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Crafting and Executing Strategy
The Quest for Competitive Advantage
Arthur A. Thompson, Margaret A. Peteraf
John E. Gamble, Dr. A.J. Strickland
Charting a Company’s Direction
Chapter 2
Learning Objectives.
| LO 2-1 | Explain why it is critical for managers to have a clear strategic vision of where the company needs to head | |
| LO 2-2 | Explain the importance of setting both strategic and financial objectives | |
| LO 2-3 | Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated | |
| LO 2-4 | Identify what a company must do to achieve operating excellence and to execute it strategy proficiently | |
| LO 2-5 | Explain the role and responsibility of a company’s board of directors in overseeing the strategic management process | |
Stage 1 : Developing a Strategic Vision, Mission Statement and Set of Core Values
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Stage 1: Developing
Develop a strategic vision
The views and conclusions about the company’s long term direction
Decide what product-market-customer business mix seems optimal
Tells the stakeholders what direction the company is headed
Be distinct, specific, and avoid broad statements
Should be able to direct lower-level managers on decisions in line with the company’s values
Developing a Strategic Vision
A strategic vision describes management’s aspirations for the company’s future and the course and direction charted to achieve them
An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to action tat moves the company in the intended long-term direction
The real purpose of a vision statement is to serve as a management tool for giving the organization a sense of direction
For a strategic vision to function as a valuable management tool, it must convey what top executives want the business to look like and provide managers at all organizational levels with a reference point in making strategic decisions and preparing the company for the future
Wording of Vision Statement … the Dos and Don’ts
| The Dos | The Don’ts |
| Be graphic … paint a clear picture | Don’t be vague or incomplete … identify specifics |
| Be forward-looking and directional– what are the future plans | Don’t dwell on the present … where are we going |
| Keep it focused … in making decisions and allocating resources | Don’t use overly broad language |
| Have some wiggle room … allow language with flexibility to adjust to changes in the market, customers, technology | Don’t state the vision in bland or uninspiring terms |
| Be sure the journey is feasible … what the company can accomplish overtime | Don’t be generic |
| Indicate why the directional path makes good business sense … what are long term interests of stakeholders | Don’t rely on superlatives |
| Make it memorable … a vision statement should be short, easy to communicate and memorable | Don’t run on and on … get to the point |
Developing a Mission Statement
The distinction between a strategic vision and mission statement is
A strategic vision portrays a company’s aspirations for it future … where we are going
A mission statement describes the scope and purpose of the present business… who we are, what we do, and why we are here
A well worded mission statement must employ language specific enough to distinguish its business makeup and purpose from those of other enterprises and give the company its own identity
Mission Statement describes the scope and purpose of the present business
Who we are
What we do
Why we are here
Mission Statement
Mission Statement- the enterprise’s present business and purpose
Who we are, what we do, and why we are here
Developing the mission statement
Identifies the company’s products and/or services
Specify the buyer needs that the company wants to satisfy and the customer group to satisfy
Gives the company its own identity
Youtube mission statement- “To provide fast and easy video access and the ability to share videos frequently”
The vision and mission statement are linked to the core values of the company
Linking vision and Mission with Company Values
Company Core Values .. Determined as a guide to pursuit of its vision and mission
Certain designated beliefs and traits
Behavioral norms
Zappos 10 core values
1. Deliver WOW through service
2. Embrace and Drive change
3. Create Fun and a Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Hones Relationships with Communication
7. Build a Positive Team and Family Spirit
8. Do More with Less
9. Be Passionate and Determined
10. Be Humble
Values relate to such things as fair treatment, honor and integrity, ethical behavior, innovativeness, teamwork, a passion for top-notch quality or superior customer service, social responsibility, and community citizenship
Stage 2 Setting Objectives
Objectives
Objectives are an organization’s performance targets – which are
Specific
Measurable
Time limited
Challenging
Achievable
Objectives
| Purpose: Convert the vision and mission into specific performance targets |
| Objectives should be: Measurable, quantifiable, and should contain deadlines |
| Why measurable? Focus efforts and align actions throughout organization Serve as “yardsticks” for tracking a company’s performance and progress Motivate to reach for higher goals and extend greater effort |
Using OBJECTIVES
| Stretch OBJECTIVES | Types of Objective to Set |
| Best way to promote outstanding company performance is through setting targets high enough to stretch an organization to perform at it’s full potential and deliver the best possible results. | Financial Objectives: financial performance target Strategic Objectives: strengthening market standing, competitive position, future business prospects |
| Helps promote: Urgency in improving financial performance and business position More intentional actions | Both should have both short-term (quarterly) and long-term(3 to 5 years)targets. |
| Strategic intent: using all of the company’s resources and competitive actions on reaching these objectives | Short term should focus on delivering performance improvements in the current period to satisfy shareholder expectations for near-term progress |
| Long-term focus on what company position they should focusing on now to improve performance for later Long-term>Short-term |
Balanced Approach to Objective Setting
| Don’t solely focus on financial indicators to predict a company’s future prospects |
| The most reliable leading indicators of a company’s future financial performance is its strategic outcomes to determine its market position and whether it’s weakening or strengthening |
| Balanced Scorecard-method for measuring strategic and financial objectives Provides employees clear guidelines about how their jobs are linked to overall objectives 50% of Global Companies adopt this approach to setting objectives Ex. UPS, Hilton Hotels, etc. |
Setting Objectives for Every Organizational Level
| Top-down process |
| Break down objectives for each separate business department, product lines, functional departments, etc. |
| Narrow objectives guide employees to better reach these goals Team effort approach and consistently knowing strategic roles will produce desired results |
Stage 3 : Crafting Strategies .
