THE STRATEGIC MANAGEMENT PROCESS
STEP 5: FORMULATE STRATEGIES TO ACHIEVE THE STRATEGIC GOALS Next, the manager chooses strategies courses of action that will enable the company
to achieve its strategic goals. For example, what strategies could Ford pursue to hit its goal of no more than 1 initial defect per 10,000 cars? Perhaps open two new high-tech plants, reduce the number of car lines to better focus on just a few, and put in place new more rigorous employee selection, training, and performance appraisal procedures.
STEP 6: IMPLEMENT THE STRATEGIES Strategy execution means translating the strategies into action. The company s managers do this by actually hiring (or firing) people, building (or closing) plants, and adding (or eliminating) products and product lines.
STEP 7: EVALUATE PERFORMANCE Things don t always turn out as planned.
For example, Ford bought Jaguar and Land Rover as a way to reduce reliance on lower-profit cars. With auto competition brutal, Ford announced in 2009 it was selling Jaguar and Land Rover (to Tata, a company in India). Ford wants to focus its scarce resources on modernizing and turning around its North American operations.
Like all companies, Ford continually needs to assess its strategic decisions.
Types of Strategies
In practice, managers formulate three strategies. There is corporate-widestrategic plan- ning, business unit (or competitive) strategic planning, and functional(or departmental) strategic planning (see Figure 3-5). We ll look at each.
FIGURE 3-5 Type of Strategy
at Each Company Level Corporate-Level
Strategy What businesses
are we in?
Business 1/
Competitive Strategy How will we compete?
Business 2/
Competitive Strategy How will we compete?
Business 3/
Competitive Strategy How will we compete?
Business 1 Functional Strategy Sales Department How do we support the business s competitive
strategy?
Business 1 Functional Strategy Production How do we support the business s competitive
strategy?
Business 1 Functional Strategy HR Department
"How do we support the business s competitive
strategy?
Improving Productivity Through HRIS
Using Computerized Business Planning Software
Business planning software packages are available to assist the manager in writing strategic plans. CheckMATE (www.chechmateplan.com) uses strategic planning tools such as SWOT analysis to enable even users with no prior planning experience to develop sophisticated strategic plans.4 Business Plan Pro from Palo Alto Software contains all the information and planning aids you need to create a business plan.
It contains 30 sample plans, step-by-step instructions (with examples) for creating each part of a plan (executive summary, market analysis, and so on), financial planning spreadsheets, easy-to-use tables (for instance, for making sales forecasts), and programs for creating color 3-D charts for showing things like monthly sales and yearly profits.
corporate-level strategy
Type of strategy that identifies the portfolio of businesses that, in total, comprise the company and the ways in which these busi- nesses relate to each other.
competitive strategy
A strategy that identifies how to build and strengthen the business s long-term competi- tive position in the marketplace.
competitive advantage
Any factors that allow an organization to differentiate its product or service from those of its competitors to increase market share.
CORPORATE STRATEGY The corporate strategy question is, How many and what kind of businesses should we be in? For example, PepsiCo doesn t just make Pepsi-Cola.
Instead, PepsiCo is comprised of four main businesses: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Oats North America.5
PepsiCo therefore needs a corporate-level strategy.A company s corporate-level strategyidentifies the portfolio of businesses that, in total, comprise the company and how these businesses relate to each other.
* For example, with a concentration (single business) corporate strategy, the company offers one product or product line, usually in one market. WD-40 Company (which makes a spray hardware lubricant) is one example.
* A diversificationcorporate strategy implies that the firm will expand by adding new product lines. PepsiCo is diversified. Over the years, PepsiCo added chips and Quaker Oats. Such related diversificationmeans diversifying so that a firm s lines of business still possess a logical fit.Conglomerate diversificationmeans diversifying into products or markets not related to the firm s current businesses or to one another.
* A vertical integrationstrategy means the firm expands by, perhaps, producing its own raw materials, or selling its products direct. Thus, Apple opened its own Apple stores.
* With consolidationstrategy, the company reduces its size.
* With geographic expansion, the company grows by entering new territorial markets, for instance, by taking the business abroad, as PepsiCo also did.
COMPETITIVE STRATEGY On what basis will each of our businesses compete?
