Bài giảng Crafting and Executing Strategy - Chapter 2: Leading the Process of Crafting and Executing Strategy

Chapter 2: Leading the Process of Crafting and Executing Strategy Screen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityChapter Learning ObjectivesGrasp why it is critical for company managers to think long and hard about where a company needs to head and why.Understand the importance of setting both strategic and financial objectives.Recognize that the task of crafting a company strategy draws on the entrepreneurial talents of managers at all organizational levels.Understand why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets.Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently.Understand why the strategic management process is ongoing, not an every-now-and-then task.Learn what leadership skills management must exhibit to drive strategy execution forward.Become aware of the role and responsibility of a company’s board of directors in overseeing the strategic management process.Chapter RoadmapWhat Does the Strategy-Making, Strategy-Executing process Entail?Phase 1: Developing a Strategic VisionPhase 2: Setting Objectives Phase 3: Crafting a Strategy Phase 4: Implementing and Executing the StrategyPhase 5: Evaluating Performance and Initiating Corrective AdjustmentsLeading the Strategic Management Process Corporate Governance: The Role of the Board of Directors in the Strategy-Making, Strategy-Executing ProcessFigure 2.1: The Strategy-Making, Strategy-Executing Process2-4Developing a Strategic VisionInvolves thinking strategically aboutFuture direction of companyChanges in company’s product/market/customer technology to improveCurrent market positionFuture prospectsPhase 1A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future. Key Elements of a Strategic VisionDelineates management’s aspirations for the businessProvides a panoramic view of “where we are going”Charts a strategic path Is distinctive and specific to a particular organizationAvoids use of generic language thatis dull and boring and that couldapply to most any companyCaptures the emotions ofemployees and steers themin a common direction Is challenging and a bit beyond a company’s immediate reachRole of a Strategic VisionA well-conceived, well-communicated vision functions as a valuable managerial tool toGive the organization a sense of direction, mold organizational identity, and create a committed enterpriseIlluminate the company’s directional path Provide managers with a reference point toMake strategic decisionsTranslate the vision into hard-edgedobjectives and strategiesPrepare the company for the futureA strategic vision exists only as words and has noorganizational impact unless and until it wins the commitmentof company personnel and energizes them to act in ways thatmove the company along the intended strategic path!Table 2.2: Characteristics of an Effectively Worded Vision Statement2-8Table 2.3: Common Shortcomings in Company Vision Statements2-9Strategic Vision vs. MissionA strategic vision concerns a firm’s future business path - “wherewe are going” Markets to be pursuedFuture product/market/customer/technology focusKind of company management is trying to createA company’s mission statement typically focuses on its present business purpose - “who we are and what we do”Current product and service offeringsCustomer needs and customer groups being servedGeographic coverage2-10Characteristics of a Mission StatementIdentifies boundaries of a company’s current business and says something aboutPresent products and servicesTypes of customers servedGeographic coverageConveysWho we are,What we do, andWhy we are hereA good mission statement describes a company’s 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! Key Elements of aMission StatementA complete mission statement should cover three things:Customer needs being met – What is being satisfiedCustomer groups or markets being served – Who is being satisfiedWhat 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 satisfiedA company’s 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!Companies often develop a statement of values to guide a company’s pursuit of its vision and strategy and paint the white lines for how a company’s business is to be conductedCompany 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 citizenshipBut values statements remain a bunch of nice words until espoused beliefs, traits, and behaviors are Incorporated into company’s operations and work practicesUsed as benchmarks for job appraisal, promotions, and rewardsValuesLinking the Visionwith Company ValuesIf company personnel are not held accountablefor displaying company values in doing their jobs, then thecompany values statement is a bunch of empty words!Winning support for the vision involvesPutting “where we are going and why” in writingDistributing the statement organization-wideHaving executives explain vision