Strategy: A View from the Top Chapter 2 Strategy and Performance

1. Strategy: A View from the Top Chapter 2 Strategy and Performance Team 2: Ty Parasiliti Victor Hemmati Brent Hare Lance Hollister Vincent Ukwu Josh Fernino Chris Kerschen

2. Overview • From Good to Great – About Hedgehogs and Flywheels • The 4+2 Formula for Sustained Business Success • Excelling at Four Primary Practices • Embracing Two of Four Secondary Practices • Strategy and Performance: A Conceptual Framework • Strategy, Purpose, and Leadership • Strategy and Organizational Change • The Balanced Scorecard • Performance and Control • The Role of the Board

3. From Good to Great - About Hedgehogs and Flywheels • Jim Collins conducted two cited studies of companies that were sustainable for superior performance. • The first study published was titled, “Built to Last.” This described what makes great companies great and how they stayed great over time. • The second, “Good to Great: Why Some Companies Make the Leap…and Others Don’t”, which asked the question: what can merely good companies do to become truly great?

4. Cont. • Collins defined “great” in terms of metrics, like financial statements that exceeded the market average and stayed that way for a period of time. • Level 5 Leadership • This is the top of the Level 5 Hierarchy that ranges from just competent supervision to strategic extreme decision making. • Level 5 Leader: A person with intense determination and profound humility that does not let ego and individual gain get in their way. He/She plans to be with the company for the long-haul as they try to climb the company’s ranks.

5. Nature of the Leadership Team • Before creating a game plan for a company, the right people have to be in place. Willingness to Identify and Assess Defining Facts • Company as well as the larger business environment must meet market trends in what consumers desire, is constantly changing. The inability to do so results in failure. Hedgehog Metaphor • The way to go from good to great is not doing numerous things well, but instead , doing “one” thing better than anyone else in the world. • Determine what the company can and cannot be best at. • Determine what drives the company’s economic engine. • Determine what the company’s people or deeply passionate about.

6. Overarching organizational culture of discipline • Creating a organization with people that have an unrelenting determination. • Great companies are not dependant on technology • Apply few technologies to their Hedgehog Concept Flywheel and Doom Loop Flywheel: when companies make decisions and take actions that reinforce the company’s hedgehog competencies, which in return brings positive outcomes Doom Loop: is characterized by reactive decision making and over involvement in too many diverse areas of concentration, in the end this will bring negative outcomes Collins “core-values” to achieve long term sustainable success

7. 4+2 Formula for Sustained Business Success • Studies found management practices that help a company produce superior results • Four primary management practices: • Strategy, Execution, Culture, and Structure • Plus mastery of two or more secondary practices (Ex. Talent, innovation) • Must have strength in all six (or more) areas to excel

8. Excelling at Four Primary Practices • Executives have tried TQM and other strategies in an effort to improve execution • No single alternative will bring a company success • The most consistently successful companies for the past 10 years have implemented these four strategies

9. Strategy: Devise and maintain a Clearly Stated, Focused Strategy • The chosen strategy must be clear and consistently communicated • Focus on growth

10. Execution: Develop and Maintain Flawless Operational Execution • Consistently exceed customer expectations • Increased productivity • Realistic goals

11. Culture: Develop and Maintain a Performance-Oriented Culture • Right Culture • The right combination of high-performance and ethical behavior • Everyone responsible for success, not just upper-level management

12. Structure: Build and Maintain a Fast, Flexible, Flat Organization • High-performance companies try to eliminate extra layers of management , an abundance of rules and regulations, and outdated formalities • They want their structures and processes simple for their employees, vendors and customers • Findings confirm the “how” is more important than the “what” of organizational structure

13. Embracing Two of Four Secondary Practices • The four secondary practices are talent, innovation, leadership, and mergers and partnerships • Winning companies had superior performance in two of the four practices (it did not matter which two) • There was no difference if the company excelled in all four or just two, going beyond “4+2” was not rewarded

14. Talent • Hold on to talented employees and find more • Best test of a company’s talent base is ability to replace from within • In-house talent is often cheaper, more reliable, and promotes loyalty

15. Innovation • Make Industry-transforming innovations • Companies apply new technologies to their business processes • Yield huge savings and sometimes have the power to transform an industry

16. Leadership • Find leaders who are committed to the business and its people • The right CEO can raise performance significantly • They must build relationships with people at all levels and inspire the rest of the management team • Must spot opportunities and problems early • Seize opportunities before their competitors do

17. Mergers and Partnerships • Seek growth through mergers and partnerships • The second most popular avenue of growth • Winners created value in most deals they struck • Winning companies often drew lessons from experience enabling them to more consistently choose the right partners and integrate quickly • Underperformers destroyed shareholder value

18. Strategy And Performance : A Conceptual Framework • Within today’s complex business environments, no single person or small group can acquire all that is necessary to make a company successful. • Corporate success depends on the ability of every manager to not just meet their own divisional responsibilities, but how they can influence the company as a whole. • Organizational performance is the result of thousands of decisions made every day by individuals at all levels of organization

