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““Without a strategy the Without a strategy the
organization is like a organization is like a
ship without a rudder.”ship without a rudder.”
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Sun Tzu*Sun Tzu* on Strategy on StrategySun Tzu*Sun Tzu* on Strategy on Strategy
“Know your enemy (rival), know yourself,… and your victory will not be threatened.
Know the terrain, know the weather,… and your victory will be complete.”
* Chinese Strategist
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““If you don’t know If you don’t know
where to go, you won’t where to go, you won’t
get there.”get there.”
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The Three Big Strategic The Three Big Strategic QuestionsQuestions
The Three Big Strategic The Three Big Strategic QuestionsQuestions
1. Where is the company now?
2. Where does the company want to go?
3. How will the company get there?
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This session’s RoadmapThis session’s RoadmapThis session’s RoadmapThis session’s Roadmap
What Is Strategy?
The Relationship Between a Company’s Strategy and Its Business Model
What Makes a Strategy a Winner?
Why Are Crafting and Executing Strategy Important?
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What Is Strategy?What Is Strategy?What Is Strategy?What Is Strategy?
Embodies a firm’s objectives and reasons for being in business
It is a firm’s vision of its future
It is an explicit statement that provides direction for coordinated business decisions in marketing and other functional areas
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What Is Strategy?What Is Strategy?What Is Strategy?What Is Strategy?
Consists of the combination of competitive moves and business approaches used by managers to run the company
Management’s “game plan” to
Attract and please customers
Stake out a market position
Compete successfully
Grow the business
Achieve targeted objectives
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4 + 2 dimensions of 4 + 2 dimensions of StrategyStrategy
4 + 2 dimensions of 4 + 2 dimensions of StrategyStrategy
1. The Product-Market in which the business will compete
2. The level of Investment in a strategic unit
3. Functional area strategies required for competing in the chosen product market
4. Underlying Strategic Assets & Skills that give the firm a sustainable competitive advantage
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Dimensions for multi-Dimensions for multi-business firmbusiness firm
Dimensions for multi-Dimensions for multi-business firmbusiness firm
1. Allocation of firm’s resources across business units
2. How to create Synergies across the businesses?
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What Are a Company’s What Are a Company’s Strategic Choices?Strategic Choices?
What Are a Company’s What Are a Company’s Strategic Choices?Strategic Choices?
Trial-and-error organizational learning about
What has worked and
What has not worked
Management’s appetite for taking risks
Managerial analysis and strategic thinking about how best to proceed, given prevailing circumstances
Strategic choices are based on . . .
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Striving forStriving forCompetitive AdvantageCompetitive Advantage
Striving forStriving forCompetitive AdvantageCompetitive Advantage
To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at eitherProviding a distinctive product or service orDeveloping competitive capabilities rivals can not
matchAchieving a sustainable competitive advantage
greatly enhances a company’s prospects forWinning in the marketplace andRealizing above-average profits
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Strategic Approaches to Strategic Approaches to Building Competitive Building Competitive
AdvantageAdvantage
Strategic Approaches to Strategic Approaches to Building Competitive Building Competitive
AdvantageAdvantage Strive to be the industry’s low-cost provider
Outcompete rivals on a key differentiating feature
Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers
Develop expertise, resource strengths, and capabilities not easily imitated by rivals
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Examples: Strategies BasedExamples: Strategies Basedon Distinctive Capabilities on Distinctive Capabilities Examples: Strategies BasedExamples: Strategies Basedon Distinctive Capabilities on Distinctive Capabilities
Sophisticated distribution systems – Wal-Mart
Product innovation capabilities – 3M Corporation
Complex technological process – Michelin
Defect-free manufacturing – Toyota and Honda
Specialized marketing and merchandising know-how – Coca-Cola
Global sales and distribution capability – Black & Decker
Superior e-commerce capabilities – Dell Computer
Personalized customer service – Ritz Carlton hotels
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A Company’s Strategy Is A Company’s Strategy Is Partly Proactive and Partly Partly Proactive and Partly
Reactive Reactive
A Company’s Strategy Is A Company’s Strategy Is Partly Proactive and Partly Partly Proactive and Partly
Reactive Reactive
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A company’s strategy is a work in progress
Changes may be necessary to react to
Fresh moves of competitors
Evolving customer preferences
Technological breakthroughs
Shifting market conditions
Crisis situations
Strategies EvolveStrategies EvolveStrategies EvolveStrategies Evolve
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Crafting Strategy Is anCrafting Strategy Is anExercise in Exercise in
EntrepreneurshipEntrepreneurship Strategy-making is a market-driven activity that involves
Studying market trends and competitors’ actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firm’s market position via acquisitions or new product
introductions Pursuing ways to strengthen firm’s competitive capabilities Proactively searching out opportunities to
Do new things or Do existing things in new or better ways
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Ethical and moral standards go beyond LAW, to issues of
Duty and “right” vs. “wrong”
Ethical and moral standards address“What is the right thing to do?”
