ch-02 crafting and executing strategy

7/27/2019 Ch-02 Crafting and Executing Strategy

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McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2: Leading the

Process of Crafting and

Executing Strategy

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University


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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 onthe entrepreneurial talents of managers at all organizationallevels.

4. Understand why the strategic initiatives taken at variousorganizational levels must be tightly coordinated to achievecompanywide performance targets.

5. Become aware of what a company must do to achieve operatingexcellence 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 drivestrategy execution forward.

8. Become aware of the role and responsibility of a companysboard of directors in overseeing the strategic management

process.


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Chapter Roadmap

What Does the Strategy-Making, Strategy-Executingprocess 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

Corrective Adjustments Leading the Strategic Management Process

Corporate Governance: The Role of the Board of

Directors in the Strategy-Making, Strategy-Executing

Process


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Figure 2.1: The Strategy-Making, Strategy-Executing Process

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Developing a Strategic Vision

Involves thinking strategically about

Future direction of company

Changes in companys

product/market/customer technology to improve

Current market position

Future prospects

Phase 1

A strategic vis iondescribes the route a companyintends to take in developing and strengtheningits business. It lays out the companys strategic

course in preparing for the future.


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Key Elements of a Strategic Vision

Delineates managements aspirations for thebusiness

Provides a panoramic view of where we are going

Charts a strategic path

Is dis t inct iveand speci f ictoa particular organization

Avoids use of generic language thatis dull and boring and that couldapply to most any company

Captures the emotions ofemployees and steers themin a common direction

Is challenging and a bit beyond a

companys immediate reach


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Role of a Strategic Vision

A well-conceived, well-communicated visionfunctions as a valuable managerial tool to

Give the organization a sense of direction, moldorganizational identity, and create a commit tedenterprise

Illuminate the companys directional path

Provide managers with a reference point toMake strategic decisions

Translate the vision into hard-edged

objectives and strategies Prepare the company for the future

A strategic vision exists only as words and has noorganizational impact unless and un t i l i twins the commitmentof com pany personneland energizes them to actin ways that

move the company along the intended strategic path!


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Table 2.2: Characteristics of an Effectively Worded Vision Statement

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Table 2.3: Common Shortcomings in Company Vision Statements

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Strategic Vision vs. Mission

A strategic vis ionconcerns a firms fu ture

business path - where

we are going

Markets to be pursued

Future product/market/

customer/technology focus

Kind of company

management istrying to create

A companys miss ionstatementtypically

focuses on its present

business purpose - who

we are and what we doCurrent product and

service offerings

Customer needs and

customer groups being

served

Geographic

coverage

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Characteristics of a Mission Statement

Identifies boundar iesof a companys currentbusiness and says something about

Present products and services

Types of customers served

Geographic coverage

Conveys

Whowe are,

Whatwe do, and

Whywe are hereA good mission statement describes a companys business

makeup and purposein language speci f ic enoug hto give

the company i tsown ident i tyand dis t inguish i t f rom

other enterpr isesin the same or other industries!


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Key Elements of aMission Statement

A complete mission statement should cover threethings:

Customer needs being met

What is being sat isf ied

Customer groups or markets being served

Who is being sat isf ied

What the organization does (in terms of businessapproaches, technologies used, and activitiesperformed) to satisfy the targeted needs of the

targeted customer groupsHow cus tomer needs are satisf ied

A companys mission is notto make a profit! Its true

mission is its answer to What will we do to make a profit?

Making a profit is an object iveorin tended outcome!


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Companies often develop a statement of valuesto guide a

companys pursuit of its vision and strategy and paint the whitelines for how a companys business is to be conducted

Company values statements typicallycontain four to eight beliefs, traits, andbehaviors 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 word s unti lespoused beliefs, traits, and behaviors are

Incorporated into companys operations and work practices

Used as benchmarks for job appraisal, promotions, andrewards

Linking the Visionwith Company Values

If company personnel are not held accountable

fordisp lay ing company valuesin doing their jobs, then the

company values statement is a bunch of empty words!


