Figure 2.
1: The Strategy-Making, Strategy-Executing Process
Chapter 2: Leading the Process of Crafting and Executing Strategy
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University
McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter Learning Objectives
1. Grasp why it is critical for company managers to think long and hard about where a company needs to head and why. 2. Understand the importance of setting both strategic and financial objectives. 3. Recognize that the task of crafting a company strategy draws on the entrepreneurial talents of managers at all organizational levels. 4. Understand why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets. 5. Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently. 6. Understand why the strategic management process is ongoing, not an every-now-and-then task. 7. Learn what leadership skills management must exhibit to drive strategy execution forward. 8. Become aware of the role and responsibility of a companys board of directors in overseeing the strategic management process.
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Developing a Strategic Vision
Phase 1
Involves thinking strategically about Future direction of company Changes in companys
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 companys strategic course in preparing for the future.
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Chapter Roadmap
What Does the Strategy-Making, Strategy-Executing
Key Elements of a Strategic Vision
Delineates managements aspirations for the
process Entail?
Phase 1: Developing a Strategic Vision Phase 2: Setting Objectives Phase 3: Crafting a Strategy Phase 4: Implementing and Executing the Strategy Phase 5: Evaluating Performance and Initiating
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
Corrective Adjustments
Leading the Strategic Management Process Corporate Governance: The Role of the Board of
Captures the emotions of
employees and steers them in a common direction
Is challenging and a bit beyond a
Directors in the Strategy-Making, Strategy-Executing Process
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companys immediate reach
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Role of a Strategic Vision
A well-conceived, well-communicated vision
Strategic Vision vs. Mission
A strategic vision A companys mission
functions as a valuable managerial tool to
Give the organization a sense of direction, mold
organizational identity, and create a committed enterprise Illuminate the companys directional path Provide managers with a reference point to
concerns a firms future business path - where we are going
Markets to be pursued Future product/market/
customer/technology focus
statement typically focuses on its present business purpose - who we are and what we do
Current product and
service offerings
Make strategic decisions Translate the vision into hard-edged
objectives and strategies
Kind of company
management is trying to create
Customer needs and
customer groups being served
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!
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Geographic
coverage
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Table 2.2: Characteristics of an Effectively Worded Vision Statement
Characteristics of a Mission Statement
Identifies boundaries of a companys current
business and says something about Present products and services Types of customers served Geographic coverage Conveys Who we are, What we do, and Why we are here
A good mission statement describes a companys business makeup and purpose in language specific enough to give the company its own identity and distinguish it from other enterprises in the same or other industries!
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Table 2.3: Common Shortcomings in Company Vision Statements
Key Elements of a Mission Statement
A complete mission statement should cover three
things: 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 targeted needs of the targeted customer groups How customer needs are satisfied
A companys mission is not to make a profit! Its true mission is its answer to What will we do to make a profit? Making a profit is an objective or intended outcome!
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Linking the Vision with Company Values
Companies often develop a statement of values to guide a
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
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companys pursuit of its vision and strategy and paint the white lines for how a companys business is to be conducted Company values statements typically
contain four to eight beliefs, traits, and behaviors relating to such things as Fair treatment, integrity, ethical behavior, innovation, teamwork, product quality, customer satisfaction, social responsibility, community citizenship But values statements remain a bunch of nice words until
espoused beliefs, traits, and behaviors are Incorporated into companys operations and work practices Used as benchmarks 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 a bunch of empty words!
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 employees An engaging, inspirational vision Challenges and motivates workforce Articulates a compelling case
for where company is headed
Payoffs of a Clear Strategic Vision
Crystallizes an organizations long-term
direction
Reduces risk of rudderless decision-making Creates a committed enterprise
where organizational members enthusiastically pursue efforts to make the vision a reality
Provides a beacon to keep strategy-related
Evokes positive support and excitement Arouses a committed organizational
effort to move in a common direction
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actions of all managers on common path
Helps an organization prepare for the future
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Recognizing Strategic Inflection Points
Sometimes an order-of-magnitude change occurs in
Setting Objectives
Phase 2
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
a companys environment that
Dramatically alters its future prospects Mandates radical revision of its strategic course
Critical decisions have to be made about where to
go from here
A major new directional path may have to be taken A major new strategy may be needed
Responding quickly to unfolding changes in the
marketplace lessons a companys chances of
Becoming trapped in a stagnant business or Letting attractive new growth opportunities slip away
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of performance by when
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Importance of Setting Stretch Objectives
Objectives should be set at levels that
Examples: Strategic Objectives
Winning an X% market share within 3 years Achieving lower overall costs than rivals Overtaking key competitors on product performance
stretch an organization to
Perform at its full potential,
delivering the best possible results
or quality or customer service within 2 years
Deriving X% of revenues from sale of new products
Push firm to be more inventive Exhibit more urgency to improve its business
position
introduced in past 5 years
Being the recognized industry leader in product
Be intentional and focused in its actions
Theres no better way to avoid ho-hum results than by setting stretch objectives and using compensation incentives to motivate organization members to achieve the stretch performance targets!