Two criteria of an ethical strategy:
Avoids actions and behaviors that cross the line from “can do” to “should not do’ and “unsavory” or “shady” and
Allows management to fulfill its ethical duties to all stakeholders
Linking Strategy With Linking Strategy With EthicsEthics
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What Is a Business What Is a Business Model? Model?
What Is a Business What Is a Business Model? Model?
A business model addresses “How do we make money in this business?” Is the strategy capable of delivering
good bottom-line results?
Do the revenue-cost-profit economicsof the strategy make good business sense? Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins Do resulting earnings streams and ROI indicate the strategy makes
sense and the company has a viable business model for making money?
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Strategy - Deals with a company’s competitive initiatives and business approaches
Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable
Relationship Between Relationship Between Strategy and Business Strategy and Business
ModelModel
Relationship Between Relationship Between Strategy and Business Strategy and Business
ModelModel
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Microsoft’sMicrosoft’sBusiness ModelBusiness ModelMicrosoft’sMicrosoft’sBusiness ModelBusiness Model
Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users
Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales
Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales
Most costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit
Most costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit
Provide technical support to users at no costProvide technical support to users at no cost
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Redhat Linux’sRedhat Linux’sBusiness ModelBusiness ModelRedhat Linux’sRedhat Linux’sBusiness ModelBusiness Model
Rely on collaborative efforts of volunteer programmers to create the software
Rely on collaborative efforts of volunteer programmers to create the software
Add value to free, downloadable version of Linux by offering users Red Hat Linux systems containing upgraded and tested features
Add value to free, downloadable version of Linux by offering users Red Hat Linux systems containing upgraded and tested features
Charge a modest fee to those preferring to subscribe to Red Hat Linux version
Charge a modest fee to those preferring to subscribe to Red Hat Linux version
Release updated versions of Red Hat Linux every 4-6 months to small users and every 12-18 months to corporate users
Release updated versions of Red Hat Linux every 4-6 months to small users and every 12-18 months to corporate users
Make source code open and available to all usersMake source code open and available to all users
Make money by providing fees-based training, consulting, support, engineering, and content management services
Make money by providing fees-based training, consulting, support, engineering, and content management services
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Good Strategy + Good Strategy Execution Good Strategy + Good Strategy Execution = Good Management= Good Management
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Excellent execution of an excellent strategy is the best test of managerial
excellence -- and the most reliable recipe for winning in the marketplace!
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The Managerial Process of The Managerial Process of Crafting and Executing Crafting and Executing
Strategy Strategy
The Managerial Process of The Managerial Process of Crafting and Executing Crafting and Executing
Strategy Strategy
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““If you don’t know If you don’t know
where you are going, where you are going,
any road will take any road will take
you there.”you there.”The Koran
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““Management’s job is Management’s job is not to see the company not to see the company as it is . . . but as it can as it is . . . but as it can become.”become.”