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Winning suppor tfor 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 , insp irat ionalvision

Challenges and motivates workforce

Articulates a compelling case

for where company is headed

Evokes positive support and excitement

Arouses a committed organizational

effort to move in a common direction

Communicating the Strategic Vision


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Recognizing Strategic Inflection Points

Sometimes an order-of-magnitude change occurs in

a companys environment that

Dramatically alters its future prospects

Mandates radical revision of its strategic course

Critical decisions have to be made about where togo 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

O i R i


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Mobilizing suppor tfor a new vis ionentails

Reiterating basis for the new direction

Addressing employee concerns head-on

Calming fears

Lifting spirits

Providing updates and progress

reports as events unfold

Overcoming Resistance toa New Strategic Vision


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Crystal l izesan organizations long-termdirection

Reduces r iskof rudderless decision-making

Creates a comm it ted enterpr isewhere organizational members

enthusiastically pursue efforts to

make the vision a reality

Provides a beacon to keep strategy-related

act ionsof all managers on common path

Helps an organization prepare for the future

Payoffs of a Clear Strategic Vision


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Setting Objectives

Purposeofsett ing ob ject ives

Converts vision into specific performance targets

Creates yardsticks to track performance

Well-stated ob ject ivesare

Quanti f iable

Measurable

Contain a deadl inefor achievement

Spell-out how muchofwhat k ind

of performance by when

Phase 2

I t f S tti


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Importance of SettingStretch Objectives

Object ivesshould be set at levels thatstretchan organization to

Perform at its full potential,

delivering the best possible results

Push firm to be more inventive

Exhibit more urgency to improve its business

position

Be intentional and focused in its actions

Theres no better way to avoid ho-hum resul tsthan

by set ting stretch object ivesand using compensat ion

incent ivesto motivateorganization members to

achieve the stretch performance targets!


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Types of Objectives Required

Financial Objectives Strategic Objectives

Outcomes focused

on improving f inancial

per formance

Outcomes focused on

improving compet i t ive

strengthand marketstanding

$


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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

time

Strong bond and credit ratings

Sufficient internal cash flows to fund 100% of new

capital investment

Stable earnings during periods of recession


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Winning an X% market share within 3 years

Achieving lower overall costs than rivals

Overtaking key competitors on product performance

or quality or customer service within 2 years

Deriving X% of revenues from sale of new productsintroduced in past 5 years

Being the recognized industry leader in product

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

Examples: Strategic Objectives

G d St t i P f I th K


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Achieving goodf inancial performance isnot enough

Current financial results are lagging indicatorsreflectingresults ofpastdecisions and actions goo d prof i tabil i ty nowdoes not translate into stron ger capabi l i ty for del iver ing evenbetter financ ial results later

However, setting well-chosen strategicobjectives and achieving them signals

Growing compet it iveness

Growing strength in the marketplace

A company that is growing compet it ively stronger isdeveloping th e capabi l i ty for better f inancial performancein the years ahead

Good strategic performance is thus aleading indicatorof acompanys capability to deliver improvedfuturefinancial performance

Good Strategic Performance Is the Keyto Better Financial Performance

Unless a com panysetsandachieves s tretch strategic ob ject ives

i t is no t develop ing the com peti t ive muscle todel iver even

better financial resu ltsin the years ahead!

A B l d S d A h


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A balanced sco recardfor measuring

company performance is optimal; it entails Setting financial andstrategic objectives

Placing balanced emphasis on achieving

both types of object ives

(However, if a companys financial performance is dismal or if its very

survival is in doubt because of poor financial results, then stressingthe achievement of the financial objectives and temporarily de-emphasizing the strategic objectives may have merit)

Jus t track ing f inancial perform ance over look s the

impo r tance of m easur ing whether a company is

strengthening i ts compet i tiveness and m arket

pos i t ion

A Balanced Scorecard ApproachSetting Strategic andFinancial Objectives

The surest pathto sus tained fut ure prof i tabi l i tyyear afteryear is to relentlessly pursue strategic ou tcomesthat

strengthen a companys business position and give it a

growing com peti t ive advantageover rivals!

Both Short Term and Long Term


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Both Short-Term and Long-TermObjectives Are Needed

Short-term ob ject ives Targets to be achieved soon

Milestones or stair steps for reaching long-range

performance targets

Long -term object ives

Targets to be achieved within

3 to 5 years

Calls for actions now that will

permit reaching targeted

long-range performance later


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Concept of Strategic Intent

A company exhibits strateg ic intentwhen it relent lessly pu rsuesan

ambit ious strategic object ive,

concentrating the full force of itsresources and competitive actions on

achieving that objective!