Each of these businesses (such as Frito-Lay) needs its own business-level/competitive strategy.A competitive strategyidentifies how to build and strengthen the business s long-term competitive position in the marketplace.6It identifies, for instance, how Pizza Hut will compete with Papa John s or how Walmart competes with Target.
Managers endeavor to achieve competitive advantages for each of their businesses.
We can define competitive advantageas any factors that allow a company to differenti- ate its product or service from those of its competitors to increase market share.
Managers use several standard competitive strategies to achieve competitive advantage:
* Cost leadershipmeans becoming the low-cost leader in an industry. Walmart is a classic example. It maintains its competitive advantage through its satellite-based distribution system, careful (usually suburban) site location, and expert control of purchasing and sales costs.
* Differentiationis a second possible competitive strategy. In a differentiation strategy, the firm seeks to be unique in its industry along dimensions that are widely valued by buyers.7Thus, Volvo stresses the safety of its cars, Papa John s stresses fresh ingre- dients, and Target stresses somewhat more upscale brands than Walmart. Like Mercedes-Benz, firms can usually charge a premium if they successfully stake a claim to being substantially different from competitors in some coveted way.
* Focuserscarve out a market niche (like Ferrari). They compete by providing a product or service that their customers cannot get from their generalist competi- tors (such as Toyota).
HUMAN RESOURCES AS A COMPETITIVE ADVANTAGE A competitive advantage enables a company to differentiate its product or service from those of its competitors, but the competitive advantage needn t be tangible, such as 3 List with examples the main
generic types of corporate strategies and competitive strategies.
high-tech machines or satellite systems.Bloomberg Businessweekmagazine recently described teams of empowered workers at a GE airfoils plant in Greenville, South Carolina. The teams run computer-controlled machine tools, interview prospective team members, and adjust assembly lines to maximize production.8 For GE, the workers skills and dedication are competitive advantages; they produce the quality and productivity that make GE an aerospace leader. Similarly, Apple s reputation for innovation reflects its competitive advantage in creative and brilliant engineers. Thus, the best competitive advantage is often human capital knowledgeable, skilled, engaged employees working hard and with self-discipline.
FUNCTIONAL STRATEGY Finally, what do our competitive choices (such as maintaining the lowest costs) mean for each of the departments that actually must do the work? Each individual business (like PepsiCo s Frito-Lay and Quaker Oats units) consists of departments such as manufacturing, sales, and human resource management. Functional strategies identify the broad guidelines that each department will follow in order to help the business accomplish its competitive goals.
Each department s functional strategy should make sense in terms of the business/
competitive strategy.
For example, the business s competitive strategy should mold the firm s human resource management policies and practices. As an example, the Portland hotel wants to differentiate itself with exceptional service, and so needs to select and train employees who are exceptionally customer oriented. Walmart s low cost competitive strategy translates into human resource management policies that many view as low-pay and antiunion.
STRATEGIC FIT Strategic planning expert Michael Porter uses the term strategic fit to sum up the idea that each department s functional strategy should fit and support the company s competitive aims.
For example, Southwest Airlines is a low-cost leader. It aims to deliver low-cost, convenient service on its routes. To accomplish this, Southwest builds its departments activities around supporting certain core aims. Southwest s core aims include limited passenger services (such as meals); short-haul, point-to-point service between mostly mid-size cities; high aircraft utilization; and lean highly productive ground crews. Achieving these aims means that each department s efforts needs to fit these aims. Southwest s ground crew department must get fast 15-minute turnarounds at the gate. That way, Southwest can keep its planes flying longer hours and have more departures with fewer aircraft. Its purchasing and marketing departments shun frills like meals and premium classes of service.
To ensure highly productive ground crews, the HR department will provide high compensation, flexible union contracts, and employee stock ownership. Their aim is that:
High Pay Highly Productive Ground Crews Frequent Departures Low Costs
Top Managers Roles in Strategic Planning
Devising a strategic plan is top management s responsibility. Top management must decide what businesses the company will be in and where, and on what basis it will compete. Southwest Airlines top managers could never let lower-level managers make strategic decisions (such as unilaterally deciding that instead of emphasizing low cost, they were going to retrofit the planes with first-class cabins).
Departmental Managers Strategic Planning Roles
However, the company s departmental managers (as for sales, manufacturing, and human resource management) also play roles in strategic planning. Specifically,
functional strategy
Strategy that identifies the broad activities that each department will pursue in order to help the business accomplish its competitive goals.
they help the top managers devise the strategic plan;formulate functional, depart- mental plansthat support the overall strategic plan; and then execute the plans. We ll look at each.