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This session’s RoadmapThis session’s RoadmapThis session’s RoadmapThis session’s Roadmap
What Does the Process of Crafting and Executing Strategy Entail? Developing a Strategic Vision: Phase 1 of the Strategy-Making, Strategy-
Executing Process Setting Objectives: Phase 2 of the Strategy-Making, Strategy-Executing
Process Crafting a Strategy: Phase 3 of the Strategy-Making, Strategy-Executing
Process Implementing and Executing the Strategy: Phase 4 of the Strategy-
Making, Strategy-Executing Process Initiating Corrective Adjustments: Phase 5 of the Strategy-Making,
Strategy-Executing Process Corporate Governance: The Role of the Board of Directors in the Strategy-
Making, Strategy-Executing Process
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Strategy-Making, Strategy-Strategy-Making, Strategy-Executing ProcessExecuting Process
Strategy-Making, Strategy-Strategy-Making, Strategy-Executing ProcessExecuting Process
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A strategic vision is a road map showing the route a company intends to take in developing and strengthening its business. It paints a picture of a company’s destination and provides a rationale for going there.
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Developing a Strategic Developing a Strategic VisionVision
Developing a Strategic Developing a Strategic VisionVision
Involves thinking strategically aboutFuture direction of company
Changes in company’s product-market-customer-technology to improve Current market position
Future prospects
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Delineates management’s aspirations for the business – Charts a strategic path for the future
“Where are we going?” Steers energies of employees
in a common direction Moulds organizational identity Is distinctive and specific to
a particular organization Avoids use of generic language Triggers strong emotions Is challenging, uncomfortable, nail biting
Key Elements of Strategic Key Elements of Strategic VisionVision
Key Elements of Strategic Key Elements of Strategic VisionVision
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Exelon’sExelon’sStrategic VisionStrategic Vision
Exelon’sExelon’sStrategic VisionStrategic Vision
One Company, One Vision.Exelon strives to build exceptional value - by
becoming the best and most consistently profitable electricity and gas company in the United States.
To succeed, we must . . .
Live up to our commitments . . .
Perform at world-class levels . . .
Invest in our consolidating industry . . .
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Examples of Strategic Examples of Strategic VisionsVisions
Examples of Strategic Examples of Strategic VisionsVisions
Red Hat LinuxTo extend our position as the most trusted Linux and open
source provider to the enterprise. We intend to grow the market for Linux through a complete range of enterprise Red
Hat Linux software, a powerful Internet management platform, and associated support and services.
Wells FargoWe want to satisfy all of our customers’ financial needs,
help them success financially, be the premier providerof financial services in every one of our markets, and
be known as one of America’s great companies.
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Examples of Strategic Examples of Strategic VisionsVisions
Examples of Strategic Examples of Strategic VisionsVisions
WyethOur vision is to lead the way to a healthier world. By
carrying out this vision at every level of our organization,we will be recognized by our employees, customers, and shareholders as the best pharmaceutical company in the
world, resulting in value for all. We will achieve this by: Leading the world in innovation by linking pharmaceutical,
biotech, and vaccines technologies Making quality, integrity, and excellence hallmarks
of the way we do business Attracting, developing, and motivating the best people Continually growing improving our business
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Examples of Strategic Examples of Strategic VisionsVisions
Examples of Strategic Examples of Strategic VisionsVisions
Dental Products Division of 3M CorporationBecome THE supplier of choice to the global dental professional
markets, providing world-class quality and innovative products. [All employees of the division wear badges bearing these words, and whenever a new product or
business procedure is being considered, management asks “Is this representative of THE leading dental company?”]
NikeTo bring innovation inspiration to every athlete in the world.
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Examples of Strategic Examples of Strategic VisionsVisions
Examples of Strategic Examples of Strategic VisionsVisions
IntelOur vision: Getting to a billion connected computers
worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the
building block supplier to the Internet economy and spurring efforts to make the Internet more useful.
Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet . . . We have seen only the early stages of deployment of
digital technologies.
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Examples of Strategic Examples of Strategic VisionsVisions
Examples of Strategic Examples of Strategic VisionsVisions
HeinzOur vision, quite simply, is to be the world’s premier food company, offering nutritious, superior tasting foods to people everywhere. Being the premier food company does not mean being the biggest but it does mean being the best in terms of
consumer value, customer service, employee talent, and consistent and predictable growth.
General ElectricWe will become number one or number two in every market we
serve, and revolutionize this company to havethe speed and agility of a small enterprise.
