning that flexibility and creativity are stifled Figure 1-3 How to Gain and Sustain Competitive Advantage Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Figure 1-3 reveals that to gain and sustain competitive advantages, a firm must create and nurture a clear vision and mission, and then systematically formulate, implement, and evaluate strategies. Comparing Business and Military Strategy A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict Both business and military organizations must adapt to change and constantly improve to be successful Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved A strong military heritage underlies the study of strategic management. Terms such as objectives, mission, strengths, and weaknesses were first formulated to address problems on the battlefield. A fundamental difference between military and business strategy is that business strategy is formulated, implemented, and evaluated with an assumption of competition, whereas military strategy is based on an assumption of conflict. Both business and military organizations must adapt to change and constantly improve to be successful. Excerpts from Sun Tzu’s The Art of War Writings War is a matter of vital importance to the state: a matter of life or death, the road either to survival or ruin. Hence, it is imperative that it be studied thoroughly Know your enemy and know yourself, and in a hundred battles you will never be defeated Skillful leaders do not let a strategy inhibit creative counter-movement Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Sun Tzu’s The Art of War has been applied to many fields well outside of the military. Much of the text is about how to fight wars without actually having to do battle: It gives tips on how to outsmart one’s opponent so that physical battle is not necessary. Table 1-4 provides several excerpts. Copyright Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved