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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

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

Troy University

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Chapter Learning Objectives 1.  Understand the role of business strategies in moving a

company in the intended direction, growing its business, and improving its financial and market performance.

2.  Develop an awareness of the four most reliablestrategic approaches for setting a company apart from rivals and winning a sustainable competitive advantage.

3.  Learn that business strategies evolve over time because of changing circumstances and ongoing management efforts to improve the company’s strategy.

4.  Understand why a company’s strategy must underpinned by a business model that produces revenues sufficient to cover costs and earn a profit.

5.  Gain awareness of the three tests that distinguish a winning strategy from a so-so or flawed strategy.

6.  Learn why good strategy and good strategy execution are the most trustworthy signs of good management.

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Thinking Strategically: The Three Big Strategic Questions

1. What’s the company’s present situation?

2. Where does the company need to go from here?  Business(es) to be in and market positions to

stake out

 Buyer needs and groups to serve

 Direction to head

3. How should it get there?  A company’s answer to “how

will we get there?” is its strategy 1-6

What Do We Mean By “Strategy?”

  Consists of competitive moves and business approaches used by managers to run the company

  Management’s “action plan” to   Grow the business

  Attract and please customers

  Compete successfully

  Conduct operations

  Achieve the targeted levels of organizational performance

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

  How to respond to changing market conditions

  How to achieve targeted levels of performance

Strategy is HOW

to . . .

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Key Elements of a Successful Strategy

 Developing a successful strategy hinges on making competitive moves aimed at  Appealing to buyers in ways to set the company

apart from rivals and  Carving out its own market position

  Involves developing a distinctive “aha” element to  Attract customers and  Produce a competitive edge

Copying competitive moves of other successful companies rarely works!

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Starbucks’ Strategy: The Key Elements

  Expand number of Starbucks stores domestically by blanketing metropolitan areas, then adding stores on the city’s perimeter

  Make Starbucks a global brand by opening stores in an increasing number of foreign locations

  View each store as a billboard for the company and as a contributor to building the company’s brand and image

  Broaden in-store products to include coffee-flavored ice cream, teas, fresh pastries, music CDs, and coffee accessories

  Fully exploit the growing power of the Starbucks’ name and brand image with out-of-store sales

  Display corporate responsibility and environmental sustainability

  Control costs of opening new stores   Promote customer-friendly service and enhance store

ambience by making Starbucks a great place to work 1-10

Strategy and the Quest for Competitive Advantage

  The heart and soul of any strategy are actions a company makes to  Improve its financial performance,

 Strengthen its competitive position, and

 Gain a competitive advantage over rivals

  A creative, distinctive strategy that sets a company apart from rivals and yields a competitive advantage is a company’s most reliable ticket to above average profitability  Operating with a competitive advantage is more profitable

than operating without one

 Operating with a competitive disadvantage nearly always results in below-average profitability

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A Powerful Strategy Leads to Sustainable Competitive Advantage

  A company achieves sustainable competitive advantage when  An attractive number of buyers prefer its products/

services over those of rivals and  The basis for this preference is durable

  Its nice when a strategy produces  A temporary competitive edge but  A sustainable edge over rivals greatly enhances a

company’s prospects for above-average profitability

What separates a powerful strategy from an ordinary strategy is management’s ability to forge a series of moves, both in the marketplace and internally, that

produces sustainable competitive advantage! 1-12

Strategic Approaches to Building Sustainable Competitive Advantage

  Be the industry’s low-cost provider  Achieve a cost-based competitive advantage

  Incorporate differentiating features  Superior product/service keyed to higher quality,

better performance, wider selection, value-added services, or some other attribute

  Focus on a narrow market niche  Win a competitive edge by doing a

better job than rivals of serving the needs and preferences of buyers in the niche

  Develop expertise and resource strengths not easily imitated or matched by rivals  Achieve a capabilities-based competitive advantage

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Competitive Advantage Examples

  Strive to be industry’s low-cost provider  Wal-Mart  Southwest Airlines

  Outcompete rivals on a key differentiating feature  Johnson & Johnson – Reliability in baby

products  Harley-Davidson – King-of-the-road styling  Rolex – Top-of-the-line prestige  BMW– Engineering design and performance  Amazon.com – Wide selection and

convenience 1-14

Competitive Advantage Examples (con’t)

  Focus on a narrow market niche  eBay – Online auctions

 Best Buy – Home electronics

 McAfee – Virus protection

 Starbucks – Premium coffees and coffee drinks

 The Weather Channel – Info about the weather

  Develop expertise, resource strengths, and capabilities not easily imitated by rivals  Walt Disney – Theme park management and family

entertainment

 Dell Computer – Build-to-order manufacturing capabilities

 Ritz-Carlton – Personalized customer service

Figure 1.1: Identifying a Company’s Strategy

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Why Do Strategies Evolve?