to employeesAn engaging, inspirational visionChallenges and motivates workforceArticulates a compelling casefor where company is headedEvokes positive support and excitementArouses a committed organizationaleffort to move in a common directionCommunicating the Strategic VisionRecognizing Strategic Inflection PointsSometimes an order-of-magnitude change occurs in a company’s environment thatDramatically alters its future prospectsMandates radical revision of its strategic courseCritical decisions have to be made about where to go from hereA major new directional path may have to be takenA major new strategy may be neededResponding quickly to unfolding changes in the marketplace lessons a company’s chances ofBecoming trapped in a stagnant business orLetting attractive new growth opportunities slip awayMobilizing support for a new vision entailsReiterating basis for the new directionAddressing employee concerns head-onCalming fearsLifting spiritsProviding updates and progressreports as events unfoldOvercoming Resistance toa New Strategic VisionCrystallizes an organization’s long-term directionReduces risk of rudderless decision-makingCreates a committed enterprise where organizational members enthusiastically pursue efforts to make the vision a realityProvides a beacon to keep strategy-related actions of all managers on common pathHelps an organization prepare for the futurePayoffs of a Clear Strategic VisionSetting ObjectivesPurpose of setting objectivesConverts vision into specific performance targetsCreates yardsticks to track performanceWell-stated objectives areQuantifiableMeasurableContain a deadline for achievementSpell-out how much of what kindof performance by whenPhase 2Importance of SettingStretch ObjectivesObjectives should be set at levels that stretch an organization toPerform at its full potential,delivering the best possible resultsPush firm to be more inventiveExhibit more urgency to improve its business positionBe intentional and focused in its actionsThere’s no better way to avoid ho-hum results thanby setting stretch objectives and using compensation incentives to motivate organization members to achieve the stretch performance targets!Types of Objectives RequiredFinancial ObjectivesStrategic ObjectivesOutcomes focusedon improving financial performanceOutcomes focused on improving competitive strength and market standing$Examples: Financial ObjectivesAnnual revenue growth of X%X % increase in after-tax profits annualEarnings per share growth of X% annuallyAnnual dividend increases of X%Profit margins of X%X% return on capital employed (ROCE)Annual stock price increases that average X% over timeStrong bond and credit ratings Sufficient internal cash flows to fund 100% of new capital investmentStable earnings during periods of recessionWinning an X% market share within 3 yearsAchieving lower overall costs than rivalsOvertaking key competitors on product performance or quality or customer service within 2 yearsDeriving X% of revenues from sale of new products introduced in past 5 yearsBeing the recognized industry leader in product innovation and/or technological know-howHaving a wider product line than rivalsConsistently getting new or improved products to market ahead of rivalsHaving stronger national or global sales and distribution capabilities than rivalsExamples: Strategic ObjectivesAchieving 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 laterHowever, setting well-chosen strategic objectives and achieving them signalsGrowing competitivenessGrowing strength in the marketplaceA company that is growing competitively stronger is developing the capability for better financial performance in the years aheadGood strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performanceGood Strategic Performance Is the Key to Better Financial PerformanceUnless a company sets and achieves stretch strategic objectivesit is not developing the competitive muscle to deliver evenbetter financial results in the years ahead!A balanced scorecard for measuringcompany performance is optimal; it entailsSetting financial and strategic objectivesPlacing balanced emphasis on achieving both types of objectives (However, if a company’s 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 de-emphasizing the strategic objectives may have merit)Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market positionA Balanced Scorecard Approach –Setting Strategic and Financial ObjectivesThe surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a company’s business position and give it a growing competitive advantage over rivals!Both Short-Term and Long-Term Objectives Are NeededShort-term objectivesTargets to be achieved soonMilestones or stair steps for reaching long-range performance targetsLong-term objectivesTargets to be achieved within3 to 5 yearsCalls for actions now that willpermit reaching targetedlong-range performance laterConcept of Strategic