19. Strategy And Performance : A Conceptual Framework • When strategy is not effective, focus should be shaping the organizational environment to encourage productive decision making • First step to realigning the organizational environment is to understand why and where suboptimal decisions are made • Success requires the right people, armed with the right information and motivated by the right incentives

20. Strategy And Performance : A Conceptual Framework • In developing the right organizational model, Companies must focus on three critical dimensions • People • Knowledge • Incentives

21. Purpose Strategy Leadership Structure Systems Processes Culture People Performance/Control

22. Strategy, Purpose, and Leadership • Strategy-structure-systems paradigm dominated thinking about the role of corporate leaders for many years. • This doctrine remained dominant for most of the twentieth century and helped companies cope with high growth, integrate operations, and manage diversified business portfolios. • Corporate leaders began to articulate broader, long-term strategic intent to deal with more intense global competition. • Successful strategy development require obtaining commitment, focus, and control at all levels of organization.

23. Strategy and Organizational Change • There are five organizational variables that are key to crating effective organizational change. • Structure • Systems • Process • People • Culture They are all interrelated, so a new strategy often requires change in variables.

24. Structure • The issue of structure is not just one of deciding whether to centralize or decentralize decision making. • The goal should be to create an organizational environment that gathers resources effectively and is naturally self-correcting as strategic changes need to be made.

25. Structure (cont.) • Corporate structures typically reflect on of five dominant approaches to organization: • Functional organizational structures • Geographically based structures • Decentralized (divisional) structures • Strategic business units • Matrix structures

26. Systems • Having the right systems and process enhances organizational effectiveness and facilitates coping with change. • Support systems, such as company’s planning, budgeting, accounting, information, and reward and incentive systems, can be critical to successful strategy implementation.

27. Processes • A process is a systematic way of doing things. • Processes can be formal or informal. • They define organizational roles and relationships, and they can facilitate or obstruct change.

28. People • Attracting, motivating, and retaining the right people have become important strategic objectives. • Many companies have come to realize that developing tomorrow’s skills, individually and collectively, is key to strategic flexibility.

29. Culture • Performance is linked to the strength of a company’s corporate culture. • A company’s corporate culture is a shared system of values, assumptions, and beliefs among a firm’s employees that provides guidance on how to think, perceive, and act.

30. The Balanced Scorecard • A set of measures designed to provide strategists with a quick, yet comprehensive, view of the business • Traditionally, performance has focused on annual budget and operating plan; this promotes short-term, tactical behavior • These must be replaced by a set of measurements that promote performance- and strategy-focused behavior

31. The Balanced Scorecard • Asks managers to view the business from four different perspectives: customer, company capability, innovation and learning, and financial • Provides answers to 4 questions • How do customers see us? • At what must we excel? • Can we continue to improve and create value? • How do we look to our shareholders?

32. Four Areas of Measurement • Customer Concerns • Product quality, on-time delivery, product performance, service, and cost • Each factor must be measured based on customers’ perspectives and expectations • Company Capability • Must achieve operation objectives such as cycle time, product quality, productivity, and cost • This area focuses on inter business processes that enable the organization to meet the customers’ needs

33. Four Areas of Measurement • Innovation and Learning • Deals with ability to create new products, provide value to customers, and improve operating efficiencies • These abilities allow for entering into new markets increasing revenue, margins, and shareholder value • Financials • Signal whether strategy is achieving objectives that relate to profitability, growth, and shareholder value • Measures cash flow, sales growth, operating income, market share, ROA, ROI, ROE, and stock price

34. Evolution Into Management System • Balanced Scorecard encompasses four management processes: • Translating a vision • Communicating goals and linking rewards to performance • Improving business planning • Gathering feedback and learning

35. Performance and Control • Most performance evaluation is focused on outcome control, the attainment of specific targets in specific goals • Outcome control is achieved by altering incentive structures for managers and executives • Sometimes outcome control is not enough when we need to change the existing corporate culture, such as M&A’s • In these instances behavior control is needed, where the company directly monitors behavior rather than providing incentives

36. The Role of the Board • Define its role, agenda, and information needs. • Ensure that management not only performs, but performs with integrity. • Set expectations about the tone and culture of the company. • Formulate corporate strategy with management • Ensure that the corporate culture, the agreed strategy, management incentive compensation, and the company’s approach to audit and accounting, internal controls, and disclosure are consistent and aligned. • Help management understand the expectations of shareholders and regulators.

37. Conclusion • From Good to Great – About Hedgehogs and Flywheels • The 4+2 Formula for Sustained Business Success • Excelling at Four Primary Practices • Embracing Two of Four Secondary Practices • Strategy and Performance: A Conceptual Framework • Strategy, Purpose, and Leadership • Strategy and Organizational Change • The Balanced Scorecard • Performance and Control • The Role of the Board