  A company’s strategy is a work in progress

  Changes may be necessary to react to

  Financial crisis

  Fresh moves of competitors

  Evolving customer preferences

  Technological breakthroughs

  Emerging market opportunities

  Changing political or economic climate

  New ideas to improve strategy

Figure 1.2: A Company’s Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments

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Linking Strategy With Ethics

  Ethical and moral standards go beyond   Prohibitions of law and language of “thou shalt

not” 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   Does not entail actions and behaviors that cross the line

from “should do” to “should not do” (because such actions are unsavory, shady, unconscionable, injurious to others, or harmful to the environment)

  Allows management to fulfill its ethical duties to all stakeholders

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A Firm’s Ethical Responsibilities to Its Stakeholders

Owners/shareholders – Rightfully expect some form of return on their investment

Employees – Rightfully expect to be treated with dignity and respect for devoting their energies to the enterprise

Customers – Rightfully expect a seller to provide them with a reliable, safe product or service

Suppliers – Rightfully expect to have an equitable relationship with firms they supply and be treated fairly

Community – Rightfully expect businesses to be good citizens in their community

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What Is a Business Model?

  A business model addresses “How do we make money in this business?”   Is the company’s strategy capable of delivering

good bottom-line results?

  Do the revenue-cost-profit economics of 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 has good potential to deliver acceptable profitability?

Relationship Between Strategy and Business Model

Strategy . . . Deals with a company’s

competitive initiatives and business approaches

Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate a

business can be profitable and viable

Strategy

Business

Model

Microsoft’s Business Model

Employ 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 to achieve a 90% or more market share

Most costs in developing software are fixed; variable costs are small; once break-even volume is reached, revenues from additional sales are almost pure profit

Provide modest level of technical support to users at no cost

Rejuvenate revenues by periodically introducing next-generation software with features inducing PC users to upgrade their operating systems

Red Hat’s Business Model

Rely on collaborative efforts of volunteer programmers to create the software

Collect and test enhancements and new applications submitted by volunteer programmers for evaluation and inclusion in new releases of Linux

Market upgraded and tested family of Red Hat products to large companies, charging a subscription fee that includes 24/7 support within 1 hour in 7 languages

Make source code open and available to all users

Capitalize on specialized expertise required to use Linux by providing fee-based training, consulting, software customization, and client-directed engineering to Linux users

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Tests of a Winning Strategy

  GOODNESS OF FIT TEST   How well does the strategy fit

the company’s external and internal situation?

  COMPETITIVE ADVANTAGE TEST   Is the strategy helping the company achieve a

sustainable competitive advantage?

  PERFORMANCE TEST   Is the strategy resulting in better company

performance?

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Other Criteria for Judging Merits of a Strategy

  Degree of risk the strategy poses as compared to alternative strategies

  Degree to which the strategy is flexible and adaptable to changing circumstances

While these criteria are relevant, they seldom override the importance of the

three tests of a winning strategy! 1-26

Why Should Crafting and Executing Strategy Be Top-Priority Management Tasks?

  A compelling need exists for managers to proactively shape how a firm’s business will be conducted

  A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary

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Good Strategy + Good Strategy Execution = Good Management   Crafting and executing strategy are core

management functions   Among all things managers do, nothing

affects a company’s ultimate success or failure more fundamentally than how well its management team  Charts a company’s direction,  Develops competitively effective strategic

moves and business approaches, and  Pursues what needs to be done internally to

produce good day-in/day-out strategy execution 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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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 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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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

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 could apply to most any company

  Captures the emotions of employees and steers them in 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 no organizational impact unless and until it wins the commitment of 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 Example of Strategic Vision

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Example of Strategic Vision Examples of Strategic Visions

Strategic Vision vs. Mission

  A strategic vision concerns a firm’s future business path - “where we 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

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Key Elements of a Mission 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

Mission Statement: Trader Joe’s

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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Mission Statement: OSHA

  To promote the safety and health of America’s workers by setting and enforcing standards;

  Providing training, outreach, and education;   Establishing partnerships;   Encouraging continual process improvement

in workplace safety and health.