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The mission statement of most companies focuses on current business activities - “who we are and what we do”
Current product and service offerings
Customer needs being served
Technologicaland businesscapabilities
A strategic vision concerns a firm’s future business path - “where we are going”
Markets to be pursued Future technology-product-
customer focus Kind of company
management is trying to create
Strategic Vision vs. Strategic Vision vs. MissionMission
Strategic Vision vs. Strategic Vision vs. MissionMission
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Defines current business activities, highlighting boundaries of current business Present products and services Types of customers served
Conveys Who we are, What we do, and Why we are here
A company’s mission is not to make a profit! Its true mission is its answer to “What will we do to make a profit?” Making profit is an objective or intended outcome!
Characteristics ofCharacteristics ofa Mission Statementa Mission Statement
Characteristics ofCharacteristics ofa Mission Statementa Mission Statement
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Key Elements ofKey Elements ofa Mission Statementa Mission Statement
Key Elements ofKey Elements ofa Mission Statementa Mission Statement
Three factors to consider
Customer needs –What is being satisfied
Customer groups –Who is being satisfied
Technologies/resources/business approaches used and activities performed –How customer needs are satisfied
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Trader Joe’sTrader Joe’sMission StatementMission Statement
Trader Joe’sTrader Joe’sMission StatementMission Statement
To give our customers the best food and beverage values that they can find anywhere and to provide them with the information required for informed
buying decisions. We provide these with a dedication to the highest quality of customer satisfaction
delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.
(a unique grocery store chain)
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A statement of values is often provided to guide the company’s pursuit of its vision
Values – Beliefs, business principles, and ways of doing things that are incorporated into Company’s operations Behavior of workforce
Values statements Contain between four and eight values Are ideally tightly connected to and reinforce company’s vision,
strategy, and operating practices
Values
Values
Linking the Vision Linking the Vision With Company ValuesWith Company Values
Linking the Vision Linking the Vision With Company ValuesWith Company Values
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Example: Company Example: Company ValuesValues
Home Depot
Creating shareholder value
Building strong relationships
Entrepreneurial spirit Excellent customer
service
Giving back to the community
Respect for all people
Doing the right thing
Taking care of people
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Du Pont
Safety Ethics
Environmental stewardship
Respect for people
Example: Company Example: Company ValuesValues
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An exciting, inspirational vision Contains memorable language Clearly maps company’s future direction Challenges and motivates workforce Provokes emotion and enthusiasm
Winning support for the vision involves Putting “where we are going and why” in writing Distributing the statement organization-wide Having executives explain the vision
to the workforce
Communicating theCommunicating theStrategic VisionStrategic Vision
Communicating theCommunicating theStrategic VisionStrategic Vision
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Examples: Vision Examples: Vision SlogansSlogans
Examples: Vision Examples: Vision SlogansSlogans
Levi Strauss & Company“We will clothe the world by marketing the most appealing and
widely worn casual clothing in the world.”
Microsoft Corporation“Empower people through great software—any time, any
place, and on any device.”
Mayo Clinic“The best care to every patient every day.”
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Examples: Vision Examples: Vision SlogansSlogans
Examples: Vision Examples: Vision SlogansSlogans
Scotland Yard“To make London the safest major city in the world.”
Greenpeace“To halt environmental abuse andpromote environmental solutions.”
Charles Schwab“To provide customers with the most useful and
ethical financial services in the world.”
