Chapter 2: Leading the Process of Crafting and Executing Strategy

1. Chapter 2: Leading the Process of Crafting and Executing Strategy Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

2. Chapter Learning Objectives • Grasp why it is critical for company managers to think long and hard about where a company needs to head and why. • Understand the importance of setting both strategic and financial objectives. • Recognize that the task of crafting a company strategy draws on the entrepreneurial talents of managers at all organizational levels. • Understand why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets. • Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently. • Understand why the strategic management process is ongoing, not an every-now-and-then task. • Learn what leadership skills management must exhibit to drive strategy execution forward. • Become aware of the role and responsibility of a company’s board of directors in overseeing the strategic management process.

3. 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

4. Figure 2.1: The Strategy-Making, Strategy-Executing Process 2-4

5. Developing a Strategic Vision Phase 1 • 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.

6. 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 thatis 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

7. 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-edgedobjectives and strategies • Prepare the company for the future A strategic vision exists only as words and has noorganizational impact unless and until itwins the commitmentof company personnel and energizes them to act in ways thatmove the company along the intended strategic path!

8. Table 2.2: Characteristics of an Effectively Worded Vision Statement 2-8

9. Table 2.3: Common Shortcomings in Company Vision Statements 2-9

10. Strategic Vision vs. Mission • A strategic vision concerns a firm’s futurebusiness 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 2-10

11. Characteristics of a Mission Statement • Identifies boundaries of a company’s currentbusiness 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 itsown identity and distinguish it from other enterprises in the same or other industries!

12. 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!

13. Values Linking the Visionwith Company Values • 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 untilespoused beliefs, traits, and behaviors are • Incorporated into company’s operations and work practices • Used as benchmarks for job appraisal, promotions, and rewards If company personnel are not held accountablefor displaying company values in doing their jobs, then thecompany values statement is a bunch of empty words!

14. Communicating the Strategic Vision • 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 casefor where company is headed • Evokes positive support and excitement • Arouses a committed organizationaleffort to move in a common direction

15. 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

16. Overcoming Resistance toa New Strategic Vision • Mobilizing supportfor 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

17. Payoffs of a Clear Strategic Vision • Crystallizes an organization’s long-term direction • Reduces risk of rudderless decision-making • Creates a committed enterprisewhere 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

18. Setting Objectives Phase 2 • 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

19. Importance of SettingStretch Objectives • Objectives should be set at levels thatstretchan 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 stretchobjectives and using compensation incentives to motivate organization members to achieve the stretch performance targets!

20. Types of Objectives Required $ Financial Objectives Strategic Objectives Outcomes focusedon improving financial performance Outcomes focused on improving competitive strength and market standing

21. 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

22. Examples: Strategic Objectives • 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

23. Good Strategic Performance Is the Key to Better Financial Performance • Achieving goodfinancial performance isnot 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 Unless a company sets and achieves stretch strategic objectivesit is not developing the competitive muscle to deliver evenbetter financial results in the years ahead!

24. A Balanced Scorecard Approach –Setting Strategic and Financial Objectives • A balanced scorecardfor 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 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!

25. 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 within3 to 5 years • Calls for actions now that willpermit reaching targetedlong-range performance later

26. Concept of Strategic Intent A company exhibits strategic intent when it relentlessly pursuesan ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective!

27. 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 achievea much stronger market position

28. Objectives Are Needed at All Levels The objective-setting process is more top-down than bottom up 1. First, set organization-wideobjectives and performance targets 2. Next, set business andproduct line objectives 3. Then, establish functionaland departmental objectives 4.Individual objectives are established last

29. Crafting a Strategy Phase 3 • Strategy-making involves astuteentrepreneurship • Actively searching for opportunitiesto 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

30. 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

31. 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!

32. 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 • Howto manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on) • How to achieve targeted levels of performance

33. Who Is Involved in Strategy Making? • CEO (chief executive officer) • Has ultimate responsibility for leadingthe strategy-making process • Functions as strategic visionary andchief 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

34. 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!

35. Figure 2.2: A Company’s Strategy-Making Hierarchy 2-35

36. 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 strategyshould fittogether like the pieces of a puzzle • Key approaches used to unifyall strategic initiatives into acohesive, company-wide action plan • Effectively communicatecompany’s vision, objectives, and major strategies to all personnel • Diligently reviewlower-level strategies for consistency and support of higher-level strategies—revise as needed

37. What Is a Strategic Plan? Itsstrategic visionand business mission ACompany’s Strategic Plan Consists of Itsstrategicandfinancial objectives Itsstrategy 2-37

38. Implementing and Executing Strategy Phase 4 • 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

39. What Does Implementing and Executing the Strategy Involve? • Building a capable organization • Allocating resources to strategy-critical activities • Establishing strategy-supportive policies • Instituting best practices and programsfor 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

40. Evaluating Performance andMaking Corrective Adjustments Phase 5 • 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 actionsand adjustmentson an as-needed basis

41. Monitoring, Evaluating, and Adjusting as Needed • 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

42. 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

43. Things a Chief Strategy Implementer Must Do to Be Successful • Stay on top of what’s happening • Make sure company has agood strategic plan • Put constructive pressure oncompany to achieve good results • Push corrective actions to improve overall strategic performance • Lead development of stronger corecompetencies and competitive capabilities • Display ethical integrity and lead social responsibility initiatives

44. Role #1: Stay on Topof What’s Happening • 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

45. 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

46. Role #3: Put Constructive Pressure on Company to Achieve Good Results • 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

47. 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

48. Role #5: Promote Stronger CoreCompetencies and Capabilities • Top management intervention isrequired to establish better or new • Resource strengths and competencies • Competitive capabilities • Senior managers mustlead the effort because • Competencies reside in combinedefforts of different work groups and departments, thus requiring cross-functional collaboration • Stronger competencies and capabilitiescan lead to a competitive edge over rivals

49. Our ethics code is . . . 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

50. Corporate Governance:Strategic Role of a Board of Directors • 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