Post on 24-Feb-2016
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STRATEGYA VIEW FROM THE TOP
CHAPTER 2
Erinn AdamsKunal PatelBrandon AndersonMatt Castleberry
STRATEGY AND PERFORMANCE Good to Great: Why some companies make
the leap… and Others Don’t by Jim Collins. What Really Works: The 4+2 Formula for
Sustained Business Success by Joyce, Nohria, and Roberson.
Conceptual Framework for Strategy and Performance
The Balanced Scorecard Role of Board of Directors
FROM GOOD TO GREAT
• Top Leadership– The attributes of top leadership are a significant
difference between good and great companies.– Level 5 Leadership is a common characteristic of
great companies.• Forms top level of a five-level hierarchy. • Display a mix of intense determination and humility.• Have a long term sense of investment in the company.• Financial gain is not as important as long term benefit
of the company.
FROM GOOD TO GREAT• Nature of the Leadership Team
– Level 5 leadership must be obtained before an overall strategy can be developed.
– With the correct management in the correct places, management problems harmful to the company will disappear.
– Worth the extra time and money.• Willingness to identify and assess defining facts in
the company and in the larger business environment. – Have to keep pace with the changing marketplace and
trends in order to succeed.
HEDGEHOGS
• Metaphor to show the principle that simplicity can lead to greatness.
• Transformation from good to great is not from doing many things well, but by doing one thing better than anyone else in the world.
• Those who identify their “hedgehog concept” are rewarded with success.
• To determine your hedgehog concept:– Determine what the company can and cant be best at in the
world.– Determine what drives the company’s economic engine.– Determine what the company’s people are deeply
passionate about.http://www.jimcollins.com/media_topics/hedgehog-concept.html#audio=80
OVERARCHING ORGANIZATIONAL CULTURE OF DISCIPLINE
Organization where the managers and staff are driven by an unrelenting inner sense of determination.
Individuals function as entrepreneurs and have a deep personal investment in their work and the company.
Members stick to the script of the company’s “hedgehog concept”.
TECHNOLOGY Businesses shouldn’t depend on technology
to: Increase efficiency Reduce overhead Maximize competitive advantage.
Good to great companies approach technology with careful attention. Apply technology in relation to their hedgehog
concepts. Collins’ Ideal approach to technology:
“Pause-Think-Crawl-Walk-Run.”
FLYWHEEL EFFECT Advantageous business cycle (flywheel
effect). When companies make decisions that
reinforce their hedgehog competencies, this initiates positive momentum.
This results in a string of positive outcomes that energized and gain the loyalty of the staff.
DOOM LOOP In contrast to the flywheel the doom
loop can be described by: Reactive decision making. Extending into too many diverse areas of
concentration. Following short-lived trends. Constant changes in leadership and
personnel. Loss of morale and disappointing results.
CORE VALUES Companies need a set of core values to
achieve long-term success. The values can be open ended as long as the
team members are dedicated to the same ones. Netflix Values:
“Values are what we value. Real company values are the behaviors and skills that we particularly value in our fellow employees: Judgment, Communication, Impact, Curiosity, Innovation, Courage, Passion, Honesty, Selflessness.”
Extract from the Netflix “Reference Guide on our Freedom & Responsibility Culture ”
4+2 FORMULA Study conducted of 200 management
practices employed over a 10 year period by 160 companies. Companies outperforming others excelled at
four primary management practices: Strategy, execution, culture, and structure.
In addition they increased these strengths with any 2 of these four management practices:
Talent, innovation, leadership, and mergers and partnerships.
4+2 FORMULA Results of study show:
It doesn’t matter what particular decision a company chooses to make.
What matters is how a company implements its decision.
Ex: Whatever technology a company selects, it needs to implement it flawlessly.
Winning performance depends on more than having the right strategy. You need to excel in six dimensions of
success all at once. A misstep in any of the six dimensions can
hinder a company’s performance.
EXCELLING AT FOUR PRIMARY PRACTICES
What does it mean to excel in setting strategy, execution, shaping culture, and forging structure? Executives have used
TQM (total quality management) Kaizen Six Sigma
Implemented by Motorola The 4 primary practices, which most successful
companies have demonstrated for more than 10 years. Strategy Execution Culture Structure
STRATEGY: DEVISE AND MAINTAIN A CLEARLY STATED, FOCUSED STRATEGY
A company must be clear on what strategy to use, and consistently communicate it to customers, employees, shareholders and other stakeholders.