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Overcoming Resistance toOvercoming Resistance toa New Strategic Visiona New Strategic Vision
Overcoming Resistance toOvercoming Resistance toa New Strategic Visiona 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 progressreports as events unfold
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Strategic Inflection Strategic Inflection PointsPoints
Strategic Inflection Strategic Inflection PointsPoints
.. when companies come to a major fork in the road:
.. market conditions are changing rapidly
.. the strategy simply runs out of stream
.. actions of competitors block success of co’s strategic course
Need for critical decisions…:
New directional path
A major new strategy
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Intel’s Intel’s “Strategic Inflection “Strategic Inflection
Points”Points”
Intel’s Intel’s “Strategic Inflection “Strategic Inflection
Points”Points” Prior to mid-1980s
Focus on memory chips Starting in mid-1980s
Abandon chip business (lower-cost Japanese cos taking over market) and Become preeminent supplier of microprocessors to PC
industry Make PC central appliance in workplace and home Be undisputed leader in driving PC technology forward
1998Shift focus from PC technology to becoming preeminent
building block supplier to Internet economy
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Crystallizes an organization’s long-term direction
Reduces risk of rudderless decision-making
Assists in gaining support oforganizational members forchanges to make the vision a reality
Helps keep strategy-related actionsof managers on common path
Helps an organization prepare for the future
Payoffs of aPayoffs of aClear Strategic VisionClear Strategic Vision
Payoffs of aPayoffs of aClear Strategic VisionClear Strategic Vision
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Setting ObjectivesSetting ObjectivesSetting ObjectivesSetting Objectives
Purpose of setting objectives Converts vision into specific performance targets Creates yardsticks to track performance Pushes firm to be inventive, intentional, and
focused in its actions
Setting challenging, achievableobjectives guards against Complacency Internal confusion Status quo performance
Phase 2 of the Strategy-Making ProcessPhase 2 of the Strategy-Making Process
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Characteristics of Characteristics of ObjectivesObjectives
Characteristics of Characteristics of ObjectivesObjectives
Represent commitment to achieve specific performance targets
Spell-out how much of what kindof performance by when
Well-stated objectives are Quantifiable
Measurable
Contain a deadline for achievement
Establishing objectives converts thevision into concrete performance outcomes!
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Outcomes focusedon improving financial performance
Outcomes focused on improving long-term competitive business position
Financial Objectives Strategic Objectives
$
Types of Objectives Types of Objectives RequiredRequired
Types of Objectives Types of Objectives RequiredRequired
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X % increase in annual revenuesX % increase annually in after-tax profitsX % increase annually in earnings per shareAnnual dividend increases of X %Profit margins of X %X % return on capital employed (ROCE) Increased shareholder valueStrong bond and credit ratingsSufficient internal cash flows to fund 100% of new capital
investmentStable earnings during periods of recession
Examples: Examples: FinancialFinancial
ObjectivesObjectives
Examples: Examples: FinancialFinancial
ObjectivesObjectives
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Winning an X % market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or
customer service Deriving X % of revenues from sale of new products introduced in past
5 years Achieving technological leadership Having better product selection than rivals Strengthening company’s brand name appeal Having stronger national or global sales and distribution capabilities
than rivals Consistently getting new or improved products to market ahead of
rivals
Examples: Examples: StrategicStrategic
ObjectivesObjectives
Examples: Examples: StrategicStrategic
ObjectivesObjectives
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Unilver’s Strategic and Unilver’s Strategic and Financial Objectives Financial Objectives
Unilver’s Strategic and Unilver’s Strategic and Financial Objectives Financial Objectives
Grow annual revenues by 5-6% annuallyIncrease operating profit margins from 11% to 16%
within 5 yearsTrim company’s 1200 food, household, and personal
care products down to 400 core brandsFocus sales and marketing efforts on those brands with
potential to become respected,market-leading global brands
Streamline company’s supply chain
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The Kroger Company’s The Kroger Company’s Strategic and Financial Strategic and Financial
Objectives Objectives
The Kroger Company’s The Kroger Company’s Strategic and Financial Strategic and Financial
Objectives Objectives
Reduce our operating and administrativecost by $500 million by year-end 2003
Leverage our $51 billion size to achieve greater economies of scale
Reinvest in our core business toincrease sales and market share
Grow earnings per share by 10-12% in 2002-2003 and by 13-15% annually starting in 2004.
