Strategy a View from the Top Chapter 2: “ How Strategy and Performance are Linked”

Strategy a View from the TopChapter 2:“How Strategy and Performance are Linked” Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

Level 5 Leadership • Top Leadership defines a significant difference between good and great companies • Common characteristic of the great companies assessed in “Good to Great,” displays an unusual mix of intense determination and profound humility

Nature of the Leadership Team • The process of securing individuals with level 5 leadership abilities must be undertaken BEFORE a strategy should be developed • Worthwhile for firms to spend extra time and energy on personnel searchers because with the right people in the right positions, many companies problems dissipate. • Must have a willingness to identify and assess defining facts in a company and its larger business environment

Metaphor of the Hedgehog Simplicity can sometimes lead to greatness • When confronted by predators, the hedgehog’s simple, but effective response of rolling into a ball can rarely be overcome by its more clever predators, such as a fox • Being Good to Great is not doing many things well, but instead doing ONE thing better than anyone else

Criteria to Achieve “Hedgehog Concept” • Determine what the company can and cannot be the best at • Determine what drives the company’s economic engine • Determine what the company’s people are deeply passionate about

The “Flywheel Effect” • Advantageous business cycle: by making decisions that reinforce the company’s “hedgehog” competencies, execs initiate positive momentum, results in positive outcomes, which serve to energize investment/loyalty of the staff • The Doom Loop: reactive decision making, an overextension into too many diverse areas of concentration, following short lived trends, frequent changes in leadership and personnel, loss of moral, and disappointing results.

Other Items of Importance: • Have an overarching organizational culture of discipline • Businesses should not depend on technology alone • Companies need a set of core values

The 4+2 Formula • A study aimed at identifying the must have management practices concluded companies that outperformed their industry peers excelled at 4 primary management practices: • Strategy • Execution • Culture • Structure • These strengths were augmented with at least 2 of the 4 secondary management practices • Talent • Innovation • Leadership • Mergers/Partnerships

Strategy and Performance: A Conceptual Framework Purpose Strategy Leadership Structure Systems Processes People Culture Performance/Control

Strategy, Purpose, and Leadership • Strategy-structure-systems paradigm dominated the 20th century • The principal strength was that it minimized human initiative with disciplined planning and control systems • Lost effectiveness with the rise of global competition • Move from “chief strategist” to “chief facilitator” • Sought ways to involve employees at all levels in the strategic management process • Strategic discipline and control secured through commitment

Strategy and Organizational Change • Keys to effective organizational change • Structure • Systems • Processes • People • Culture • Successful implementation of a new strategy requires change in all of these. • Also, style, skills, and superordinate goals are as important as strategy or structure when bringing about change.

Structure • Choosing structure involves identifying dimensions that allow the organization adapt and evolve strategically. • Goal is to create an environment that • Allocates resources effectively • Is naturally self correcting as strategic changes need to be made • No matter which form is used, transparency is critical • Lines of authority need to be clear • Responsibilities must be clearly defined

Structure • Types of Structure • Functional – particular task requires many specialists • Geographic – company operates in a diverse set of regions • Decentralized – reduce complexity in multibusiness environment • Strategic business- defines grouping businesses that share key strategic elements • Matrix structures- allow multiple channels of authority

Systems and Processes • The right systems and processes can enhance an organization’s effectiveness and ability to cope with change • Supporting Systems: Planning, Budgeting, Accounting, Information, Reward, and Incentive • Processes • Systematic way of doing things • Formal or informal

Culture • Elements of Strong Culture • Leaders who demonstrate strong values that align with competitive conditions • Company commitment to operating under pervasive principles not easily abandoned • Concern for employees, customers and shareholders • Elements of Weak Culture • Employees report experiencing separateness from the organization • Prevalence of political maneuvering • Hostility toward change

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. • Manifested through: • Artifacts • Shared values • Basic assumptions

The Balanced Scorecard • A set of measures designed to provide strategists with a quick, comprehensive view of the business. • It helps to answer four basic 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 company’s shareholders?

The Balanced Scorecard(cont.) • Customer driven • The scorecard uses four management processes: • Translating a vision • Communication • Improving business planning • Gathering feedback and learning

Performance and Control • Most methods for measuring and evaluating performance are focused on outcome control. • The company directly monitors specific business units through behavior control to maximize performance.

The Role of the Board • Fundamentals of board revolve around creating a “culture of high performance” • To “direct” the company and determine and prioritize what they should focus it’s attention and focus on. • Six specific tasks

The Role of the Board • In order to create a “high performance culture”, a board should complete these 6 tasks: • Define it’s role, agenda, and information needs • Ensure that management not only performs, but performs with integrity • Set expectations about the tone and culture • Formulate corporate strategy with management • Ensure that the corporate culture aligns • Help management understand expectations

Strategy a View from the Top Chapter 2: “ How Strategy and Performance are Linked”