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Characteristics of Strategic Intent

Indicates firmsin tent

to makingquantum

gainsin competing against key rivals and to

establishing itself as a winner in the

marketplace, often against long odds

Involves establishing a grandioseperformance targetout 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, agg ress ive act ion sto take

market share away from r ivalsand achievea

much s tronger market posi t ion


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Objectives Are Needed at All Levels

1. First, set organizat ion-wideobjectivesand performance targets

2. Next, set businessandproduct l ineobjectives

3. Then, establish funct ionaland departmentalobjectives

4.Indiv idualobjectives are established last

The ob ject ive-sett ing pro cess is more top-down than bot tom up

C fti St t


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Crafting a Strategy

Strategy-makinginvolves astuteentrepreneurshipActively searching for opportunities

to do new things

orActively searching for opportunities to do

existing things in new or better ways

Strategizinginvolves

Developing timely responses to happeningsin the external environment

and

Steering company activities in new directions

dictated by shifting market conditions

Phase 3

Crafting a Good Strategy Requires


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Crafting a Good Strategy RequiresGood Business Entrepreneurship

Developing a winning strategy involves

Diagnosing the direction and force of

the market changes underway and making

timely strategic adjustments

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

Proactively trying to out-innovate rivals

The Role of Astute Entrepreneurship in


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The Role of Astute Entrepreneurship inCrafting a Companys Strategy

Masterful strategies come partly (maybemostly) 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 entrepreneursh ip

one cannot ex is t wi thou t the other !

The Hows That Define


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The Hows That Definea Firm's Strategy

Howto grow the business Howto please customers

Howto outcompete rivals

Howto respond to changing marketconditions

Howto manage each functional

piece of the business (R&D, production,marketing, HR, finance, and so on)

Howto achieve targeted levels of

performance


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Who Is Involved in Strategy Making?

CEO (ch ief execu t ive off ic er)

Has ultimate responsibility for leading

the strategy-making process

Functions as strategic visionary and

chief architect of strategy

Senio r execu t ives

Typically have influential roles in fashioning those strategy

components involving their areas of responsibility

Managers o f subsid iar ies, div is ions, geograph ic

regions, plants, and other important operat ing u ni ts(and, often, key employees with specialized expertise)

Some pieces of the strategy are best orchestrated by on-

the-scene company personnel with detailed familiarity of

the piece of the business they are in charge of running

Why Is Strategy Making Nearly Always


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Why Is Strategy-Making Nearly Alwaysa 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 typ ical ly

has a strategy-making ro leranging from

major to m inorfor th e area he or she heads!

Figure 2 2: A Companys Strategy-Making Hierarchy


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Figure 2.2: A Company s Strategy Making Hierarchy

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Uniting the Companys


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Uniting the Company sStrategy-Making Effort

A firms strategy is a co l lect ion of in i t iat ives

undertaken by managers at all levels in the

organizational hierarchy

Pieces ofstrategyshould f i t

together like the pieces of a puzzle Key approaches used to unify

all strategic initiatives into a

cohesive, company-wide act ion plan

Effect ively commun icatecompanys vision,objectives, and major strategies to all personnel

Dil igent ly reviewlow er-level st rategiesfor

consistency and support of higher-level

strategiesrevise as needed


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What Is a Strategic Plan?

Itsstrategic v is ionand bus iness miss ion

Itsstrategy

Itsstrategicandf inanc ial ob ject ives

A

Companys

Strategic Plan

Consists of

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Implementing and Executing Strategy


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Implementing and Executing Strategy

Operations-orientedactivity aimed atperforming core business activities in a

strategy-supportive manner

Tougherand more t ime-consum ingthan craf t ing strategy

Key tasksinclude

Improving the efficiency with whichthe strategy is being executed

Showing measurable progress in achieving

both operating excellence and targeted results

Phase 4

What Does Implementing and Executing


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Building a capable org anizat ion

Al locat ing resourcesto strategy-critical activities

Establishing strategy-support ive po l ic ies

Instituting best pract icesand programs

forcont inuous improvement Installing in format ion, communication,

and operat ing systems

Motivat ingpeople to pursue the target objectives

Tying rewardsto achievement ofresul ts

Creating a strategy-support ive corporate cu l ture

Exerting the leadershipnecessary to drive the

process forward and keep improving

What Does Implementing and Executingthe Strategy Involve?

