Chapter 2: Leading the Process of 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 Chapter 2: Leading the Process of Crafting and Process of Crafting and
Executing StrategyExecuting Strategy
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University
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Chapter Learning Objectives1. Grasp why it is critical for company managers to think long and
hard about where a company needs to head and why.2. Understand the importance of setting both strategic and financial
objectives.3. Recognize that the task of crafting a company strategy draws on
the entrepreneurial talents of managers at all organizational levels.4. Understand why the strategic initiatives taken at various
organizational levels must be tightly coordinated to achieve companywide performance targets.
5. Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently.
6. Understand why the strategic management process is ongoing, not an every-now-and-then task.
7. Learn what leadership skills management must exhibit to drive strategy execution forward.
8. Become aware of the role and responsibility of a company’s board of directors in overseeing the strategic management process.
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Chapter Roadmap What Does the Strategy-Making, Strategy-Executing
process Entail? Phase 1: Developing a Strategic Vision Phase 2: Setting Objectives Phase 3: Crafting a Strategy Phase 4: Implementing and Executing the Strategy Phase 5: Evaluating Performance and Initiating
Corrective Adjustments Leading the Strategic Management Process Corporate Governance: The Role of the Board of
Directors in the Strategy-Making, Strategy-Executing Process
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 company’s product/market/customer technology to improve
Current market position
Future prospects
Phase 1Phase 1
A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic
course in preparing for the future.
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Key Elements of a Strategic Vision
Delineates management’s aspirations for the business
Provides a panoramic view of “where we are going” Charts a strategic path Is distinctive and specific to
a particular organization Avoids use of generic language that
is dull and boring and that couldapply to most any company
Captures the emotions ofemployees and steers themin a common direction
Is challenging and a bit beyond a company’s immediate reach
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Role of a Strategic Vision
A well-conceived, well-communicated vision functions as a valuable managerial tool to Give the organization a sense of direction, mold
organizational identity, and create a committed enterprise
Illuminate the company’s directional path Provide managers with a reference point to
Make 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 until it wins the commitmentof company personnel and energizes them to act in ways that
move the company along the intended strategic path!
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 vision concerns a firm’s future business path - “wherewe are going” Markets to be pursued
Future product/market/customer/technology focus
Kind of company management is trying to create
A company’s mission statement typically focuses on its present business purpose - “who we are and what we do” Current product and
service offerings
Customer needs and customer groups being served
Geographic coverage
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Characteristics of a Mission Statement
Identifies boundaries of a company’s current business and says something about Present products and services Types of customers served Geographic coverage
Conveys Who we are, What we do, and Why we are here
A good mission statement describes a company’s business makeup and purpose in language specific enough to give
the company its own identity and distinguish it from other enterprises in the same or other industries!
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Key Elements of aMission Statement
A complete mission statement should cover three things: Customer needs being met –
What is being satisfied Customer groups or markets being served –
Who is being satisfied What the organization does (in terms of business
approaches, technologies used, and activities performed) to satisfy the targeted needs of the targeted customer groups – How customer needs are satisfied
A 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 a profit is an objective or intended outcome!
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Companies often develop a statement of values to guide a company’s pursuit of its vision and strategy and paint the white lines for how a company’s business is to be conducted Company values statements typically
contain four to eight beliefs, traits, and behaviors relating to such things as Fair treatment, integrity, ethical behavior,
innovation, teamwork, product quality, customer satisfaction,social responsibility, community citizenship
But values statements remain a bunch of nice words until espoused beliefs, traits, and behaviors are Incorporated into company’s operations and work
practices Used as benchmarks for job appraisal, promotions, and
rewards
Values
Values
Linking the Visionwith Company Values
If company personnel are not held accountablefor displaying company values in doing their jobs, then the
company values statement is a bunch of empty words!