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innovation and/or technological know-how
Having a wider product line than rivals Consistently getting new or improved products to
market ahead of rivals
Having stronger national or global sales and
distribution capabilities than rivals
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Types of Objectives Required
Financial Objectives
Outcomes focused on improving financial performance
Good Strategic Performance Is the Key to Better Financial Performance
Achieving good financial performance is not enough Current financial results are lagging indicators reflecting results of past decisions and actions good profitability now does not translate into stronger capability for delivering even better financial results later However, setting well-chosen strategic
Strategic Objectives
Outcomes focused on improving competitive strength and market standing
objectives and achieving them signals Growing competitiveness Growing strength in the marketplace A company that is growing competitively stronger is developing the capability for better financial performance in the years ahead Good strategic performance is thus a leading indicator of a
companys capability to deliver improved future financial performance Unless a company sets and achieves stretch strategic objectives it is not developing the competitive muscle to deliver even better financial results in the years ahead!
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Examples: Financial Objectives
Annual revenue growth of X% X % increase in after-tax profits annual Earnings per share growth of X% annually Annual dividend increases of X% Profit margins of X% X% return on capital employed (ROCE) Annual stock price increases that average X% over
A Balanced Scorecard Approach Setting Strategic and Financial Objectives
A balanced scorecard for measuring
company performance is optimal; it entails Setting financial and strategic objectives Placing balanced emphasis on achieving
both types of objectives
(However, if a companys 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 deemphasizing the strategic objectives may have merit)
Just tracking financial performance overlooks the
time
Strong bond and credit ratings Sufficient internal cash flows to fund 100% of new
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 companys business position and give it a growing competitive advantage over rivals!
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capital investment
Stable earnings during periods of recession
Both Short-Term and Long-Term Objectives Are Needed
Short-term objectives Targets to be achieved soon Milestones or stair steps for reaching long-range
performance targets
Objectives Are Needed at All Levels
The objective-setting process is more topdown than bottom up 1. First, set 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
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Long-term objectives Targets to be achieved within
3 to 5 years
Calls for 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!
Crafting a Strategy
Phase 3
Strategy-making involves astute
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
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Characteristics of Strategic Intent
Indicates firms intent to making quantum
Crafting a Good Strategy Requires Good Business Entrepreneurship
Developing a winning strategy involves
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gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against long odds
Involves establishing a grandiose
Diagnosing the direction and force of
the market changes underway and making timely strategic adjustments
performance target out of proportion to immediate capabilities and market position but then devoting the firms full resources and energies to achieving the target over time
Entails sustained, aggressive actions to take
Spotting new or better ways
to satisfy customer needs
Figuring out how to outwit and
outmaneuver competitors
Pursuing ways to strengthen the
firms competitive capabilities
market share away from rivals and achieve a much stronger market position
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Proactively trying to out-innovate rivals
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The Role of Astute Entrepreneurship in Crafting a Companys Strategy
Masterful strategies come partly (maybe mostly) by doing things differently from competitors where it counts Innovating more creatively Being more efficient Being more imaginative Adapting faster Rather than running with the herd! Good strategy-making is therefore inseparable from good entrepreneurship one cannot exist without the other!
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Why Is Strategy-Making Nearly Always a Collaborative Process?
The job is often way too big for one person or a
small executive groupmany strategic issues are complex or cut across multiple areas of expertise
The more a companys operations cut across
different products, industries and geographic areas, the more that headquarters executives must delegate strategy-making authority to down-the-line managers in charge of particular functions and operating units
In todays companies every manager typically has a strategy-making roleranging from major to minorfor the area he or she heads!
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The Hows That Define a Firm's Strategy
How to grow the business How to please customers How to outcompete rivals How to respond to changing market
Figure 2.2: A Companys Strategy-Making Hierarchy
conditions
How to manage each functional
piece of the business (R&D, production, marketing, HR, finance, and so on)
How to achieve targeted levels of
performance
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Who Is Involved in Strategy Making?
CEO (chief executive officer)
Uniting the Companys Strategy-Making Effort
A firms strategy is a collection of initiatives
Has ultimate responsibility for leading
the strategy-making process
Functions as strategic visionary and
chief architect of strategy Senior executives
Typically have influential roles in fashioning those strategy
components involving their areas of responsibility Managers of subsidiaries, divisions, geographic
undertaken by managers at all levels in the organizational hierarchy Pieces of strategy should fit together like the pieces of a puzzle Key approaches used to unify all strategic initiatives into a cohesive, company-wide action plan
Effectively communicate companys vision,
objectives, and major strategies to all personnel
regions, plants, and other important operating units (and, often, key employees with specialized expertise)
Some pieces of the strategy are best orchestrated by onthe-scene company personnel with detailed familiarity of the piece of the business they are in charge of running
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Diligently review lower-level strategies for
consistency and support of higher-level strategiesrevise as needed
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What Is a Strategic Plan?