Successful strategies tend to focus on growth. Usually doubling the size of the core business and
building a new business every 7 years. A clear success of an effective strategy comes from
a simple, focused value proposition that is rooted in deep, certain knowledge about a company's target customers and firm’s capabilities.
EXECUTION: DEVELOP AND MAINTAIN FLAWLESS OPERATIONAL EXECUTION
Having a flawless Execution is just as important as having a sound strategy.
How to execute? Successful companies consistently
exceed in customer expectations. Also increase productivity by twice the
industry’s average. Identifying which processes are most important to
meeting customer needs and focusing on the company’s energies and resources becomes paramount.
EX: Southwest Airlines
CULTURE: DEVELOP AND MAINTAIN A PERFORMANCE-ORIENTED CULTURE
Building the right culture is key . A business environment that entails a high level
of performance and ethical behavior rather than merely just a fun environment, will be successful.
A good business culture should: Encourage individual and team contributions Hold employees (not just managers) responsible for
success Compare themselves beyond competitors to an even
further benchmark.
STRUCTURE: BUILD AND MAINTAIN A FAST, FLEXIBLE, FLAT ORGANIZATION
High Performance companies try to eliminate unnecessary bureaucracy- extra layers of management, an abundance of rules and regulations, outdated formalities. When a company focuses too much on rules ,
regulations, and protocols can really restrict the growth and development within the company.
Winning companies strive to make their structures and processes as simple as possible, not only for the employees, but also the customers and vendors.
EX: IDEO – A design and Innovation consulting firm.
SECONDARY PRACTICES Winning Companies complemented their strengths
in the four primary practices, with superior performance in any two of the secondary practices.
Studies show that excellence in the the 4 primary practices and any 2 out of the 4 secondary practices, can make a company very successful. However, it makes no difference if a company excelled in all 4
secondary practices rather than just two; going beyond “4+2” was not rewarded.
1. Talent 2. Innovation 3. Leadership 4. Mergers and Partnerships
TALENT: HOLD ON TO TALENTED EMPLOYEES AND FIND MORE
Companies that focus on talent building dedicate major resources, including personal attention from top executives, to building and retaining an effective workforce and management team.
The best test of the quality of a company’s talent base is the ease with which any executive who leaves to join a competitor can be replaced from within.
INNOVATION: MAKE INDUSTRY-TRANSFORMING INNOVATIONS
Companies that excel at innovation are focused on finding new product ideas or technological breakthroughs.
Innovation encompasses more than developing new products and services; they also apply new technologies to their business processes, which can yield huge savings and sometimes have the power to transform an industry.
EX: Netflix
LEADERSHIP: FIND LEADERS WHO ARE COMMITTED TO THE BUSINESS AND ITS PEOPLE
Having the right leader can raise a company’s performance significantly.
Important Qualities of a CEO: Ability to build relationships with people at all levels of
the organization Inspire managers to do the same Spot opportunities and problems early
Effective leaders help their companies remain winners by seizing opportunities before their competitors do and tackling problems before they impair ongoing performance.
MERGERS AND PARTNERSHIPS: SEEK GROWTH THROUGH MERGERS AND PARTNERSHIPS
After innovation, pursuit of mergers and partnerships is the 2nd most popular avenue of growth.
Less then 25% of Mergers and partnerships are really successful.
Those who were successful, were able to do it by creating value in most deals they struck, generating returns in 3 years that exceeded the premium paid. Also, invested substantial financial and human resources
in developing an efficient, ongoing process for deal making
STRATEGY AND PERFORMANCE: A CONCEPTUAL FRAMEWORK
Corporate success increasingly depends on the willingness and ability of every manager to not just meet their own functional or divisional responsibilities, but to think about how their actions influence the performance of the company as a whole.
Focus should be on changing the organizational environment to encourage decision making that is aligned with the overall objectives of the company.
Developing the right organizational model thus requires identifying which activities are critical to achieving a chosen strategy, and then defining the organizational attributes.
