Ch-02 Crafting and Executing Strategy

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<ul><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 1/52</p><p>McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.</p><p>Chapter 2: Leading the</p><p>Process of Crafting and</p><p>Executing Strategy</p><p>Screen graphics created by:Jana F. Kuzmicki, Ph.D.</p><p>Troy University</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 2/52</p><p>2-2</p><p>Chapter Learning Objectives</p><p>1. Grasp why it is critical for company managers to think long and</p><p>hard about where a company needs to head and why.2. Understand the importance of setting both strategic and financial</p><p>objectives.</p><p>3. Recognize that the task of crafting a company strategy draws onthe entrepreneurial talents of managers at all organizationallevels.</p><p>4. Understand why the strategic initiatives taken at variousorganizational levels must be tightly coordinated to achievecompanywide performance targets.</p><p>5. Become aware of what a company must do to achieve operatingexcellence and to execute its strategy proficiently.</p><p>6. Understand why the strategic management process is ongoing,not an every-now-and-then task.</p><p>7. Learn what leadership skills management must exhibit to drivestrategy execution forward.</p><p>8. Become aware of the role and responsibility of a companysboard of directors in overseeing the strategic management</p><p>process.</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 3/52</p><p>2-3</p><p>Chapter Roadmap</p><p>What Does the Strategy-Making, Strategy-Executingprocess Entail?</p><p> Phase 1: Developing a Strategic Vision</p><p> Phase 2:Setting Objectives</p><p> Phase 3:Crafting a Strategy</p><p> Phase 4:Implementing and Executing the Strategy</p><p> Phase 5: Evaluating Performance and Initiating</p><p>Corrective Adjustments Leading the Strategic Management Process</p><p> Corporate Governance: The Role of the Board of</p><p>Directors in the Strategy-Making, Strategy-Executing</p><p>Process</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 4/52</p><p>Figure 2.1: The Strategy-Making, Strategy-Executing Process</p><p>2-4</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 5/52</p><p>2-5</p><p>Developing a Strategic Vision</p><p> Involves thinking strategically about</p><p> Future direction of company</p><p>Changes in companys</p><p>product/market/customer technology to improve</p><p> Current market position</p><p> Future prospects</p><p>Phase 1</p><p>A strategic vis iondescribes the route a companyintends to take in developing and strengtheningits business. It lays out the companys strategic</p><p>course in preparing for the future.</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 6/52</p><p>2-6</p><p>Key Elements of a Strategic Vision</p><p> Delineates managements aspirations for thebusiness</p><p> Provides a panoramic view of where we are going</p><p> Charts a strategic path</p><p> Is dis t inct iveand speci f ictoa particular organization</p><p> Avoids use of generic language thatis dull and boring and that couldapply to most any company</p><p> Captures the emotions ofemployees and steers themin a common direction</p><p> Is challenging and a bit beyond a</p><p>companys immediate reach </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 7/522-7</p><p>Role of a Strategic Vision</p><p>A well-conceived, well-communicated visionfunctions as a valuable managerial tool to</p><p>Give the organization a sense of direction, moldorganizational identity, and create a commit tedenterprise</p><p> Illuminate the companys directional path</p><p> Provide managers with a reference point toMake strategic decisions</p><p> Translate the vision into hard-edged</p><p>objectives and strategies Prepare the company for the future</p><p>A strategic vision exists only as words and has noorganizational impact unless and un t i l i twins the commitmentof com pany personneland energizes them to actin ways that</p><p>move the company along the intended strategic path!</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 8/52</p><p>Table 2.2: Characteristics of an Effectively Worded Vision Statement</p><p>2-8 </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 9/52</p><p>Table 2.3: Common Shortcomings in Company Vision Statements</p><p>2-9 </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 10/52</p><p>Strategic Vision vs. Mission</p><p> A strategic vis ionconcerns a firms fu ture</p><p>business path - where</p><p>we are going</p><p>Markets to be pursued</p><p> Future product/market/</p><p>customer/technology focus</p><p>Kind of company</p><p>management istrying to create</p><p> A companys miss ionstatementtypically</p><p>focuses on its present</p><p>business purpose - who</p><p>we are and what we doCurrent product and</p><p>service offerings</p><p>Customer needs and</p><p>customer groups being</p><p>served</p><p>Geographic</p><p>coverage</p><p>2-10 </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 11/522-11</p><p>Characteristics of a Mission Statement</p><p> Identifies boundar iesof a companys currentbusiness and says something about</p><p> Present products and services</p><p> Types of customers served</p><p>Geographic coverage</p><p> Conveys</p><p>Whowe are,</p><p>Whatwe do, and</p><p>Whywe are hereA good mission statement describes a companys business</p><p>makeup and purposein language speci f ic enoug hto give</p><p>the company i tsown ident i tyand dis t inguish i t f rom</p><p>other enterpr isesin the same or other industries! </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 12/522-12</p><p>Key Elements of aMission Statement</p><p> A complete mission statement should cover threethings:</p><p> Customer needs being met</p><p>What is being sat isf ied</p><p> Customer groups or markets being served</p><p>Who is being sat isf ied</p><p>What the organization does (in terms of businessapproaches, technologies used, and activitiesperformed) to satisfy the targeted needs of the</p><p>targeted customer groupsHow cus tomer needs are satisf ied</p><p>A companys mission is notto make a profit! Its true</p><p>mission is its answer to What will we do to make a profit?