THEY HELP DEVISE THE STRATEGIC PLAN It would be reckless for any top executive to formulate a strategic plan without the input of his or her lower-level managers. Few people know as much about the firm s competitive pressures, vendor capabilities, product and industry trends, and employee capabilities and concerns than do the company s department managers. So in practice, devising the strategic plan almost invariably involves frequent meetings and discussions among and between levels of managers. The top managers then lean heavily on the information from these interactions to hammer out their strategic plan.
For example, the human resource manager is in a good position to supply competitive intelligence. Details regarding competitors incentive plans, employee opinion surveys that elicit information about customer complaints, and informa- tion about pending legislation such as labor laws are examples. And of course, human resource managers should be the masters of information about current employees strengths and weaknesses. Input like this should all help win human resource managers a seat at the (top management strategic planning) table.
As other examples,
From public information and legitimate recruiting and interview activities, you ought to be able to construct organization charts, staffing levels, and group missions for the various organizational components of each of your major competitors. Your knowledge of . . . who reports to whom can give important clues as to a competitor s strategic priorities. You may even know the track record and characteristic behavior of the executives.9
THEY FORMULATE SUPPORTING, FUNCTIONAL/DEPARTMENTAL STRATEGIES Department managers also must translate the firm s strategic choices (such as becoming a low-cost leader) into functional strategies. For example, Walmart s cost leadership strategy means its purchasing department must pursue forcefully buying the lowest-cost goods it can find.
THEY EXECUTE THE PLANS Whereas it would be reckless for top management to devise a plan without lower-level managers advice, it is impossible for them to execute the plan without the company s other managers. Except in the tiniest of companies, no top manager could ever expect to do everything alone. With careful oversight, they therefore rely on their subordinate managers to do the planning, organizing, staffing, leading, and controlling that are required to execute the company s and each department s plans and goals.
Department Managers Strategic Planning Roles in Action:
Improving Mergers and Acquisitions
Mergers and acquisitions are among the most important strategic moves companies make. When mergers and acquisitions fail, it s often not due to financial or technical issues but to personnel-related ones. These may include, for example, employee resistance, mass exits by high-quality employees, and declining morale and productivity.10 It s therefore ironic that, until relatively recently, human resource managers played limited roles in merger and acquisition (M&A) planning, according to a survey by
consultants Towers and Perrin. They tended to get involved only when management began integrating the two companies into one. By comparison, close to two thirds of the [survey] participants are involved in M&A due diligence now. 11How human resource managers assist top management with mergers illustrates how functional managers (and particularly human resource managers) can support the company s strategic aims.
DUE DILIGENCE STAGE Before finalizing a deal, the merger partners usually perform due diligence. These reviews assure they know what they re getting into. For the human resource team, due diligence includes reviewing things like employee compensation and benefits, labor relations, pending employee litigation, human resource policies and procedures, and key employees.12 For example, do the target firm s health insurance contracts have termination clauses that could eliminate coverage for all employees if you lay off too many after the merger?13
INTEGRATION STAGE Critical human resource issues during the first few months of a merger or acquisition include choosing the top management, communicating changes effectively to employees, and retaining key talent.14Several human resource consulting companies, such as Towers Perrin, assist firms with merger-related human resource management services. Their services help to illustrate human resource managers roles in facilitating a merger.
* Manage the deal costs.Towers Perrin consultants identify and quantify people- related issues. These range from pension issues to redundancy costs and stock options.
* Manage the messages. We support our clients in rapidly developing and deploying an employee communication strategy.
* Secure the top team and key talent.Towers Perrin helps clients to identify key talent, and then develop suitable retention strategies.
* Define and implement an effective HR service delivery strategy.Towers Perrin helps clients plan how to implement the delivery of HR services, such as in combining payroll systems.
* Develop a workable change management plan. Especially in cross-border transactions, we assist companies in understanding and managing the cultural differences they face as part of the deal.
* Design and implement the right staffing model.Towers Perrin helps companies design the organization structure and determine which employee is best for which role.
* Aligning total rewards. When integration [of pay plans] is desirable, we help companies benchmarking and integration of compensation and benefit programs. 15