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Seagate Technology’s Seagate Technology’s Strategic Objectives Strategic Objectives Seagate Technology’s Seagate Technology’s Strategic Objectives Strategic Objectives
Solidify the company’s No. 1 position inthe overall market for hard-disk drives
Get more Seagate drives into popular consumer electronics products (i.e. video recorders)
Take share away from Western Digital in providing disk drives for Microsoft’s Xbox
Capture a 10% share of the market for 2.5-inch hard drives for notebook computers by 2004
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Heinz’s Financial andHeinz’s Financial andStrategic Objectives Strategic Objectives Heinz’s Financial andHeinz’s Financial andStrategic Objectives Strategic Objectives
Achieve earnings per share in the rangeof $2.15-$2.25 in 2004
Increase operating cash flow by 45% to $750 million Reduce net debt by $1.3 billion in 2003 and further strengthen the
company balance sheet in 2004 Continue to introduce new and improved food products Remove the clutter in the company product offerings by reducing
the number of SKUs Increase spending on trade promotion and advertising by $200
million to strengthen the recognition and market shares of the company’s core brands
Divest non-core underperforming product lines
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DuPont’s Financial andDuPont’s Financial andStrategic ObjectivesStrategic Objectives
DuPont’s Financial andDuPont’s Financial andStrategic ObjectivesStrategic Objectives
To achieve annual revenue growth of 5 to 6% and annual earnings-per-share growth averaging 10%
Grow per-share profits faster than revenues by
(a) Increasing productivity,
(b) Selling enough new products each year that average prices and average margins rise, and
(c) Using surplus cash to buy back shares Sell the company’s low-margin textiles and interiors
division (with sales of $6.6 billion and operating profits of only $114 million)
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3M Corporation’s 3M Corporation’s FinancialFinancial
and Strategic Objectivesand Strategic Objectives
3M Corporation’s 3M Corporation’s FinancialFinancial
and Strategic Objectivesand Strategic Objectives
To achieve annual growth in earnings per share of 10% or better, on average
A return on stockholders’ equityof 20-25%
A return on capital employedof 27% or better
Have at least 30% of sales come from products introduced in the past four years
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Strategic Performance Strategic Performance Fosters Better Financial Fosters Better Financial
PerformancePerformance
Strategic Performance Strategic Performance Fosters Better Financial Fosters Better Financial
PerformancePerformance A company’s achievement of satisfactory financial performance, by itself,
is not enough
Financial performance measures are “lagging indicators” reflecting results of past decisions and actions
Of equal or greater importance is a company’s performance on measures of its strategic well-being —its competitiveness and market position
Strategic performance measures are “leading indicators” of a company’s future financial performance and business prospects
Achievement of strategic performance targets Signals growing competitiveness
Signals growing strength in the marketplace
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Balanced Scorecard Approach Balanced Scorecard Approach – Strategic – Strategic andand Financial Financial
ObjectivesObjectives
Balanced Scorecard Approach Balanced Scorecard Approach – Strategic – Strategic andand Financial Financial
ObjectivesObjectives Balanced scorecard approach for measuring
company performance requires both – Financial objectives Strategic objectives
Emphasis on financial performance may assumepriority over strategic performance when company’s Financial performance is dismal and Survival is threatened
Otherwise, management is advised to put more emphasis on achieving strategic objectives
The surest path to sustained future profitabilityyear after year is to relentlessly pursue strategic outcomes
that strengthen a company’s business position andgive it a growing competitive advantage over rivals!
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Short-Term vs.Short-Term vs.Long-Term ObjectivesLong-Term Objectives
Short-Term vs.Short-Term vs.Long-Term ObjectivesLong-Term Objectives
Short-term objectives
Targets to be achieved soon
Milestones or stair steps for reaching long-range performance
Long-term objectives
Targets to be achieved within3 to 5 years
Prompt actions now that willpermit reaching targetedlong-range performance later
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A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its
competitive actions andenergies on achieving that objective!