</p><p>Making a profit is an object iveorin tended outcome! </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 13/522-13</p><p> Companies often develop a statement of valuesto guide a</p><p>companys pursuit of its vision and strategy and paint the whitelines for how a companys business is to be conducted</p><p> Company values statements typicallycontain four to eight beliefs, traits, andbehaviors relating to such things as</p><p> Fair treatment, integrity, ethical behavior,innovation, teamwork, product quality, customer satisfaction,social responsibility, community citizenship</p><p> But values statements remain a bunch of nice word s unti lespoused beliefs, traits, and behaviors are</p><p> Incorporated into companys operations and work practices</p><p> Used as benchmarks for job appraisal, promotions, andrewards</p><p>Linking the Visionwith Company Values</p><p>If company personnel are not held accountable</p><p>fordisp lay ing company valuesin doing their jobs, then the</p><p>company values statement is a bunch of empty words! </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 14/522-14</p><p>Winning suppor tfor the vision involves Putting where we are going and why in writing</p><p>Distributing the statement organization-wide</p><p>Having executives explain vision to employees</p><p> An engaging , insp irat ionalvision</p><p>Challenges and motivates workforce</p><p>Articulates a compelling case</p><p>for where company is headed</p><p> Evokes positive support and excitement</p><p>Arouses a committed organizational</p><p>effort to move in a common direction</p><p>Communicating the Strategic Vision</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 15/522-15</p><p>Recognizing Strategic Inflection Points</p><p> Sometimes an order-of-magnitude change occurs in</p><p>a companys environment that</p><p> Dramatically alters its future prospects</p><p> Mandates radical revision of its strategic course</p><p> Critical decisions have to be made about where togo from here</p><p> A major new directional path may have to be taken</p><p> A major new strategy may be needed</p><p> Responding quickly to unfolding changes in the</p><p>marketplace lessons a companys chances of</p><p> Becoming trapped in a stagnant business or</p><p> Letting attractive new growth opportunities slip away</p><p>O i R i</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 16/522-16</p><p>Mobilizing suppor tfor a new vis ionentails</p><p>Reiterating basis for the new direction</p><p>Addressing employee concerns head-on</p><p>Calming fears</p><p> Lifting spirits</p><p> Providing updates and progress</p><p>reports as events unfold</p><p>Overcoming Resistance toa New Strategic Vision</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 17/522-17</p><p>Crystal l izesan organizations long-termdirection</p><p> Reduces r iskof rudderless decision-making</p><p> Creates a comm it ted enterpr isewhere organizational members</p><p>enthusiastically pursue efforts to</p><p>make the vision a reality</p><p> Provides a beacon to keep strategy-related</p><p>act ionsof all managers on common path</p><p> Helps an organization prepare for the future</p><p>Payoffs of a Clear Strategic Vision</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 18/522-18</p><p>Setting Objectives</p><p> Purposeofsett ing ob ject ives</p><p> Converts vision into specific performance targets</p><p> Creates yardsticks to track performance</p><p> Well-stated ob ject ivesare</p><p> Quanti f iable</p><p>Measurable</p><p> Contain a deadl inefor achievement</p><p> Spell-out how muchofwhat k ind</p><p>of performance by when</p><p>Phase 2</p><p>I t f S tti</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 19/522-19</p><p>Importance of SettingStretch Objectives</p><p>Object ivesshould be set at levels thatstretchan organization to</p><p> Perform at its full potential,</p><p>delivering the best possible results</p><p> Push firm to be more inventive</p><p> Exhibit more urgency to improve its business</p><p>position</p><p> Be intentional and focused in its actions</p><p>Theres no better way to avoid ho-hum resul tsthan</p><p>by set ting stretch object ivesand using compensat ion</p><p>incent ivesto motivateorganization members to</p><p>achieve the stretch performance targets! </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 20/52</p><p>Types of Objectives Required</p><p>Financial Objectives Strategic Objectives</p><p>Outcomes focused</p><p>on improving f inancial</p><p>per formance</p><p>Outcomes focused on</p><p>improving compet i t ive</p><p>strengthand marketstanding</p><p>$</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 21/522-21</p><p>Examples: Financial Objectives</p><p> Annual revenue growth of X%</p><p> X % increase in after-tax profits annual</p><p> Earnings per share growth of X% annually</p><p> Annual dividend increases of X%</p><p> Profit margins of X%</p><p> X% return on capital employed (ROCE)</p><p> Annual stock price increases that average X% over</p><p>time</p><p> Strong bond and credit ratings</p><p> Sufficient internal cash flows to fund 100% of new</p><p>capital investment</p><p> Stable earnings during periods of recession</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 