Putting a strategy together entails addressing the “Hows”
How to attract customers
How to compete against rivals
How to respond to market change
How to capitalize on opportunities
How to achieve strategic and financial objectives
Good strategy makers can foresee a shift in the market before it happens and plan his/her strategy accordingly
Top Level and Lower Level Strategies
Top level management strategies
The CEO is ultimately responsible for leading of strategy implementation and execution.
Takes full credit/responsibility for the strategies successes and/or failures
Board Members and key subordinates are often sought after for advice/approval.
In most cases the CFO, VP of marketing, VP of production, vp of HR, etc help influence and fashion specific component of the chief strategy.
Lower level management strategies
Usually the bigger and more complex a company becomes the more important it is to delegate strategy crafting and implementation
Managers of specific operating units can often have a bigger advantage over top level managers when it comes to making in the field strategic decisions
In most companies today every manager have a role to play in the strategy making process
Strategy Making Hierarchy
Corporate strategy (set of businesses as a whole)
Orchestrated by the CEO and other senior executives
How to gain advantage from managing a set of businesses
Business strategy (one for each diversified business)
Orchestrated by general managers of companies different lines of business (with input from executive heads)
How to gain and sustain a competitive advantage for a single line of business
Functional area strategies (within each business)
Orchestrated by the heads of major functional activities within a particular business
How to manage a particular activity within a business in ways that support the strategy.
Operating strategies (within each functional area)
Orchestrated by managers of strategicaly important activities
How to manage activities of strategic value within each functional area
Corporate strategy (set of business as a whole
Business strategy … one for each diversified business
Functional area strategies … within each business
Operating strategies .. Within each functional area
Uniting the strategy making hierarchy
All pieces of the company's strategy making hierarchy but fit together
If not the overall company strategy could be compromised and impair company performance
CEO and top executives are responsible for achieving unity
Standard approach: Strategy-making must start at the top of the organization and work its way down
Stage 4 Executing Strategies
Most demanding part of strategy development
Takes the most time
Tests manager's ability
Direct change
Motivate employees
Meet goals
Management action plan
“What needs to be done?”
“What do I need to do to accomplish the plan?”
Diligent pursuit of operating excellence
Success hinges on skills and cooperation
Principle Aspects of Managing Execution
Creating a strategy-supporting structure
Staffing
Developing strategy-supporting structure
Allocating ample resources
Ensure policies facilitate execution
Organizing “Best Practices”
Installing systems to enable activities
Motivating people
Creating a company culture
Lead others
Stage 5: Evaluating Performance and Initiating Corrective Adjustments
Evaluating Performance and Initiating Corrective Adjustments
Managers must Determine
Is current strategy a Good Fit?
Do they have a competitive Advantage?
Strong Performance?
Maintain Course?
Establish New Plan?
Corporate Governance: The Role of the Board of Directors in Strategy-Crafting, Strategy-Executing Process
Oversee company's financial accounting and financial reporting
Ensure Financials Meet GAAP
Create and Manage Audit Committee
Oversee CEO and top executives
Responsible for accuracy of Financial Statements
Appraise company’s
Direction
Strategy
Business Approaches
The board makes independent judgments about the validity and wisdom of management’s proposed strategic actions.
The Role of the Board of Directors
3. Evaluate Senior Executives
Create metrics to measure executives performance.
Evaluates current CEO
Is current strategy on track?
How well strategy is executed?
How well issues are problem solved by other managers?
C. Exercise due diligence in evaluating leadership skills of other senior executives in line to succeed the CEO.
4. Institutes Compensation Plan
Determines Top Executives Pay
Determines Bonus Structure
Establish metrics for bonuses
Learning Objectives.
| LO 2-1 | Explain why it is critical for managers to have a clear strategic vision of where the company needs to head | |
| LO 2-2 | Explain the importance of setting both strategic and financial objectives | |
| LO 2-3 | Explain why the strategic initiatives taken at various organizational levels must be tightly coordinated | |
| LO 2-4 | Identify what a company must do to achieve operating excellence and to execute it strategy proficiently | |
| LO 2-5 | Explain the role and responsibility of a company’s board of directors in overseeing the strategic management process | |
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