Chapter 2: Leading the Process of Crafting and Executing Strategy

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

McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

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 companys board of directors in overseeing the strategic management process.
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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

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Figure 2.1: The Strategy-Making, Strategy-Executing Process

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Developing a Strategic Vision

Phase 1
Involves thinking strategically about Future direction of company Changes in companys 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 companys strategic course in preparing for the future.
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Key Elements of a Strategic Vision

Delineates managements 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 companys 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 companys 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!
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Table 2.2: Characteristics of an Effectively Worded Vision Statement

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Table 2.3: Common Shortcomings in Company Vision Statements

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Strategic Vision vs. Mission

A strategic vision A companys mission

concerns a firms 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

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 companys 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
A good mission statement describes a companys business makeup and purpose in language specific enough to give the company its own identity and distinguish it from other enterprises in the same or other industries!
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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
A companys 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!
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Linking the Vision with Company Values

Companies often develop a statement of values to guide a

companys pursuit of its vision and strategy and paint the white lines for how a companys 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 companys operations and work practices Used as benchmarks for job appraisal, promotions, and rewards 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!
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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 case for where company is headed Evokes positive support and excitement Arouses a committed organizational effort to move in a common direction
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Recognizing Strategic Inflection Points

Sometimes an order-of-magnitude change occurs in

a companys 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 companys chances of

Becoming trapped in a stagnant business or Letting attractive new growth opportunities slip away
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Overcoming Resistance to a New Strategic Vision

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
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Payoffs of a Clear Strategic Vision

Crystallizes an organizations 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
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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 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
Theres 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!
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Types of Objectives Required

Financial Objectives
Outcomes focused on improving financial performance

Strategic Objectives
Outcomes focused on improving competitive strength and market standing

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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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
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Good Strategic Performance Is the Key to Better Financial Performance

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 companys capability to deliver improved future 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 Approach Setting Strategic and Financial Objectives

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 companys 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 deemphasizing 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 companys business position and give it a growing competitive advantage over rivals!
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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 firms 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 firms 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

The objective-setting process is more topdown than bottom up
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

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Crafting a Strategy
Phase 3
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 firms competitive capabilities

Proactively trying to out-innovate rivals
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The Role of Astute Entrepreneurship in Crafting a Companys 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!
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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 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 onthe-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 groupmany strategic issues are complex or cut across multiple areas of expertise
The more a companys 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 todays companies every manager typically has a strategy-making roleranging from major to minorfor the area he or she heads!
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Figure 2.2: A Companys Strategy-Making Hierarchy

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Uniting the Companys Strategy-Making Effort

A firms 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 companys vision, objectives, and major strategies to all personnel Diligently review lower-level strategies for consistency and support of higher-level strategiesrevise as needed
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What Is a Strategic Plan?

Its strategic vision and business mission

A Companys Strategic Plan Consists of

Its strategy
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Its strategic and financial objectives

Implementing and Executing Strategy

Phase 4
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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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 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

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Evaluating Performance and Making 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 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

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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/or redefining the mission/vision Raising, lowering, or changing performance objectives Modifying the strategy Improving strategy execution
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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
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Things a Chief Strategy Implementer Must Do to Be Successful

1. Stay on top of whats 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
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Role #1: Stay on Top of Whats Happening

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
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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 companys 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 higherlevel strategies

Effective leadership minimizes

potential for conflict between different levels in the strategy hierarchy

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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

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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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Role #5: Promote Stronger Core Competencies and Capabilities

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
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Role #6: Display Ethics Leadership and Lead Social Responsibility Initiatives
Set an excellent example in
Our ethics code is . . .

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

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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

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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 companys

financial accounting and reporting practices

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Key Responsibilities of Board Members

Be well informed about a companys 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!
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