Evaluating Performance and Making Corrective Adjustments
Phase 5
Crafting and implementing a strategy is not a
Its strategic vision and business mission
one-time exercise
Customer needs and competitive conditions change New opportunities appear; technology advances; any number of other outside developments occur One or more aspects of executing the strategy may not be going well New managers with different ideas take over Organizational learning occurs
A Companys Strategic Plan Consists of
Its strategy
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Its strategic and financial objectives
All these trigger a need for corrective actions
and adjustments on an as-needed basis
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Implementing and Executing Strategy
Phase 4
Operations-oriented activity aimed at
Monitoring, Evaluating, and Adjusting as Needed
Taking actions to adjust to the march of
performing core business activities in a strategy-supportive manner
Tougher and more time-consuming
events tends to result in one or more of the following
Altering long-term direction and/or
redefining the mission/vision
than crafting strategy
Key tasks include Improving the efficiency with which
the strategy is being executed
Raising, lowering, or changing
performance objectives
Modifying the strategy Improving strategy execution
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Showing measurable progress in achieving
both operating excellence and targeted results
What Does Implementing and Executing the Strategy Involve?
Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Instituting best practices and programs
Leading the Strategic Management Process
Diverse leadership challenges include Exerting take-charge leadership Being a spark plug for change and action Ramrodding things through Achieving results Leading the strategic management
for continuous improvement
Installing information, communication,
and operating systems
Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Exerting the leadership necessary to drive the
process can involve various styles and approaches
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process forward and keep improving
Being a hard-nosed authoritarian Being a perceptive listener Being a compromising decision maker Delegating authority to people closest to the action Being a coach Assuming a highly visible role in guiding the process Making brief ceremonial appearances
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Things a Chief Strategy Implementer Must Do to Be Successful
1. Stay on top of whats happening 2. Make sure company has a
good strategic plan
Role #3: Put Constructive Pressure on Company to Achieve Good Results
Successful leaders spend time Mobilizing organizational energy behind
3. Put constructive pressure on
company to achieve good results
Good strategy execution and Operating excellence
Nurturing a results-oriented work climate Promoting enabling cultural drivers
4. Push corrective actions to improve overall
strategic performance
Strong sense of involvement on part of company
personnel
5. Lead development of stronger core
competencies and competitive capabilities
Emphasis on individual initiative and creativity Respect for contributions of individuals and
groups
6. Display ethical integrity and lead social
responsibility initiatives
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Pride in doing things right
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Role #1: Stay on Top of Whats Happening
Develop a broad network of formal
Role #4: Push Corrective Actions to Improve Strategy-Making and Strategy-Execution
Requires deciding When adjustments are needed What adjustments to make Involves Adjusting long-term direction, objectives, and
strategy on an as-needed basis in response to unfolding events and changing circumstances
and informal sources of information
Talk with many people at all levels Be an avid practitioner of MBWA Observe situation firsthand Monitor operating results regularly Get feedback from customers Watch competitive reactions of rivals
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Promoting fresh initiatives to bring internal
activities and behavior into better alignment with strategy
Making changes to pick up the pace when
results fall short of performance targets
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Role #2: Make Sure Company Has a Good Strategic Plan
Two key responsibilities of CEO and top-
Role #5: Promote Stronger Core Competencies and Capabilities
Top management intervention is
level executives
Effectively communicate companys vision,
objectives, and major strategy components to down-the-line managers and key personnel
required to establish better or new
Resource strengths and competencies Competitive capabilities Senior managers must
Exercise due diligence in reviewing lower-level
strategies for consistency and support of higherlevel strategies
lead the effort because
Competencies reside in combined
efforts of different work groups and departments, thus requiring cross-functional collaboration
Effective leadership minimizes
potential for conflict between different levels in the strategy hierarchy
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Stronger competencies and capabilities
can lead to a competitive edge over rivals
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Role #6: Display Ethics Leadership and Lead Social Responsibility Initiatives
Set an excellent example in Displaying ethical behaviors Demonstrating character and
personal integrity in actions and decisions
Our ethics code is . . .
Key Responsibilities of Board Members
Be well informed about a companys performance Guide and judge CEO and other top executives Exhibit courage to curb inappropriate or unduly
risky management actions
Confirm that CEO is doing what
board expects Declare unequivocal support for high ethical
Provide insight and advice to management Be intensely involved in debating pros and cons
standards and expect all employees to conduct themselves in an ethical fashion
Encourage compliance and establish tough
of key actions and decisions
Board members have a very important oversight role in the strategy-making, strategy-executing process!
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consequences for unethical behavior
Corporate Governance: Strategic Role of a Board of Directors
Exercise strong oversight to ensure five
tasks of strategic management are executed to benefit
Shareholders or Stakeholders Make sure executive actions are not only
proper but also aligned with interests of stakeholders
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Obligations of a Board of Directors
Be inquiring critics and overseers Evaluate caliber of senior executives
strategy-making and strategy-executing skills Institute a compensation plan for top executives rewarding them for results that serve interests of
Stakeholders and Shareholders Oversee a companys
financial accounting and reporting practices
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