Evaluating Performance and


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Crafting and implementing a strategy is no taone-t ime exercise

Customer needs and competitive conditions change

New opportunities appear; technology

advances; any number of otheroutside 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

All these trigger a need forco rrect ive act ion s

and adjustmentson an as-needed basis

Evaluating Performance andMaking Corrective Adjustments

Phase 5

Monitoring Evaluating and


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Taking act ion sto

adjustto the march ofevents tends to result in one or more of the

following

Altering long-term direction and/orredefining the mission/vision

Raising, lowering, or changing

performance objectives

Modifying the strategy

Improving strategy execution

Monitoring, Evaluating, andAdjusting as Needed

Leading the Strategic


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Leading the StrategicManagement Process

Diverse leadership challengesinclude

Exerting take-charge leadership

Being a spark plug for change and action

Ramrodding things through

Achieving results

Leadingthe strategic managementprocess can involve var iou s s ty les

and approaches

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

Things a Chief Strategy Implementer


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1. Stay on top of whats happening

2. Make sure company has agood strategic plan

3. Put constructive pressure oncompany to achieve good results

4. Push corrective actions to improve overallstrategic performance

5. Lead development of stronger corecompetencies and competitive capabilities

6. Display ethical integrity and lead social

responsibility initiatives

Things a Chief Strategy ImplementerMust Do to Be Successful

Role #1: Stay on Top


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Develop a broad network of formal

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

Role #1: Stay on Topof Whats Happening

Role #2: Make Sure Company


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Role #2: Make Sure CompanyHas a Good Strategic Plan

Two key respons ibi l it iesof CEO and top-

level executives

Effectively communicate companys vision,

objectives, and major strategy components to

down-the-line managers and key personnel

Exercise due diligence in reviewing lower-level

strategies for consistency and support of higher-

level strategies

Effect ive leadersh ipminimizes

potential for conflict between

different levels in the strategy hierarchy


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Role #4: Push Corrective Actions to Improve


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Role #4: Push Corrective Actions to ImproveStrategy-Making and Strategy-Execution

Requires deciding

Whenadjustments are needed

Whatadjustments to make

Involves

Adjusting long-term direction, objectives, and

strategy on an as-needed basis in response to

unfolding events and changing circumstances

Promoting fresh initiatives to bring internalactivities and behavior into better alignment with

strategy

Making changes to pick up the pace when

results fall short of performance targets

Role #5: Promote Stronger Core


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Top management intervention is

required to establish better or new

Resource strengths and competencies

Competitive capabilities

Senior managers must

lead the effort because

Competencies reside in combined

efforts of different work groups anddepartments, thus requiring

cross-functional collaboration

Stronger competencies and capabilities

can lead to a competitive edge over rivals

Role #5: Promote Stronger CoreCompetencies and Capabilities

Role #6: Display Ethics Leadership and


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Role #6: Display Ethics Leadership andLead Social Responsibility Initiatives

Set an excellent example in

Displaying ethical behaviors

Demonstrating character and

personal integrity in actions and decisions

Declare unequivocal support for high ethical

standards and expect all employees to

conduct themselves in an ethical fashion

Encourage compliance and establish tough

consequences for unethical behavior

Our ethics

code is . . .

Corporate Governance:


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Exercise s t rong overs ightto ensure fivetasks of strategic management are executed

to benefi t

Shareholders or

Stakeholders

Make sure execu t ive act ion sare not only

properbut also al ignedwith in terests o f

stakeholders

Corporate Governance:Strategic Role of a Board of Directors

Obligations of a Board of Directors


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Obligations of a Board of Directors

Be inqui r ing cr i t icsand overseers

Evaluate caliberofsenior executives

strategy-making and strategy-executing

ski l ls

Inst i tutea compensat ion planfortop executives rewarding them for

results that serve interests of

Stakeholders and

Shareholders

Overseea companys

f inancial account ing

and report ing p ract ices

Key Responsibilities of Board


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Key Responsibilities of BoardMembers

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 whatboard expects

Provide insight and advice to management

Be intensely involved in debating pros and cons

of key actions and decisions

Board members have a very important oversight rolein

the strategy-making, strategy-executing process!

ch-02 crafting and executing strategy

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