Concept of Strategic Concept of Strategic IntentIntent
Concept of Strategic Concept of Strategic IntentIntent
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Characteristics ofCharacteristics ofStrategic IntentStrategic Intent
Characteristics ofCharacteristics ofStrategic IntentStrategic Intent
Indicates firm’s intent to making quantam gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against long odds
Involves establishing a grandiose performance target that is out of proportion to its immediate capabilities and market position but then devoting the company’sfull resources and energies to achieving the target over time
Signals relentless commitment toachieving a particular market position and competitive standing
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1. First, establish organization-wide objectives and performance targets
2. Next, set business andproduct line objectives
3. Then, establish functionaland departmental objectives
4. Individual objectives are established last
Objectives Are NeededObjectives Are Neededat All Levelsat All Levels
Objectives Are NeededObjectives Are Neededat All Levelsat All Levels
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Importance ofImportance ofTop-Down ObjectivesTop-Down Objectives
Importance ofImportance ofTop-Down ObjectivesTop-Down Objectives
Guide objective-setting and strategy-making at lower levels
Ensures financial and strategic performance targets for all business units, divisions, and departments are directly connected to achieving company-wide objectives
Integration of objectives has two advantages
Helps produce cohesion among objectives andstrategies of different parts of organization
Helps unify internal efforts to move acompany along the chosen strategic path
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Crafting a StrategyCrafting a StrategyCrafting a StrategyCrafting a Strategy
Strategy-making involves entrepreneurship –searching for opportunities
To do new things or
To do existing things in new or better ways
Strategizing involves
Picking up on happenings in the external environment and
Steering company activities in new directions dictated by shifting market conditions
Phase 3 of the Strategy-Making ProcessPhase 3 of the Strategy-Making Process
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Activities Involved inActivities Involved inCrafting a StrategyCrafting a Strategy
Activities Involved inActivities Involved inCrafting a StrategyCrafting a Strategy
Studying market trends and actions of competitors
Listening to customers, anticipating their changing needs
Scrutinizing business possibilitiesbased on new technology
Building firm’s market positionvia acquisitions or new products
Pursuing ways to strengthenfirm’s competitive capabilities
Our strategy will be . . .
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Who Participates in Who Participates in CraftingCrafting
a Company’s Strategy?a Company’s Strategy?
Who Participates in Who Participates in CraftingCrafting
a Company’s Strategy?a Company’s Strategy? Chief executive officer - CEO
Senior corporate executives
Chief financial officer - CFO
Managers of business divisions andmajor product lines
Key VPs for production, marketing, human resources, and other functional departments
Every company manager has a strategy-making,strategy-executing role – ranging from minor to major –
for the area he or she heads!
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Strategizing: An Strategizing: An IndividualIndividual
or Team Responsibility? or Team Responsibility?
Strategizing: An Strategizing: An IndividualIndividual
or Team Responsibility? or Team Responsibility? Teams are increasingly used because
Finding market- and customer-driven solutions is necessary
Complex strategic issues cut across functional areas and departmental units
Ideas of people with differentbackgrounds and experiences strengthen strategizing effort
Groups charged with crafting thestrategy often include the peoplecharged with implementing it
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Fig. 2.2: A Company’s Strategy-Making Fig. 2.2: A Company’s Strategy-Making HierarchyHierarchy
Fig. 2.2: A Company’s Strategy-Making Fig. 2.2: A Company’s Strategy-Making HierarchyHierarchy
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Levels of Strategy-MakingLevels of Strategy-Makingin a Diversified Companyin a Diversified CompanyLevels of Strategy-MakingLevels of Strategy-Makingin a Diversified Companyin a Diversified Company
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Business-Level Managers
Functional Managers
OperatingManagers
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Levels of Strategy-Making Levels of Strategy-Making inin
a Single-Business Companya Single-Business Company
Levels of Strategy-Making Levels of Strategy-Making inin
a Single-Business Companya Single-Business Company
Business Strategy
Two-Way Influence
Functional Strategies
Operating Strategies
Business-Level Managers
OperatingManagers
Functional Managers
Two-Way Influence
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Tasks of Corporate Tasks of Corporate StrategyStrategy
Tasks of Corporate Tasks of Corporate StrategyStrategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business synergies to provide1 + 1 = 3 effects!