IntentA 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!Characteristics of Strategic IntentIndicates firm’s intent to making quantum gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against long oddsInvolves establishing a grandiose performance target out of proportion to immediate capabilities and market position but then devoting the firm’s full resources and energies to achieving the target over timeEntails sustained, aggressive actions to take market share away from rivals and achieve a much stronger market positionObjectives Are Needed at All Levels1. First, set organization-wide objectives and performance targets2. Next, set business andproduct line objectives3. Then, establish functionaland departmental objectives4. Individual objectives are established lastThe objective-setting process is more top-down than bottom upCrafting a StrategyStrategy-making involves astute entrepreneurship Actively searching for opportunitiesto do new things orActively searching for opportunities to do existing things in new or better waysStrategizing involvesDeveloping timely responses to happenings in the external environment andSteering company activities in new directions dictated by shifting market conditionsPhase 3Crafting a Good Strategy Requires Good Business EntrepreneurshipDeveloping a winning strategy involvesDiagnosing the direction and force of the market changes underway and making timely strategic adjustmentsSpotting new or better waysto satisfy customer needsFiguring out how to outwit and outmaneuver competitorsPursuing ways to strengthen the firm’s competitive capabilitiesProactively trying to out-innovate rivalsThe Role of Astute Entrepreneurship in Crafting a Company’s 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!The Hows That Define a Firm's Strategy How to grow the businessHow to please customersHow to outcompete rivalsHow to respond to changing market conditionsHow to manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on)How to achieve targeted levels of performanceWho Is Involved in Strategy Making?CEO (chief executive officer)Has ultimate responsibility for leadingthe strategy-making processFunctions as strategic visionary andchief architect of strategySenior executivesTypically have influential roles in fashioning those strategy components involving their areas of responsibilityManagers 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 on-the-scene company personnel with detailed familiarity of the piece of the business they are in charge of runningWhy Is Strategy-Making Nearly Always a Collaborative Process?The job is often way too big for one person or a small executive group—many strategic issues are complex or cut across multiple areas of expertiseThe more a company’s 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 unitsIn today’s companies every manager typically has a strategy-making role—ranging from major to minor—for the area he or she heads!Figure 2.2: A Company’s Strategy-Making Hierarchy2-35Uniting the Company’sStrategy-Making EffortA firm’s strategy is a collection of initiatives undertaken by managers at all levels in the organizational hierarchy Pieces of strategy should fittogether like the pieces of a puzzleKey approaches used to unifyall strategic initiatives into acohesive, company-wide action planEffectively communicate company’s vision, objectives, and major strategies to all personnelDiligently review lower-level strategies for consistency and support of higher-level strategies—revise as neededWhat Is a Strategic Plan?Its strategic vision and business missionIts strategy Its strategic andfinancial objectivesACompany’s Strategic PlanConsists of2-37Implementing and Executing StrategyOperations-oriented activity aimed atperforming core business activities in astrategy-supportive manner Tougher and more time-consumingthan crafting strategyKey tasks includeImproving the efficiency with which the strategy is being executedShowing measurable progress in achieving both operating excellence and targeted resultsPhase 4Building a capable organizationAllocating resources to strategy-critical activitiesEstablishing strategy-supportive policiesInstituting best practices and programsfor continuous improvementInstalling information, communication,and operating systemsMotivating people to pursue the target objectivesTying rewards to achievement of resultsCreating a strategy-supportive corporate cultureExerting the leadership necessary to drive the process forward and keep improvingWhat Does Implementing and Executing the Strategy Involve?Crafting and implementing a strategy is not a one-time exerciseCustomer needs and competitive conditions changeNew opportunities appear; technology advances; any number of other outside developments occurOne or more aspects of executing thestrategy may not be going wellNew managers with different ideas take overOrganizational learning occursAll these trigger a need for