22/522-22</p><p> Winning an X% market share within 3 years</p><p> Achieving lower overall costs than rivals</p><p> Overtaking key competitors on product performance</p><p>or quality or customer service within 2 years</p><p>Deriving X% of revenues from sale of new productsintroduced in past 5 years</p><p> Being the recognized industry leader in product</p><p>innovation and/or technological know-how</p><p>Having a wider product line than rivals</p><p> Consistently getting new or improved products to</p><p>market ahead of rivals</p><p> Having stronger national or global sales and</p><p>distribution capabilities than rivals</p><p>Examples: Strategic Objectives</p><p>G d St t i P f I th K</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 23/522-23</p><p> Achieving goodf inancial performance isnot enough</p><p> Current financial results are lagging indicatorsreflectingresults ofpastdecisions and actions goo d prof i tabil i ty nowdoes not translate into stron ger capabi l i ty for del iver ing evenbetter financ ial results later</p><p> However, setting well-chosen strategicobjectives and achieving them signals</p><p> Growing compet it iveness</p><p> Growing strength in the marketplace</p><p> A company that is growing compet it ively stronger isdeveloping th e capabi l i ty for better f inancial performancein the years ahead</p><p> Good strategic performance is thus aleading indicatorof acompanys capability to deliver improvedfuturefinancial performance</p><p>Good Strategic Performance Is the Keyto Better Financial Performance</p><p>Unless a com panysetsandachieves s tretch strategic ob ject ives</p><p>i t is no t develop ing the com peti t ive muscle todel iver even</p><p>better financial resu ltsin the years ahead!</p><p>A B l d S d A h</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 24/52</p><p>2-24</p><p> A balanced sco recardfor measuring</p><p>company performance is optimal; it entails Setting financial andstrategic objectives</p><p> Placing balanced emphasis on achieving</p><p>both types of object ives</p><p>(However, if a companys financial performance is dismal or if its very</p><p>survival is in doubt because of poor financial results, then stressingthe achievement of the financial objectives and temporarily de-emphasizing the strategic objectives may have merit)</p><p> Jus t track ing f inancial perform ance over look s the</p><p>impo r tance of m easur ing whether a company is</p><p>strengthening i ts compet i tiveness and m arket</p><p>pos i t ion</p><p>A Balanced Scorecard ApproachSetting Strategic andFinancial Objectives</p><p>The surest pathto sus tained fut ure prof i tabi l i tyyear afteryear is to relentlessly pursue strategic ou tcomesthat</p><p>strengthen a companys business position and give it a</p><p>growing com peti t ive advantageover rivals! </p><p>Both Short Term and Long Term</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 25/52</p><p>2-25</p><p>Both Short-Term and Long-TermObjectives Are Needed</p><p>Short-term ob ject ives Targets to be achieved soon</p><p> Milestones or stair steps for reaching long-range</p><p>performance targets</p><p> Long -term object ives</p><p> Targets to be achieved within</p><p>3 to 5 years</p><p> Calls for actions now that will</p><p>permit reaching targeted</p><p>long-range performance later</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 26/52</p><p>2-26</p><p>Concept of Strategic Intent</p><p>A company exhibits strateg ic intentwhen it relent lessly pu rsuesan</p><p>ambit ious strategic object ive,</p><p>concentrating the full force of itsresources and competitive actions on</p><p>achieving that objective!</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 27/52</p><p>2-27</p><p>Characteristics of Strategic Intent</p><p>Indicates firmsin tent</p><p>to makingquantum</p><p>gainsin competing against key rivals and to</p><p>establishing itself as a winner in the</p><p>marketplace, often against long odds</p><p> Involves establishing a grandioseperformance targetout of proportion to</p><p>immediate capabilities and market position but</p><p>then devoting the firms full resources and</p><p>energies to achieving the target over time</p><p> Entails sustained, agg ress ive act ion sto take</p><p>market share away from r ivalsand achievea</p><p>much s tronger market posi t ion </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 28/52</p><p>2-28</p><p>Objectives Are Needed at All Levels</p><p>1. First, set organizat ion-wideobjectivesand performance targets</p><p>2. Next, set businessandproduct l ineobjectives</p><p>3. Then, establish funct ionaland departmentalobjectives</p><p>4.Indiv idualobjectives are established last</p><p>The ob ject ive-sett ing pro cess is more top-down than bot tom up</p><p>C fti St t </p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 29/52</p><p>2-29</p><p>Crafting a Strategy</p><p> Strategy-makinginvolves astuteentrepreneurshipActively searching for opportunities</p><p>to do new things</p><p>orActively searching for opportunities to do</p><p>existing things in new or better ways</p><p> Strategizinginvolves</p><p>Developing timely responses to happeningsin the external environment</p><p>and</p><p> Steering company activities in new directions</p><p>dictated by shifting market conditions</p><p>Phase 3</p><p>Crafting a Good Strategy Requires</p></li><li><p>7/27/2019 Ch-02 Crafting and Executing Strategy</p><p> 30/52</p><p>2-30</p><p>Crafting a Good Strategy RequiresGood Business Entrepreneurship</p><p> Developing a winning strategy involves</p><p>Diagnosing the direction and force of</p><p>the market changes underway and making</p><p>timely stra...</p></li></ul>