Establishing investment priorities and steering corporate resources into the most attractive businesses
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Initiating approaches to produce successful performance in a specific business
Crafting competitive moves to build sustainable competitive advantage
Developing competitively valuablecompetencies and capabilities
Uniting strategic activities of functional areas
Gaining approval of business strategies by corporate-level officers and directors
Tasks of Business Tasks of Business StrategyStrategy
Tasks of Business Tasks of Business StrategyStrategy
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Game plan for a strategically-relevantfunction, activity, or business process
Detail how key activitieswill be managed
Provide support forbusiness strategy
Specify how functional objectivesare to be achieved
Tasks of Functional Tasks of Functional StrategiesStrategies
Tasks of Functional Tasks of Functional StrategiesStrategies
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Tasks of Operating Tasks of Operating StrategiesStrategies
Tasks of Operating Tasks of Operating StrategiesStrategies
Concern narrower strategies formanaging grassroots activities andstrategically-relevant operating units
Add detail to businessand functional strategies
Delegation of responsibilityto frontline managers
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Uniting the Company’sUniting the Company’sStrategy-Making EffortStrategy-Making EffortUniting the Company’sUniting the Company’sStrategy-Making EffortStrategy-Making Effort
A firm’s strategy is really a collection of initiatives undertaken by managers at all levels in the organizational hierarchy
All the various strategic initiatives must be unified intoa cohesive, company-wide action plan
Pieces of strategy should fittogether like the pieces of a puzzle
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Its strategic vision and business mission
Its strategy
Its strategic andfinancial objectives
What Is a Strategic What Is a Strategic Plan?Plan?
What Is a Strategic What Is a Strategic Plan?Plan?
A Company’s
Strategic Plan
Consists of
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Action-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive manner
Tougher and more time-consumingthan crafting strategy
Key tasks include
Improving efficiency of the strategy being executed
Showing measurable progress in achieving targeted results
Phase 4 of the Strategy-Making ProcessPhase 4 of the Strategy-Making Process
Implementing and Executing Implementing and Executing StrategyStrategy
Implementing and Executing Implementing and Executing StrategyStrategy
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Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Instituting best practices and programs 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 forward and
keep improving
What Does Strategy What Does Strategy Implementation Involve?Implementation Involve?
What Does Strategy What Does Strategy Implementation Involve?Implementation Involve?
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Characteristics of Good Characteristics of Good Strategy ExecutionStrategy Execution
Characteristics of Good Characteristics of Good Strategy ExecutionStrategy Execution
Involves creating strong “fits” between strategy and
Organizational capabilities
Reward structure
Internal operating systems
Organization’s work climate and culture
The stronger the “fits” the
Better the execution
Higher a company’s odds of achieving its performance targets
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Tasks of crafting and implementing the strategy are not a 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 thestrategy may not be going well
New managers with different ideas take over Organizational learning occurs
All these trigger the need for corrective actions and adjustments on an as-needed basis
Phase 4 of the Strategy-Making ProcessPhase 4 of the Strategy-Making Process
Evaluating Performance andEvaluating Performance andMaking Corrective Making Corrective
AdjustmentsAdjustments
Evaluating Performance andEvaluating Performance andMaking Corrective Making Corrective
AdjustmentsAdjustments
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Monitoring, Evaluating, Monitoring, Evaluating, and and
Adjusting as NeededAdjusting as Needed
Monitoring, Evaluating, Monitoring, Evaluating, and and
Adjusting as NeededAdjusting as Needed Taking actions to adjust to the march of events tends to result
in one or more of the following
Altering long-term direction and/orredefining the mission/vision
Raising, lowering, or changingperformance objectives
Modifying the strategy
Improving strategy execution
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Corporate Governance: Corporate Governance: Strategic Role of a Board of Strategic Role of a Board of
Directors Directors
Corporate Governance: Corporate Governance: Strategic Role of a Board of Strategic Role of a Board of
Directors Directors Exercise strong oversight to ensure the 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 aObligations of aBoard of DirectorsBoard of Directors
Obligations of aObligations of aBoard of DirectorsBoard 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 forresults that serve interests of Stakeholders and Shareholders
Have courage to intervene when things are not going well or to rein in a CEO who steps “out of bounds”
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Good CorporateGood CorporateGovernance MattersGovernance Matters
Good CorporateGood CorporateGovernance MattersGovernance Matters
The whole fabric of effective corporate governance is undermined when boards of directors shirk their responsibility to maintain ultimate control over Company’s strategic direction, Major elements of its strategy, and Business approaches management is using to implement and execute
the strategy Board members are obligated to rein in a CEO who oversteps the
bounds of sound business principles and ethical behavior A rubber stamp board abdicates its responsibility to shareholders
Boards of directors have a very important oversight role inthe strategy-making, strategy-executing process!
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