Occupational Safety and Health Administration

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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

Linking the Vision with Company Values

If company personnel are not held accountable for displaying company values in doing their jobs, then the

company values statement is a bunch of empty words!

Example: American Express’ Company Values

Customer commitment

Quality and Integrity

Teamwork Respect for people

Example: Toyota’s Company Values

Teamwork

Getting quality right the first time

Learning

Continuous improvement

Embracing change in pursuit of low-cost, top-notch manufacturing excellence in motor vehicles

Respect for and development of employees

Example: DuPont’s Company Values

Safety Ethics

Environmental stewardship

Respect for people

Example: Abbott Laboratories’ Company Values

Pioneering Achieving

Enduring Caring

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Example: Yahoo’s Core Values

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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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Capturing the Vision in a Slogan

FedEx “Satisfying worldwide demand for fast,

time-definite, reliable distribution.”

Home Depot “Helping people improve the places where they live and work.”

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Capturing the Vision in a Slogan

Scotland Yard “To make London the safest

major city in the world.”

Charles Schwab “To provide customers with

the most useful and ethical financial services in the world.”

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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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Intel’s “Strategic Inflection Points”

 Prior to mid-1980s  Focus on memory chips

 Starting in mid-1980s  Abandon memory chip business (due to lower-cost

Japanese companies taking over the market) and  Become preeminent supplier of microprocessors to PC

industry  Be undisputed leader in driving

PC technology forward

  1998  Shift focus from PC technology to becoming the

preeminent building block supplier to Internet economy

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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 progress reports as events unfold

Overcoming Resistance to a 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 kind of performance by when

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Importance of Setting Stretch 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 than by 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 focused on 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 objectives it is not developing the competitive muscle to deliver even

better financial results in the years ahead!

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  A balanced scorecard for measuring company 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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General Motors’ Objectives

  Reduce the percentage of automobiles using conventional internal combustion engines (ICE) through the development of hybrid ICEs, plug-in hybrid ICEs, range-extended electric vehicles, and hydrogen fuel cell electric engines

  Reduce automotive structural costs to benchmark levels of 23 percent of revenue by 2012 from 34 percent in 2005

  Reduce annual U.S. labor costs by an additional $5 billion by 2011

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The Home Depot’s Objectives

  Be the number one destination for professional contractors, whose business accounted for roughly 30 percent of 2006 sales

  Improve in-stock positions so customers can find and buy exactly what they need

  Deliver differentiated customer service and the know-how that our customers have come to expect from The Home Depot

  Repurchase $22.5 billion of outstanding shares during 2008

  Open 55 new store locations with 5 store relocations in 2008

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The Objectives at Yum! Brands (KFC, Pizza Hut, Taco Bell)

  Open 100 KFC restaurants in Vietnam by 2010   Expand Taco Bell restaurant concept to Dubai, India,

Spain and Japan during 2008 and 2009   Increase number of international restaurant locations

from 12,000 in 2007 to 15,000 in 2012   Increase operating profit from international operations

from $480 million in 2007 to $770 million in 2012   Expand Pizza Hut’s menu to include pasta and chicken

dishes   Decrease the number of company owned restaurant

units in U.S. from 20% of units in 2007 to less than 10% of units by 2010

  Increase the number of Taco Bell units in the U.S. by 2%–3% annually between 2008 and 2010

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Avon’s Objectives

  Increase our beauty sales and market share

  Strengthen our brand image   Enhance the representative experience   Realize annualized cost savings of $430

million through improvements in marketing processes, sales model and organizational activities

  Achieve annualized cost savings of $200 million through a strategic sourcing initiative

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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 will permit reaching targeted long-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 and product line objectives

3. Then, establish functional and departmental objectives

4. Individual objectives are established last

The objective-setting process is more top-down than bottom up

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Importance of Top-Down Objectives

  Provides guidelines for objective-setting and strategy-making in lower-level organizational units

  Helps ensure that performance targets set by business units, divisions, and departments are directly connected to achieving company-wide objectives

  Top-down objective-setting has two advantages  Leads to cohesive and compatible objectives

and strategies up and down the organization  Helps unify internal efforts to move

company along the chosen strategic path

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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

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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 ways to 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! 1-76

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!