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Winning support for the vision involves Putting “where we are going and why” in writing Distributing the statement organization-wide Having executives explain vision to employees
An engaging, inspirational vision Challenges and motivates workforce Articulates a compelling case
for where company is headed 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 company’s environment that Dramatically alters its future prospects Mandates radical revision of its strategic course
Critical decisions have to be made about where to go from here A major new directional path may have to be taken A major new strategy may be needed
Responding quickly to unfolding changes in the marketplace lessons a company’s chances of Becoming trapped in a stagnant business or Letting attractive new growth opportunities slip away
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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
Overcoming Resistance toa New Strategic Vision
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Crystallizes an organization’s long-term direction
Reduces risk of rudderless decision-making
Creates a committed enterprise where organizational members enthusiastically pursue efforts to make the vision a reality
Provides a beacon to keep strategy-related actions of all managers on common path
Helps an organization prepare for the future
Payoffs of a Clear Strategic Vision
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Setting Objectives
Purpose of setting objectives Converts vision into specific performance targets
Creates yardsticks to track performance
Well-stated objectives are Quantifiable Measurable Contain a deadline for achievement
Spell-out how much of what kindof performance by when
Phase 2Phase 2
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Importance of SettingStretch Objectives
Objectives should be set at levels that stretch an 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
There’s no better way to avoid ho-hum results thanby setting stretch objectives and using compensation
incentives to motivate organization members to achieve the stretch performance targets!
Types of Objectives Required
Financial Objectives Strategic Objectives
Outcomes focusedon improving financial
performance
Outcomes focused on improving competitive strength and market
standing
$
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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 products
introduced 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
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Achieving good financial performance is not enough Current financial results are “lagging indicators” reflecting
results of past decisions and actions — good profitability now does not translate into stronger capability for delivering even better financial results later
However, setting well-chosen strategic objectives and achieving them signals Growing competitiveness Growing strength in the marketplace
A company that is growing competitively stronger is developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a
company’s capability to deliver improved future financial performance
Good Strategic Performance Is the Key to Better Financial Performance
Unless a company sets and achieves stretch strategic objectivesit is not developing the competitive muscle to deliver even
better financial results in the years ahead!
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A balanced scorecard for measuringcompany performance is optimal; it entails
Setting financial and strategic objectives Placing balanced emphasis on achieving
both types of objectives(However, if a company’s financial performance is dismal or if its very survival is in doubt because of poor financial results, then stressing the achievement of the financial objectives and temporarily de-emphasizing the strategic objectives may have merit)
Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position
A Balanced Scorecard Approach –Setting Strategic and Financial Objectives
The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that
strengthen a company’s business position and give it a growing competitive advantage over rivals!
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Both Short-Term and Long-Term Objectives Are Needed
Short-term objectives Targets to be achieved soon
Milestones or stair steps for reaching long-range performance targets
Long-term objectives Targets to be achieved within
3 to 5 years
Calls for actions now that willpermit reaching targetedlong-range performance later
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Concept of Strategic Intent
A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective, concentrating the full force of its
resources and competitive actions on achieving that objective!
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Characteristics of Strategic Intent
Indicates firm’s intent to making quantum 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 out of proportion to immediate capabilities and market position but then devoting the firm’s full resources and energies to achieving the target over time
Entails sustained, aggressive actions to take market share away from rivals and achieve a much stronger market position
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Objectives Are Needed at All Levels
1. First, set 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
The objective-setting process is more top-down than bottom up
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Crafting a Strategy
Strategy-making involves astute entrepreneurship Actively searching for opportunities
to do new things or
Actively searching for opportunities to do existing things in new or better ways
Strategizing involves Developing timely responses to happenings
in the external environment and
Steering company activities in new directions dictated by shifting market conditions
Phase 3Phase 3
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Crafting a Good Strategy Requires Good 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 waysto satisfy customer needs
Figuring out how to outwit and outmaneuver competitors
Pursuing ways to strengthen the firm’s competitive capabilities
Proactively trying to out-innovate rivals
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The Role of Astute Entrepreneurship in Crafting a Company’s Strategy
Masterful strategies come partly (maybe mostly) by doing things differently from competitors where it counts
Innovating more creatively Being more efficient Being more imaginative Adapting faster Rather than running with the herd!
Good strategy-making is therefore inseparable from good entrepreneurship—one cannot exist without
the other!
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The Hows That Define a Firm's Strategy
How to grow the business How to please customers How to outcompete rivals How to respond to changing market
conditions How to manage each functional
piece of the business (R&D, production, marketing, HR, finance, and so on)
How to achieve targeted levels of performance
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Who Is Involved in Strategy Making?
CEO (chief executive officer) Has ultimate responsibility for leading
the strategy-making process Functions as strategic visionary and
chief architect of strategy
Senior executives Typically have influential roles in fashioning those strategy
components involving their areas of responsibility
Managers of subsidiaries, divisions, geographic regions, plants, and other important operating units (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
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Why Is Strategy-Making Nearly Always a Collaborative Process?
