Chapter 2
1. The strategy formulation and
execution process
Crafting and executing strategy are at the core of managing a
business.
In Chapter 1 we read how strategy and strategic management is
a process, and that it is not a one-time event, it is something that
is done over and over.
While businesses may vary in how they formulate and direct their
strategic management activities, there is a common process
which businesses go through in crafting and executing their
strategy.
The managerial process of crafting and executing a company's
strategy is an ongoing, continuous process made up of five
interrelated and integrated stages:
1. Developing a strategic vision
2. Setting objectives
3. Crafting a strategy
4. Implementing and executing the chosen strategy
5. Evaluating and analysing the external environment and
the company's internal situation and performance
1.1 Developing a strategic vision, a
mission and core values
At the beginning of the strategy formulation and execution
process the senior managers in a company must first decide the
vision or future direction of the company. The strategic vision of
the company describes 'where we are going' - top management's
views about the company's direction and future product-
customer-market-technology focus. The strategic vision helps to
communicate to stakeholders 'where we are going', and helps to
direct the managers and employees in an organisation in a
common direction.
For a strategic vision to be a useful managerial tool, it must
provide understanding of what management whats the business
to look like and provide managers a reference point in making
strategic decisions. It needs to say something about how the
company's leaders intend to position the company beyond where
it is today.
There are a number of benefits that come from having a well
thought-out and strongly communicated strategic vision.
1. it crystallizes senior executives' own views about the
firm's long-term direction
2. it reduced the risk of rudderless (undirected) decision
making by management at all levels
3. it is a tool for winning the support of employees to
help make a vision a reality
4. it provides a beacon for lower-level managers in
forming departmental missions
5. it helps an organisation prepare for the future
Managers should also develop the mission statement, which
describes a company's present business and purpose - 'who we
are, what we do, and why we are here'. While the strategic vision
is about the future business scope, the mission statement is
about the present business and purpose.
The mission statement should include the following components:
(a) identifies the company's products and/or services, (b)
specifies the buyer needs that the company seeks to satisfy and
the customer groups or markets that it serves, and (c) gives the
company it's own identity.
While it seems straightforward that 'vision is about the future' and
'mission is about the present', these two terms are sometimes
confused or discussed differently in different textbooks. If you
take a look at the websites of some large companies, you might
also see that some companies use the words interchangeably.
Once we have the direction of the organisation clear, we then
develop values. Values, or core values as they are sometimes
called, provide guidelines surrounding the actions and
behaviour of managers and employees in conducting the business
and pursuing its strategic vision and mission. Values are the
beliefs, traits and behavioural norms of a business. The values of
the organisation should become ingrained in the corporate
culture, and guide the behaviour of employees. hewe
Investigate
Search on for the 'vision', 'mission statement' and 'core' values of th
different organisations on their company websites.
1. Does each organisation have a separate vision and mission statem
2. How would you rate the vision statements based on the character
outlined on the textbook?
3. Can you identify some common values between the 3 different
organisations? Do you think the companies actually operate by th
1.2 Setting objectives
Stage 2 of the Strategy Formulation and Execution Process is to
set objectives. Objectives are the results that management want
to achieve, they convert the strategic vision into specific
performance targets.
Objectives help us to break down the overall vision into smaller
pieces, which we can then measure and see if we are on the right
track. Objectives should be broken into performance targets at
all levels in an organisation - company wide, business level,
product lines, functional departments, and individual work units.
The objectives at each level contribute to meeting the overall
company objectives.
Well-stated objectives are quantifiable, or measurable, and
include a deadline for achievement. Commonly we refer to
objectives in regards to being SMART.
Managers should set two distinctive types of objectives: Financial
objectives and Strategic Objectives.
Financial Objectives communicate management's targets for
financial performance.
Strategic Objectives are related to a company's marketing
standing and competitive vitality.
It is important that managers develop both financial and strategic
objectives, as only one measure alone is not enough to provide
an accurate assessment of performance. For example, a firm
might show strong financial performance for a specific period, but
they may have lost market share or be competitively weak.
A company's financial objectives are 'lagging' indicators that
reflect the results of past decisions and organisational activities.
Strategic outcomes are 'leading' indicators of a company's future
financial performance and business prospects.
In measuring performance, companies often use a balanced
scorecard approach, which considers both financial outcomes
and strategic outcomes as more representative of overall
performance.
1.3 Crafting a strategy
The stage of crafting a strategy is when managers address all of
the 'how' questions, and choose between the various strategic
alternatives which are available. They choose how to attract and
please customers, how to compete against rivals, how to position
the company in the marketplace, how to respond to changes
economic and market conditions, how to manage each function
and department of the business, and how to achieve the
company's performance targets.
It is during this stage that managers come up with the 'game
plan' of satisfying customers, competing against rivals and being
profitable in the marketplace. There are many strategic options
that managers will choose from, and in choosing between the
options managers may need to take some risks.
As mentioned earlier, there are different ways that a company
may develop their strategy. It is recommended though that
managers from different levels of the organisation are involved,
as they can provide insights not considered by only the top
managers. By including managers or supervisors that are closer
to production or the final customers, they can provide advice or
suggestions about the likely implications of certain strategic
decisions.
