Strategy Formulation (3 points: Values, Synergy, Core Competence of GE)
A strategy is an integrated, overarching plan of how an organisation will achieve its
objectives. It represents the means to an end. Requires: > Vision Statement > Mission Statement > Corporate Objectives > Assessment of internal and external environments Examples: > Diversifcation > Joint Ventures > Mergers > Acquisitions > New product development > Entering new markets How do you select among these options? (SWOT Analysis) Today, with increasing competitive pressure, frms need leaders to: > Continuously seek opportunities for new strategies > Be aware of what reactions such strategies will incite from competitors > Be prepared to defend their own interests when rivals attack (Samsung vs Apple lawsuits) Firms with innovation strategy: high-performing frms vs low-performing frms > Stronger and more defned leadership > More defned culture styles A casual relationship exists among: > Strategy + organisational culture + leadership + innovation Good Strategies > Focus on exploiting opportunities in the organisations external environment that matches the organisations strength > Must refect the core mission and objectives of the organisation > Must enhance value to customers > i.e. the ratio of benefts received to the cost incurred by the customer > Must create synergistic opportunities > i.e. when organisational units or systems interact, they produce a joint result that is greater than the sum of the parts acting independently; 2 + 2 = 5 phenomenon > Build on companys core competence > i.e. capability that allows an organisation to perform extremely well in comparison to competitors > Role of a strategic leader is to identify the organisations unique strengths > i.e. a source of sustainable competitive advantage when they are rare, hard to imitate, not easily substitutable, creates value for the frm Sustaining the competitive advantage of a frm > Core competencies match the opportunities available in the external environment and consistently generate higher customer value. > Knowledge, especially people-based knowledge, is the most distinctive and hard to imitate resource > Shared belief that an organisations fnancial and strategic success is partially dependent on the actions and interactions of employees as they share ideas and information across functional boundaries (remember cross-functional teams?) > Knowledge-based competitive advantage is hard to imitate or copy because it resides in people, not physical assets > Unlike physical resources which deplete when used, core competencies increase (in terms of efcient application) What is a strategy? > Just the means to the end result of meeting customers needs proftably > Many business failures occur because the company pays too much attention to the means and ignoring the customer > The customer must be central in strategy formulation because without consumers buying the products and services ofered by a frm, strategy fails and performance sufers > Creating a winning market leadership program that maximises customer value creation is a precondition for frm proftability and survival Strategy Implementation (Skills, Working with people, Conficts etc.) What is Efective Strategy Implementation? > Objectives have a greater chance of being met = better frm performance Why is it the most important and most difcult part of the strategic management process? > Requires strong leadership > Afected by style of leadership > Recall directive/task-oriented leadership > Recall consultative, participative, people oriented leadership > Afected by abundance of managerial skills > Persuasiveness, administrative ability, communication, knowledge about team dynamics, social skills, conceptual skills > Strategy implementation eforts will afect frm performance Strategy Implementation: What else is required > Galvanise the organisations employees and managers at all levels to turn formulated strategies into action > An excellent strategy that is poorly executed will yield the same poor results as a bad strategy > Careful consideration must be paid to its implementation as well, not just its formulation Obstacles to Efective Strategy Implementation / Why is Strategy Implementation the most difcult stage? > Lack of resources: most strategies fail because of this > Leader must prioritise and make resources available during strategy implementation > Rewards and other forms of compensation must be aligned with the goals that employees are seeking to accomplish > Time is of essence > Being careful and rational is important but not sufcient if managers are slow to initiate actions > Managers must avoid becoming trapped in vicious cycle of rigidity and inaction that prevents them from acting in a timely fashion > It involves dealing with people who have varying levels of motivation, commitment, dedication > These diferences often result in interpersonal conficts, if left unresolved, can signifcantly afect implementation eforts and performance. > Managers must be able to motivate employees to cooperatively perform at high levels > If right employees are not in place or the leader lacks people skills, it will be difcult > Many components need to be integrated to turn a chosen strategy into action > Leadership decisions in these areas must match the requirements of the chosen strategy, mission and objectives of the company: annual objectives, structure, culture, pay or reward systems, budget allocation, organisational rules, policies and procedures I.e. Company pursuing strategy of diferentiation through innovation => where company is bureaucratic, hierarchical in structure = mismatch between strategy and structure I.e. Company pursuing strategy of internal efciency and stability, aimed at ofering customers lower prices than competitors = more likely to succeed with this type of centralised hierarchical structure because of strict controls on cost containment I.e. Strategy vs culture, strategy vs structure, strategy vs environment misalignment = high chances of failure Evaluation (3 activities of evaluating/Balance Score Card) Strategy evaluation is the fnal stage in the strategic management process: > One: Reviewing internal and external factors that are the bases for the current strategies > Two: Measuring performance against stated objectives > Three: Taking corrective action I.e. Step Two = bad > This will be responsibility of strategic leader to encourage meaningful communication and interaction among managers and employees across hierarchical levels > This is because it allows feedback from strategy evaluation to be shared throughout the organisation and necessary changes implemented > The job of strategic leadership os to foster and promote a culture of openness and teamwork throughout the organisation Balance scorecard: > Translates mission and vision statements into a comprehensive set of objectives and performance measure that can be quantifed and appraised > Worksheet? Feedback