STRATEGY AND PERFORMANCE
Purpose
Strategy Leadership
Structure
Systems Processes
People Culture
Performance/Control
STRATEGY, PURPOSE, AND LEADERSHIP Strategy-Structure-Systems paradigm
dominated role of corporate leaders for many years GM experimented with diversification
strategies Dominant for most of 20th century Successfully executing complex strategy:
Create right organizational structure Disciplined planning & control support
systems
CONTINUED Global competition & technology
revolution reduced effectiveness Principal strength became major weakness
Corporate leaders articulated broader, long-term strategic intent with clear sense of purpose
“chief strategist” to “chief facilitator”
CONTINUED Sought ways to involve
employees at all levels in strategic management process
Top executive agendas included: Organizational
momentum Instilling core values Developing human
capital Recognizing individual
accomplishment
Purpose
Leadership
Strategy
Structure
Systems Processes
People Culture
Performance/Control
STRATEGY AND ORGANIZATIONAL CHANGE
Structure, systems, processes, people, & culture are key to creating effective organizational change
Interrelated Why new strategy
requires change in all variables
Purpose
Leadership
Strategy
Structure
Systems Processes
People Culture
Performance/Control
STRUCTURE Adopted flatter organizational structures Goal: Create organizational environment that
allocates resources effectively and is naturally self-correcting
No “one right form of organization” Transparency is critical
Authority and responsibility need to be clear 5 dominant approaches to organization:
Functional Geographically Decentralized Strategic business units Matrix structures
SYSTEMS AND PROCESSES Support systems
Planning systems Orderly process, balanced internal/external focus
Budgeting & accounting systems Provide accurate historical data, set benchmarks/targets
Information systems Analysis, internal/external communication
Reward & incentive systems Motivation and commitment
Process – systematic way of doing things Formal/informal Facilitate or obstruct change
PEOPLE Expensive to replace knowledge &
talent
Companies focusing on attracting, rewarding, retaining talent
Developing tomorrow’s skills key to strategic flexibility
CULTURE Culture is a shared system of values,
assumptions, & beliefs among employees Artifacts: visible or audible processes, policies, &
procedures supporting important cultural belief Shared values: explain why things should be as
they are Example: Microsoft
Supports culture of high energy, drive, intellect, & entrepreneurship
Basic assumptions: invisible reasons why group members perceive, think, and feel the way they do about operational issues UPS believes firm’s culture so important they spend
millions annually on employee training and education
BALANCED SCORECARD
Developed by Robert Kaplan and David Norton
Is a set of measures designed to provide strategists with a quick, yet comprehensive, view of the business.
Provides answers to four basic questions How do customers see us? At what must we excel? Can we continue to improve and create value? How do we look to our company’s shareholders?
BALANCE SCORECARD CONT.Requires managers to translate a broad customer-driven mission statement into factors that directly relate to customer concerns Examples
Product quality On-time delivery Product performance Service and cost
CUSTOMER-BASED MEASURES They are important but must be translated
into measures of what the company must do internally to the customers’ expectations
These measures must be translated into operational objectives such as Cycle time Product quality Productivity Cost
BALANCE SCORECARD CONT. Encompasses four management
processes Translating a vision
Netflix’s vision- “to change the way people access and view the movies they love”
Communicating goals and Linking Rewards to performance
Improve business planning Gathering feedback
BALANCE SCORECARD CONT. Vision- used to clarify and gain employee support
for that vision Communication- essential to ensure that employees
understand the firm’s objectives and strategies Rewards- direct means of measuring and rewarding
contributions to performance Business Planning- consists of a set of long-term
targets in all four areas of the scorecard Feedback- short term measurements to monitor
progress in achieving the long term strategy and learn how performance can be improved
PERFORMANCE AND CONTROL Methods used for measuring and evaluating
performance at different levels in the organization.
Outcome control is principally achieved by altering the incentive structure for business units, executive teams and individual managers.
Behavior Control allows the company to directly monitor the behavior of specific business units, executive teams, or individual managers ( Used to enhance performance)
THE ROLE OF THE BOARD To create a high performance culture the board
of directors should Define its role, agenda and information needed Ensure that management not only performs, but
performs with integrity Set expectations about the culture of the company Formulate corporate strategy with management Ensure that culture, strategy, compensation and
controls are consistent and aligned Help management understand the expectations of
shareholders and regulators