Welcome to Class 3

Corporate Governance: Part Two

TMT Responsibilities

Chapter 1

TMT – Responsibilities



Embrace the organization's vision and mission



Meticulously analyze the internal and external environments



Set realistic goals and objectives



Craft, implement, and manage tactics and strategies for the continuous achievement of above average returns

The TMT must expertly execute 5 Strategic Management Activities

TMT Strategic Management Activities

1. (SWOT) Analyze the

(internal & external)

environments to assess the firm’s a) Strengths b) c) d) Weaknesses Opportunities Threats 2. (Strategic Intent) Reaffirm or reestablish short & long-term goals and objectives 3. (Strategy Formulation) Translate goals and objectives into tactical & strategic action plans

TMT Strategic Management Activities

(cont)

4. (Strategy Implementation) Communicate and activate the tactical and strategic plans 5. (Strategy Management) Assess interim successes & failures and adjust course as conditions merit

SWOT Analysis

1. SWOT Analysis

Environments:



Internal Environment [S-W] (conditions within the firm)



External Environment [O-T] (conditions outside the firm) [a]

General Environment –

[b]

Competitive Environment –

Activities:

  

1. Scanning 2. Monitoring 3. Gathering Competitive Intelligence



1. SWOT: Scanning –

Changes in the external environment can occur quickly. All employees should be encouraged to Scan. Scanning is a general surveillance activity. Scanning has no specific target of discovery. Both internal and external environments should be scanned. It is an early warning system of environmental changes that can enable a proactive mode.



1. SWOT:

Scanning –

(Cont)

Information from scanning is usually incomplete and often ambiguous. Discoveries during scanning requires further investigation.

For example: Scanning the general environment might reveal an aging population and/or changes in the ethnic distribution of the population

BUT Discoveries – to be of value in decision-making – require more review and analysis.



1. SWOT: Monitoring –

Monitoring is: 1. Tracking environmental changes (

tracking mode

).

2. Examining the course, range, momentum, and strength of changes underway 3. A process of closely examining trends discovered from SCANNING. 4. Focusing on how environmental changes will impact the firm.

5. A process of thoroughly analyzing the 1. Sequence of events 2. Streams of activities that led to these changes



1. SWOT:

Monitoring –

(Cont)

Monitoring provides the organization with the opportunity to : 1. Prepare for the ultimate consequences of changes. 2. To attempt to alter situations and conditions driving undesirable changes. 3. Influence Political/Legal factors in the general environment. 4. Hire lobbying firms to educate lawmakers of the impact of pending legislation.



1. SWOT:

Competitive Intelligence

Gathering competitive intelligence involves identifying and assessing competitor’s: 1. Strengths and Weaknesses 2. Capabilities and Intentions Objective: Avoid being caught off guard by competitor actions.



1. SWOT:

Competitive Intelligence –

(Cont)

Competitive intelligence: 1. Is an important element in both offensive and defensive strategies. 2. It is not "spying " … which is an illegal and unethical activity. 3. Is intelligence that has been analyzed so that it can be integrated into the decision-making process.

Strategic Intent

2. Strategic Intent

Strategic intent: 1. Is an expression of pragmatic, realistic, and beneficial goals and objectives.

2. Provides a clear and sturdy framework upon which precise strategic and tactical plans can be crafted. 3. Should be in harmony with the firm's vision and mission.

4. Should be appropriate to the realities of: a) Environmental conditions b) The firm’s specific set of corporate capabilities.

Strategic Formulation

3. Strategy Formulation

Strategic Formulation is: 1. A carefully crafted plan guided by Strategic Intent . It requires careful consideration of the firm's: a) Capabilities (

resources, leadership, and competencies

) b) Limitations (

lack of knowledge, skills, abilities, and resources

). 2. It details how the firm will operate as it attempts to achieve performance objectives.

3. Strategy Formulation –

(Cont) Core Operating Models and Strategic Formulation 1. First-level Corporations

( business-level model )

Value creating and competitive advantage through:



Marketing products and/or services.

2. Second-level Corporations

( conglomerate-level model )

Value creating and competitive advantage through:



Management of a portfolio of subsidiary companies.



Business-level model

(First-level)

Achieving sustainable competitive advantage at the business-level means firms offer products and/or services that are distinctive * and provide profit maximization opportunities.

Four common methods of achieving DISTINCTIVENESS : 1. Uniqueness of product/service 2. Added or special components 3. Lower cost levels 4. Preferential delivery

DISTINCTIVENESS: 1. Provides customers a motive to purchase from a specific firm 2. Proves difficult for competitors to duplicate or imitate.

Business level strategic formulation is guided by the firm’s competitive model. Competitive Models: 1. Low-Cost leadership (perceived as least expensive or best value provider) 2. Differentiation (providing a unique product or service) 3. Narrow Market Catering

[

NMC

]

(offering a product or service not easily available anywhere else)

(often referred to as niche or focus strategy)



Conglomerate-level model

(Second-level)

Competing and achieving sustainable competitive advantage at the conglomerate-level means: Producing “above average returns” by creating a portfolio of synergistic businesses that have

each

achieved competitive advantage at the business-level Subsidiary companies benefit other companies in the portfolio when they provide synergistic benefits such as: (1) Shared knowledge (2) Operating systems (3) Facilities (4) Contact networks, etc.

Conglomerate-level strategies involve an extensive array of options.

Conglomerate-level strategists have options such as: 1.

Joint ventures 2.

3.

Corporate partnering Other types of collaborative activities However , the most common strategy involves acquisitions and divestitures of operating companies. The strategists can change the basic composition of the parent company simply by diversifying into new lines of business.

Corporate diversifications through acquisitions are divided into: 1. Related Diversifications

(Those that are closely related to companies currently in the portfolio)

2. Unrelated Diversifications

(Those that are significantly different from previously owned subsidiaries)

Strategic Implementation

4. Strategy Implementation

Implementation of the strategic plan involves directing resources toward the achievement of overall organizational goals. Strategies can and should be altered when : 1.

2.

Environmental conditions suggest change is advisable It becomes clear the plan is not leading to goals Strategy plan “implementation” 1. Is NOT a RIGID process. 2. It IS a vibrant , flexible process.

4. Strategy Implementation – (Cont) Communicating the strategic plan to key management personnel is CRUCIAL TO SUCCESS . It is essential to explain both “ how the plan will work ” and the “ logic ” behind the plan. When key personnel understand the wisdom of the plan it is more likely they will: 1. Make a true commitment to the success of the plan 2. Effectively communicate the plan further down the chain of command.

4. Strategy Implementation – (Cont)

Failure to achieve strategic objectives:

Implementation of a strategic plan involves numerous seemingly mundane activities that some managers view too casually.

Apparent mundane activities often involve vital elements in the strategic plan.

Carelessness in handling these means the strategic plan has been poorly implemented and failure is all but inevitable.

Strategic Management

5. Strategy Management

Strategy management is the process of directing, controlling, and supervising crucial activities related to strategic and tactical plans. Personnel responsible for “Strategy Management” need to be well informed about: 1.

2.

3.

Overall desired outcomes Expected interim achievement targets Activating contingency plans when conditions make it necessary Continuous monitoring is crucial to effective strategy management

Summary

End Corporate Governance: Part Two

Homework: (1) Read Chapter 2 in your online textbook

Point of emphasis:

1. Core Operating Models are Business-level and Conglomerate-level 2 . Competitive Models relate to Business-level companies and include strategies such as cost leadership, differentiation, and niche marketing 3. Goals are a general description of a performance aim 4. Objectives are the specific target within a goal or set of goals.