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Figure 2.2: A Company’s Strategy-Making Hierarchy

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Corporate Strategy

  Moves to diversify into different industries

  Actions to boost the combined performance of the company’s different businesses

  Actions to capture cross-business synergies

  Establishing investment priorities and steering corporate resources into the most attractive businesses

Orchestrated by headquarters executives and involves

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 Crafting competitive moves to build sustainable competitive advantage

 Seeing that lower-level strategies within the business are well-matched to the overall business strategy

 Gaining approval of business-level strategic moves by corporate-level officers and directors

Business Strategy

Concerns the actions and approaches crafted to produce successful performance in one specific line of business. Is usually the responsibility of the manager in charge of the business and involves

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 Crafting functional strategic initiatives that will support the overall business strategy

 Adding function-related strategic details to the overall business strategy

Functional Strategies

Concerns the game plan for a function, activity, or process within a business; is usually orchestrated by the functional head and involves

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  Are generally crafted by frontline managers (subject to review and approval by higher-ranking managers)

  Concern the relatively narrow strategic initiatives and approaches for managing key operating units (geographic regions, distribution centers, plants) and strategically-relevant operating activities (advertising, supply chain activities, Internet sales)

  Add further detail and completeness to functional and business strategies

Operating Strategies Levels of Strategy-Making in 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

Operating Managers

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Levels of Strategy-Making in a Single-Business Company

Business Strategy

Two-Way Influence

Functional Strategies

Operating Strategies

Business-Level Managers

Operating Managers

Functional Managers

Two-Way Influence

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Uniting the Company’s Strategy-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 fit together like the pieces of a puzzle

  Key approaches used to unify all strategic initiatives into a cohesive, 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 and financial objectives

A

Company’s

Strategic Plan

Consists of

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Implementing and Executing Strategy

  Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner

  Tougher and more time-consuming than 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

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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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Organizational Characteristics of Good Strategy Execution

  Requires a concerted effort to achieve operating excellence

  Involves a company’s entire management team

  Hinges on skills and cooperation of operating mangers who can  Push needed changes in their

organizational units  Consistently deliver good results

  Success is best indicated by  Meeting or beating performance targets  Progress in achieving the strategic vision

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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 the strategy 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 and Making Corrective Adjustments

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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/or redefining the mission/vision

 Raising, lowering, or changing performance objectives

 Modifying the strategy

 Improving strategy execution

Monitoring, Evaluating, and Adjusting as Needed

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Leading the Strategic Management 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 management process can involve various styles 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

Numerous Roles of Strategic Leaders

Visionary

Chief Entrepreneur & Strategist Capabilities

Builder

Resource Acquirer & Allocator

Culture Builder

Chief Administrator

& Strategy Implementer

Process Integrator

Coach

Crisis Solver

Taskmaster

Spokesperson

Negotiator

Motivator

Arbitrator

Consensus Builder

Policymaker Policy

Enforcer

Mentor

Head Cheerleader

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1. Stay on top of what’s happening

2. Make sure company has a good strategic plan

3. Put constructive pressure on company to achieve good results

4. Push corrective actions to improve overall strategic performance

5. Lead development of stronger core competencies 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 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 Top of What’s Happening

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Role #2: Make Sure Company Has 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 minimizes potential for conflict between different levels in the strategy hierarchy

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  Successful leaders spend time  Mobilizing organizational energy behind

 Good strategy execution and  Operating 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 creativity  Respect for contributions of individuals and

groups  Pride 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 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 and departments, thus requiring cross-functional collaboration

 Stronger competencies and capabilities can lead to a competitive edge over rivals

Role #5: Promote Stronger Core Competencies 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 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 . . .

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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 for top executives rewarding them for results that serve interests of  Stakeholders and  Shareholders

  Oversee a company’s financial accounting and 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!