Topic1 Ovrviewnew

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““Without a strategy the Without a strategy the

organization is like a organization is like a

ship without a rudder.”ship without a rudder.”

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Sun Tzu*Sun Tzu* on Strategy on StrategySun Tzu*Sun Tzu* on Strategy on Strategy

“Know your enemy (rival), know yourself,… and your victory will not be threatened.

Know the terrain, know the weather,… and your victory will be complete.”

* Chinese Strategist

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““If you don’t know If you don’t know

where to go, you won’t where to go, you won’t

get there.”get there.”

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The Three Big Strategic The Three Big Strategic QuestionsQuestions

The Three Big Strategic The Three Big Strategic QuestionsQuestions

1. Where is the company now?

2. Where does the company want to go?

3. How will the company get there?

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This session’s RoadmapThis session’s RoadmapThis session’s RoadmapThis session’s Roadmap

What Is Strategy?

The Relationship Between a Company’s Strategy and Its Business Model

What Makes a Strategy a Winner?

Why Are Crafting and Executing Strategy Important?

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What Is Strategy?What Is Strategy?What Is Strategy?What Is Strategy?

Embodies a firm’s objectives and reasons for being in business

It is a firm’s vision of its future

It is an explicit statement that provides direction for coordinated business decisions in marketing and other functional areas

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What Is Strategy?What Is Strategy?What Is Strategy?What Is Strategy?

Consists of the combination of competitive moves and business approaches used by managers to run the company

Management’s “game plan” to

Attract and please customers

Stake out a market position

Compete successfully

Grow the business

Achieve targeted objectives

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4 + 2 dimensions of 4 + 2 dimensions of StrategyStrategy

4 + 2 dimensions of 4 + 2 dimensions of StrategyStrategy

1. The Product-Market in which the business will compete

2. The level of Investment in a strategic unit

3. Functional area strategies required for competing in the chosen product market

4. Underlying Strategic Assets & Skills that give the firm a sustainable competitive advantage

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Dimensions for multi-Dimensions for multi-business firmbusiness firm

Dimensions for multi-Dimensions for multi-business firmbusiness firm

1. Allocation of firm’s resources across business units

2. How to create Synergies across the businesses?

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What Are a Company’s What Are a Company’s Strategic Choices?Strategic Choices?

What Are a Company’s What Are a Company’s Strategic Choices?Strategic Choices?

Trial-and-error organizational learning about

What has worked and

What has not worked

Management’s appetite for taking risks

Managerial analysis and strategic thinking about how best to proceed, given prevailing circumstances

Strategic choices are based on . . .

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Striving forStriving forCompetitive AdvantageCompetitive Advantage

Striving forStriving forCompetitive AdvantageCompetitive Advantage

To achieve sustainable competitive advantage, a company’s strategy usually must be aimed at eitherProviding a distinctive product or service orDeveloping competitive capabilities rivals can not

matchAchieving a sustainable competitive advantage

greatly enhances a company’s prospects forWinning in the marketplace andRealizing above-average profits

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Strategic Approaches to Strategic Approaches to Building Competitive Building Competitive

AdvantageAdvantage

Strategic Approaches to Strategic Approaches to Building Competitive Building Competitive

AdvantageAdvantage Strive to be the industry’s low-cost provider

Outcompete rivals on a key differentiating feature

Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers

Develop expertise, resource strengths, and capabilities not easily imitated by rivals

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Examples: Strategies BasedExamples: Strategies Basedon Distinctive Capabilities on Distinctive Capabilities Examples: Strategies BasedExamples: Strategies Basedon Distinctive Capabilities on Distinctive Capabilities

Sophisticated distribution systems – Wal-Mart

Product innovation capabilities – 3M Corporation

Complex technological process – Michelin

Defect-free manufacturing – Toyota and Honda

Specialized marketing and merchandising know-how – Coca-Cola

Global sales and distribution capability – Black & Decker

Superior e-commerce capabilities – Dell Computer

Personalized customer service – Ritz Carlton hotels

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A Company’s Strategy Is A Company’s Strategy Is Partly Proactive and Partly Partly Proactive and Partly

Reactive Reactive

A Company’s Strategy Is A Company’s Strategy Is Partly Proactive and Partly Partly Proactive and Partly

Reactive Reactive

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A company’s strategy is a work in progress

Changes may be necessary to react to

Fresh moves of competitors

Evolving customer preferences

Technological breakthroughs

Shifting market conditions

Crisis situations

Strategies EvolveStrategies EvolveStrategies EvolveStrategies Evolve

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Crafting Strategy Is anCrafting Strategy Is anExercise in Exercise in

EntrepreneurshipEntrepreneurship Strategy-making is a market-driven activity that involves

Studying market trends and competitors’ actions Keen observation of customer needs Scrutinizing business possibilities based on new technologies Building firm’s market position via acquisitions or new product

introductions Pursuing ways to strengthen firm’s competitive capabilities Proactively searching out opportunities to

Do new things or Do existing things in new or better ways

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Ethical and moral standards go beyond LAW, to issues of

Duty and “right” vs. “wrong”

Ethical and moral standards address“What is the right thing to do?”

Two criteria of an ethical strategy:

Avoids actions and behaviors that cross the line from “can do” to “should not do’ and “unsavory” or “shady” and

Allows management to fulfill its ethical duties to all stakeholders

Linking Strategy With Linking Strategy With EthicsEthics

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What Is a Business What Is a Business Model? Model?

What Is a Business What Is a Business Model? Model?

