chapter1- crafting and executing strategy by thompson

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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 2-1 The Managerial Process The Managerial Process of Crafting and of Crafting and Executing Strategy Executing Strategy 2 2 Chapter Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy State University-Florida and Western Region

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Strategic Management

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Page 1: Chapter1- Crafting and executing strategy by thompson

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.2-1

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

2222Chapter

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

Troy State University-Florida and Western Region

Page 2: Chapter1- Crafting and executing strategy by thompson

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.2-2

Chapter RoadmapChapter RoadmapChapter RoadmapChapter 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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Fig. 2.1: The Strategy-Making, Fig. 2.1: The Strategy-Making, Strategy-Executing ProcessStrategy-Executing Process

Fig. 2.1: The Strategy-Making, Fig. 2.1: The Strategy-Making, Strategy-Executing ProcessStrategy-Executing Process

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Developing a Strategic VisionDeveloping a Strategic VisionDeveloping a Strategic VisionDeveloping a Strategic Vision

Involves thinking strategically about

Future direction of company

Changes in company’s product-market-customer-technology to improve

Current market position

Future prospects

Phase 1 of the Strategy-Making ProcessPhase 1 of the Strategy-Making Process

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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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 Molds 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 aKey Elements of aStrategic VisionStrategic Vision

Key Elements of aKey Elements of aStrategic VisionStrategic Vision

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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. MissionStrategic Vision vs. MissionStrategic Vision vs. MissionStrategic Vision vs. Mission

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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 is 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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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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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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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 ObjectivesCharacteristics of ObjectivesCharacteristics of ObjectivesCharacteristics of Objectives

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 RequiredTypes of Objectives RequiredTypes of Objectives RequiredTypes of Objectives Required

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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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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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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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Strategizing: An IndividualStrategizing: An Individual or Team Responsibility? or Team Responsibility?Strategizing: An IndividualStrategizing: An Individual 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 inLevels of Strategy-Making ina Single-Business Companya Single-Business Company

Levels of Strategy-Making inLevels of Strategy-Making ina 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 StrategyTasks of Corporate StrategyTasks of Corporate StrategyTasks of Corporate Strategy

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 StrategyTasks of Business StrategyTasks of Business StrategyTasks of Business Strategy

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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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Its strategic vision and business mission

Its strategy

Its strategic andfinancial objectives

What Is a Strategic Plan?What Is a Strategic Plan?What Is a Strategic Plan?What Is a Strategic 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 AdjustmentsMaking Corrective Adjustments

Evaluating Performance andEvaluating Performance andMaking Corrective AdjustmentsMaking Corrective Adjustments

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Corporate Governance: Strategic Corporate Governance: Strategic Role of a Board of DirectorsRole of a Board of Directors

Corporate Governance: Strategic Corporate Governance: Strategic Role of a Board of DirectorsRole of a Board of 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