Strategy - A View From The Top

Chapter 2

BY:Brian Davis

Larin SandersIvan Salazar

Going From Good To Great – Level 5 leaders – Become a hedgehog – Technology – Flywheel effect • Doom loop

– Core values

4 + 2 = Sustained Business SuccessMcKinsey & Co, Joyce, Nohria, and Roberson

• MUST excel at 4 primary management practices – Strategy – Culture– Execution – Structure

4 + 2 = Sustained Business Success

• Strategy – Devise and maintain a clearly stated, focused

strategy – Communicate strategy to everyone – Focus on growth – Understand the knowledge about the company

4 + 2 = Sustained Business Success

• Culture – Develop and maintain a performance-oriented

culture – Develops and encourages outstanding individuals

and team contributions – Low turnover – Set a benchmark outside the industry

4 + 2 = Sustained Business Success

• Execution– Develop and maintain a flawless operational

execution – Make the process as efficient as possible

• Structure – Build and maintain a fast, flexible, flat organization– Simple as possible

4 + 2 = Sustained Business Success

• MUST master 2 or more of the 4 secondary management practices– Talent – Innovation – Leadership– Mergers and partnerships

• Talent – Hold on to talented employees and find more – Building and retaining an effective workforce team

• Innovation – Make industry-transforming innovations – Can transform an industry

4 + 2 = Sustained Business Success

• Leadership – Find leaders who are committed to the business

and its people – Choosing the right CEO can raise performance

significantly • Mergers and Partnerships – Seek growth – 2nd most popular avenue of growth – Small consistent deals

4 + 2 = Sustained Business Success

• How to be Successful – Learn how to implement your business decisions – Use selected technology – Going beyond is not rewarded – Must implement flawlessly– Must be able to excel on six or more dimensions

always

4 + 2 = Sustained Business Success

Strategy And Performance : A Conceptual FrameworkIn developing the right organizational model, companies must focus on three critical dimensions:

1. People 2. Knowledge 3. Incentives

Strategy

Purpose

Leadership

Structure

Systems Processes

Culture

Performance/Control

People

Strategy, Purpose, and Leadership• Strategy-structure-systems: create the right

organizational structure and disciplined planning and control support systems.

• This doctrine helped companies cope with high growth, integrate operations, and manage diversified business portfolios.

• Minimizing human initiative, which has been a principal strength, became a major weakness.

• New competitive realities lead to managers focusing on developing corporate competencies such as innovation, entrepreneurship, and decentralized decision making.

Strategy, Purpose, and Leadershipcont.

• Corporate leaders began to articulate broader, long-term strategic intent to deal with more intense global competition.

• Also, sought ways to involve employees at all levels in the strategic management process.

• Strategic leadership recognizes that strategic discipline and control are secured through commitment, not compliance.

Strategy and Organizational Change

• There are five organizational variables that are key to creating effective organizational change.– Structure– Systems– Process– People – Culture

• They are all interrelated, so a new strategy often requires change in ALL variables.

• Style, skills, and superordinate goals.

Structure• The issue of structure is not just one of

deciding whether to centralize or decentralize decision making.

• Vital for an organization to be able to

adapt and evolve strategically and then adopting a structure that allows it to refocus as and when necessary.

Structure cont.• Corporate structures reflect 1 out of 5

dominant approaches to organization: functional, geographically, decentralized, strategic business unit, & matrix structures.

• Overall, The goal should be to create an organizational environment that gathers resources effectively and is naturally self-correcting as strategic changes need to be made.

Systems and Processes• The right systems and process enhances

organizational effectiveness & facilitates coping with change.

• A company’s planning, budgeting and accounting, information, and reward and incentives systems can be critical to successful strategy implementation.

• A process is a systematic way of doing things. • Defines the organizational roles and

relationships, and they can facilitate or obstruct change.

People• Attracting, motivating, and retaining the right people have become important strategic objectives.

• Many companies have recognized how expensive it is to replace knowledge and talent.

• Improvement through skill development.

• Developing tomorrow’s skills, individually and collectively, is key to strategic flexibility.

Culture• Performance is linked to the strength of a

company’s corporate culture.• Leaders must demonstrate strong values and a

concern for employees, customers, and shareholders.

• 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.– artifacts, shared values, and basic assumptions

• Words and phrases are used to define the image a firm wants to portray.

The Balanced Scorecard• Developed by Robert Kaplan and David Norton • A set of measures designed to provide strategists with a quick,

yet comprehensive, view of the business• Answers 4 basic questions1. How do customers see us?2. At what must we excel? 3. Can we continue to improve and create value?4. How do we look to our company’s shareholders?

The Balanced Scorecard

• The Balanced Scorecard requires managers to translate a broad customer-driven mission statement into factors that directly relate to customer concerns such as :

• Product quality • On-time delivery • Product performance • Service and cost• Measures are defined and are articulated into

performance metrics.

The Balanced Scorecard

• Evolved over time into an overall management system that encompasses 4 management processes:

1. Translating a vision2. Communicating goals and linking rewards to performance 3. Improving business planning4. Gathering feedback and learning

Performance and control

• Most methods for measuring and evaluating performance at different levels in the organization are focused on outcome control.

• Outcome control is principally achieved by altering the incentive structure for business units, executive teams, and individual management.

• But, when changing existing corporate culture a behavior control style of management should be used.

The Role of the Board

• Creating a culture of high performance is central to a board of directors’ fundamental mandate which is to “direct the affairs of the company”.

• To create a high performance culture a board should do the 6 following things:

• 1. Define its role, agenda, and information needs.

• Boards must define their priorities and a view of what matters most to the success of the enterprise.

• Provides guidance and support

• Board should know the business of the company and the competitive environment in which it operates.

2. Ensure that management not only performs, but performs with integrity.

• Directors should assess management’s integrity not only at the outset in their hiring decisions, but continuously through the decisions made by management.

3. Set expectations about the tone and culture of the company.

• The board plays an important role in assuring that management is promoting an appropriate ethical culture within the company.

• “Tone at the top” should be a priority throughout the company and not viewed simply as a compliance mater.

• 4. Formulate corporate strategy with management.

• The board should challenge the management team to propose and continually fine-tune the corporate strategy.

• The board should determine benchmarks

• 5. Ensure that the corporate culture and the company’s approach to audit and accounting, internal controls, and disclosure are consistent and aligned.

• 6. Help management understand the expectations of shareholders and regulators.