Within a company there should also be different levels of
strategy, but they all contribute to the same overall strategy and
vision.
The corporate strategy is developed by the CEO
and senior executives in the organisation, and sets the game plan
for a company which is made up of multiple businesses. For
example, Alibaba has a number of businesses within the company
- alipay, taobao, ant financial, ele.me and so on. Alibaba has an
overall corporate strategy, and then a business strategy for
each individual business.
The business strategy is primarily concerned with
strengthening the company's market position and building
competitive advantage in a single-business company, or a single
business unit of a larger diversified multiple-business
corporation.
Function-area strategies are concerned with the
actions within particular functions or departments of a business.
For example, the product development strategy, human resource
strategy and so on.
Operating strategies concern the relatively narrow
strategic initiatives and approaches for managing key operating
units and specific operating activities.
The important thing to remember is that the strategies at all
levels of the company should align and fit together to allow the
company to achieve the overall corporate strategy.
Most of the topics we will cover in MGT382 relate to crafting the
strategy.
1.4 Implementing and executing the
chosen strategy
Implementing and executing the strategy is the most demanding
and time-consuming stage of the strategic management process.
However, implementing and executing the strategy are often
given the least focus in any strategic management subject. We
will look at strategy implementation in some detail in Chapter 10.
It is always easier to develop the plan than it is to actually do the
plan. I am not sure about you, but i make plans and develop
strategies all the time, but when it comes to implementing them,
thats when things change.
For example, i plan to get fit and lose weight. i set my objectives
of losing 5kg in 6 months. My chosen strategy to achieve this is to
eat healthy and go to the gym at least 4 days a week. But the
challenge comes in implementing the strategy, in actually doing
it. For the first few weeks i start well, i go to the gym as planned,
but then i get busy at work and by the time i should be going to
the gym i instead go home to rest, different excuses come up,
and before i know it i have stopped going to the gym at all.
The task of implementing and executing the strategy will often
require additional resources, change in processes or systems,
continuously analysing efficiency and effectiveness. Sometimes
there can be resistance from employees that are not eager to
change, as change often creates fear.
1.5 Evaluating performance and
initiating corrective adjustments
The fifth stage of the strategic management process is evaluating
performance and initiating corrective adjustments. We need to
assess how well the strategy is working and decide if changes
need to be made to the vision or mission, the objectives, the
strategy, or how the strategy is being implemented. If the
objectives and performance targets are not being met, it might
indicate a problem with the chosen strategy, or in the
implementation of the strategy. It could also indicate changes in
the external environment making the current strategy less
competitive. Managers need to decide whether to change the
strategy or change the implementation of the strategy.
It is not unusual for a company to find that one or more aspects of
the strategy are not going as well as expected. Successful
strategy execution involves constantly searching for ways to
improve, and then making corrective adjustments whenever and
wherever it is useful to do so.
Although this is the final stage in the strategic management
process, it is important to remember that the process is ongoing.
As changes occur in the external environment and internal
environments, strategies will need to evolve and adjust. At times,
companies will even make adjustments to their overall vision and
mission, and change direction in a significant way. More
commonly, companies will make incremental changes to their
strategy, or changes to the implementation of their strategy.
2. Corporate governance
The concept of corporate governance deals with the issue of
governing the strategic choices and actions of top management
within an organisation. In a basic sense, corporate governance is
'about managing top management" (De Witt & Meyer, 2005, p.
254). It involves checking that the senior executives pursue
strategies that align with the corporate mission, and behave in an
appropriate manner.
There are various governance systems which oversee the
decisions and actions of top management. The system which we
consider in this subject is the Board of Directors.
Although it is the top managers of the organisation that have the
lead responsibility for crafting and executing strategy, it is the
duty of the board of directors to exercise strong oversight and
see that the five tasks of strategic management are done in a
manner that benefits shareholders or stakeholders. In effect, the
Board of Directors supervise top management and the CEO.
As outlined in Gamble, Peteraf and Thompson (2019), the board
of directors has four important corporate governance obligations:
10. Oversee the company's financial accounting and financial
reporting activities
11. Diligently critique and oversee the company's direction,
strategy and business approaches
12. Evaluate the caliber if senior executives' strategy formulation
and strategy execution skills
13. Institute a compensation plan for top executives that rewards
them for actions and results that serve shareholder interests.
In recent years, many Boards of Directors have been
criticised and accused of not performing their role adequately. At
times top executives have been rewarded for short-term
performance improvements, which have actually caused damage
to long-term sustainability. As the board has the role of
supervising top management and ensuring decisions and actions
result in the best outcomes for shareholders, they need to be
strong.
Investigate
1. Review the 'Corporate Governance' of Nestle and Alibaba through
the below links. What do each of them tell us about the
importance and role of corporate governance?
https://www.nestle.com/investors/corporate-governance
https://www.alibabagroup.com/en/ir/governance
Definitions
Strategic Vision – Describes 'where we are going'.
Mission Statement - Describes 'who we are, what
we do, and why we are here'
Values - beliefs, traits, and behavioural norms that
are shared within a company