corrective actions and adjustments on an as-needed basisEvaluating Performance andMaking Corrective Adjustments Phase 5Taking actions to adjust to the march of events tends to result in one or more of the followingAltering long-term direction and/orredefining the mission/visionRaising, lowering, or changingperformance objectivesModifying the strategyImproving strategy execution Monitoring, Evaluating, and Adjusting as NeededLeading the StrategicManagement ProcessDiverse leadership challenges includeExerting take-charge leadershipBeing a spark plug for change and actionRamrodding things throughAchieving resultsLeading the strategic managementprocess can involve various stylesand approachesBeing a hard-nosed authoritarianBeing a perceptive listenerBeing a compromising decision makerDelegating authority to people closest to the actionBeing a coachAssuming a highly visible role in guiding the processMaking brief ceremonial appearancesStay on top of what’s happeningMake sure company has agood strategic planPut constructive pressure oncompany to achieve good resultsPush corrective actions to improve overall strategic performanceLead development of stronger corecompetencies and competitive capabilitiesDisplay ethical integrity and lead social responsibility initiativesThings a Chief Strategy Implementer Must Do to Be SuccessfulDevelop a broad network of formaland informal sources of informationTalk with many people at all levels Be an avid practitioner of MBWA Observe situation firsthandMonitor operating results regularlyGet feedback from customersWatch competitive reactions of rivalsRole #1: Stay on Topof What’s HappeningRole #2: Make Sure CompanyHas a Good Strategic PlanTwo key responsibilities of CEO and top-level executivesEffectively communicate company’s vision, objectives, and major strategy components to down-the-line managers and key personnelExercise due diligence in reviewing lower-level strategies for consistency and support of higher-level strategiesEffective leadership minimizespotential for conflict betweendifferent levels in the strategy hierarchySuccessful leaders spend time Mobilizing organizational energy behindGood strategy execution andOperating excellence Nurturing a results-oriented work climatePromoting enabling cultural driversStrong sense of involvement on part of company personnelEmphasis on individual initiative and creativityRespect for contributions of individuals and groupsPride in doing things rightRole #3: Put Constructive Pressure on Company to Achieve Good ResultsRole #4: Push Corrective Actions to Improve Strategy-Making and Strategy-Execution Requires decidingWhen adjustments are neededWhat adjustments to makeInvolves Adjusting long-term direction, objectives, and strategy on an as-needed basis in response to unfolding events and changing circumstancesPromoting fresh initiatives to bring internal activities and behavior into better alignment with strategyMaking changes to pick up the pace when results fall short of performance targetsTop management intervention isrequired to establish better or newResource strengths and competenciesCompetitive capabilitiesSenior managers mustlead the effort becauseCompetencies reside in combinedefforts of different work groups and departments, thus requiring cross-functional collaborationStronger competencies and capabilitiescan lead to a competitive edge over rivalsRole #5: Promote Stronger CoreCompetencies and CapabilitiesRole #6: Display Ethics Leadership and Lead Social Responsibility InitiativesSet an excellent example in Displaying ethical behaviorsDemonstrating character andpersonal integrity in actions and decisionsDeclare unequivocal support for high ethical standards and expect all employees to conduct themselves in an ethical fashionEncourage compliance and establish toughconsequences for unethical behaviorOur ethicscode is . . .Exercise strong oversight to ensure five tasks of strategic management are executed to benefitShareholders orStakeholdersMake sure executive actions are not only proper but also aligned with interests of stakeholdersCorporate Governance:Strategic Role of a Board of DirectorsObligations of a Board of DirectorsBe inquiring critics and overseersEvaluate caliber of senior executives’ strategy-making and strategy-executing skillsInstitute a compensation plan fortop executives rewarding them forresults that serve interests of Stakeholders andShareholdersOversee a company’sfinancial accountingand reporting practicesKey Responsibilities of Board MembersBe well informed about a company’s performanceGuide and judge CEO and other top executivesExhibit courage to curb inappropriate or unduly risky management actionsConfirm that CEO is doing what board expectsProvide insight and advice to managementBe intensely involved in debating pros and consof key actions and decisionsBoard members have a very important oversight role in the strategy-making, strategy-executing process!