The job is often way too big for one person or a small executive group—many strategic issues are complex or cut across multiple areas of expertise
The more a company’s 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 today’s companies every manager typically has a strategy-making role—ranging from
major to minor—for the area he or she heads!
Figure 2.2: A Company’s Strategy-Making Hierarchy
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Uniting the Company’sStrategy-Making Effort
A firm’s strategy is a collection of initiatives undertaken by managers at all levels in the organizational hierarchy
Pieces of strategy should fittogether like the pieces of a puzzle
Key approaches used to unifyall strategic initiatives into acohesive, company-wide action plan Effectively communicate company’s vision,
objectives, and major strategies to all personnel Diligently review lower-level strategies for
consistency and support of higher-level strategies—revise as needed
What Is a Strategic Plan?
Its strategic vision and business mission
Its strategy
Its strategic andfinancial objectives
A
Company’s
Strategic Plan
Consists of
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Implementing and Executing Strategy
Operations-oriented activity aimed atperforming core business activities in astrategy-supportive manner
Tougher and more time-consumingthan crafting strategy
Key tasks include Improving the efficiency with which
the strategy is being executed
Showing measurable progress in achieving both operating excellence and targeted results
Phase 4Phase 4
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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 Implementing and Executing the Strategy Involve?
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Crafting and implementing a strategy is 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 a need for corrective actions and adjustments on an as-needed basis
Evaluating Performance andMaking Corrective Adjustments
Phase 5Phase 5
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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
Monitoring, Evaluating, and Adjusting as Needed
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Leading the StrategicManagement Process
Diverse leadership challenges include Exerting take-charge leadership Being a spark plug for change and action Ramrodding things through Achieving results
Leading the strategic managementprocess can involve various stylesand 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
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1. Stay on top of what’s happening
2. Make sure company has agood strategic plan
3. Put constructive pressure oncompany to achieve good results
4. Push corrective actions to improve overall strategic performance
5. Lead development of stronger corecompetencies and competitive capabilities
6. Display ethical integrity and lead social responsibility initiatives
Things a Chief Strategy Implementer Must Do to Be Successful
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Develop a broad network of formaland 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 What’s Happening
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Role #2: Make Sure CompanyHas a Good Strategic Plan
Two key responsibilities of CEO and top-level executives
Effectively communicate company’s 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
Effective leadership minimizespotential for conflict betweendifferent levels in the strategy hierarchy
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Successful leaders spend time Mobilizing organizational energy behind
Good strategy execution andOperating excellence
Nurturing a results-oriented work climate Promoting enabling cultural drivers
Strong sense of involvement on part of company personnel
Emphasis on individual initiative and creativityRespect for contributions of individuals and
groupsPride in doing things right
Role #3: Put Constructive Pressure on Company to Achieve Good Results
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Role #4: Push Corrective Actions to Improve Strategy-Making and Strategy-Execution
Requires deciding When adjustments are needed What adjustments to make
Involves Adjusting long-term direction, objectives, and
strategy on an as-needed basis in response to unfolding events and changing circumstances
Promoting fresh initiatives to bring internal activities and behavior into better alignment with strategy
Making changes to pick up the pace when results fall short of performance targets
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Top management intervention isrequired to establish better or new Resource strengths and competencies Competitive capabilities
Senior managers mustlead the effort because Competencies reside in combined
efforts of different work groups and departments, thus requiring cross-functional collaboration
Stronger competencies and capabilitiescan lead to a competitive edge over rivals
Role #5: Promote Stronger CoreCompetencies and Capabilities
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Role #6: Display Ethics Leadership and Lead Social Responsibility Initiatives
Set an excellent example in
Displaying ethical behaviors
Demonstrating character andpersonal 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 toughconsequences for unethical behavior
Our ethicscode is . . .
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Exercise strong oversight to ensure five tasks of strategic management are executed to benefit
Shareholders or
Stakeholders
Make sure executive actions are not only proper but also aligned with interests of stakeholders
Corporate Governance:Strategic Role of a Board of Directors
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Obligations of a Board of Directors
Be inquiring critics and overseers Evaluate caliber of senior executives’
strategy-making and strategy-executing skills
Institute a compensation plan fortop executives rewarding them forresults that serve interests of Stakeholders and Shareholders
Oversee a company’sfinancial accountingand reporting practices
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Key Responsibilities of Board Members
Be well informed about a company’s performance Guide and judge CEO and other top executives Exhibit courage to curb inappropriate or unduly
risky management actions Confirm that CEO is doing what
board expects 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 role in the strategy-making, strategy-executing process!
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