A business model addresses “How do we make money in this business?” Is the strategy capable of delivering

good bottom-line results?

Do the revenue-cost-profit economicsof the strategy make good business sense? Look at revenue streams the strategy is expected to produce Look at associated cost structure and potential profit margins Do resulting earnings streams and ROI indicate the strategy makes

sense and the company has a viable business model for making money?

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Strategy - Deals with a company’s competitive initiatives and business approaches

Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable

Relationship Between Relationship Between Strategy and Business Strategy and Business

ModelModel

Relationship Between Relationship Between Strategy and Business Strategy and Business

ModelModel

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Microsoft’sMicrosoft’sBusiness ModelBusiness ModelMicrosoft’sMicrosoft’sBusiness ModelBusiness Model

Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from usersEmploy a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users

Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales

Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales

Most costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit

Most costs in developing software are fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit

Provide technical support to users at no costProvide technical support to users at no cost

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Redhat Linux’sRedhat Linux’sBusiness ModelBusiness ModelRedhat Linux’sRedhat Linux’sBusiness ModelBusiness Model

Rely on collaborative efforts of volunteer programmers to create the software

Rely on collaborative efforts of volunteer programmers to create the software

Add value to free, downloadable version of Linux by offering users Red Hat Linux systems containing upgraded and tested features

Add value to free, downloadable version of Linux by offering users Red Hat Linux systems containing upgraded and tested features

Charge a modest fee to those preferring to subscribe to Red Hat Linux version

Charge a modest fee to those preferring to subscribe to Red Hat Linux version

Release updated versions of Red Hat Linux every 4-6 months to small users and every 12-18 months to corporate users

Release updated versions of Red Hat Linux every 4-6 months to small users and every 12-18 months to corporate users

Make source code open and available to all usersMake source code open and available to all users

Make money by providing fees-based training, consulting, support, engineering, and content management services

Make money by providing fees-based training, consulting, support, engineering, and content management services

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Good Strategy + Good Strategy Execution Good Strategy + Good Strategy Execution = Good Management= Good Management

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Excellent execution of an excellent strategy is the best test of managerial

excellence -- and the most reliable recipe for winning in the marketplace!

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The Managerial Process of The Managerial Process of Crafting and Executing Crafting and Executing

Strategy Strategy

The Managerial Process of The Managerial Process of Crafting and Executing Crafting and Executing

Strategy Strategy

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““If you don’t know If you don’t know

where you are going, where you are going,

any road will take any road will take

you there.”you there.”The Koran

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““Management’s job is Management’s job is not to see the company not to see the company as it is . . . but as it can as it is . . . but as it can become.”become.”

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This session’s RoadmapThis session’s RoadmapThis session’s RoadmapThis session’s Roadmap

What Does the Process of Crafting and Executing Strategy Entail? Developing a Strategic Vision: Phase 1 of the Strategy-Making, Strategy-

Executing Process Setting Objectives: Phase 2 of the Strategy-Making, Strategy-Executing

Process Crafting a Strategy: Phase 3 of the Strategy-Making, Strategy-Executing

Process Implementing and Executing the Strategy: Phase 4 of the Strategy-

Making, Strategy-Executing Process Initiating Corrective Adjustments: Phase 5 of the Strategy-Making,

Strategy-Executing Process Corporate Governance: The Role of the Board of Directors in the Strategy-

Making, Strategy-Executing Process

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Strategy-Making, Strategy-Strategy-Making, Strategy-Executing ProcessExecuting Process

Strategy-Making, Strategy-Strategy-Making, Strategy-Executing ProcessExecuting Process

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A strategic vision is a road map showing the route a company intends to take in developing and strengthening its business. It paints a picture of a company’s destination and provides a rationale for going there.

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Developing a Strategic Developing a Strategic VisionVision

Developing a Strategic Developing a Strategic VisionVision

Involves thinking strategically aboutFuture direction of company

Changes in company’s product-market-customer-technology to improve Current market position

Future prospects

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Delineates management’s aspirations for the business – Charts a strategic path for the future

“Where are we going?” Steers energies of employees

in a common direction Moulds organizational identity Is distinctive and specific to

a particular organization Avoids use of generic language Triggers strong emotions Is challenging, uncomfortable, nail biting

Key Elements of Strategic Key Elements of Strategic VisionVision

Key Elements of Strategic Key Elements of Strategic VisionVision

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Exelon’sExelon’sStrategic VisionStrategic Vision

Exelon’sExelon’sStrategic VisionStrategic Vision

One Company, One Vision.Exelon strives to build exceptional value - by

becoming the best and most consistently profitable electricity and gas company in the United States.

To succeed, we must . . .

Live up to our commitments . . .

Perform at world-class levels . . .

Invest in our consolidating industry . . .

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Examples of Strategic Examples of Strategic VisionsVisions


Red Hat LinuxTo extend our position as the most trusted Linux and open

source provider to the enterprise. We intend to grow the market for Linux through a complete range of enterprise Red

Hat Linux software, a powerful Internet management platform, and associated support and services.

Wells FargoWe want to satisfy all of our customers’ financial needs,

help them success financially, be the premier providerof financial services in every one of our markets, and

be known as one of America’s great companies.

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WyethOur vision is to lead the way to a healthier world. By

carrying out this vision at every level of our organization,we will be recognized by our employees, customers, and shareholders as the best pharmaceutical company in the

world, resulting in value for all. We will achieve this by: Leading the world in innovation by linking pharmaceutical,

biotech, and vaccines technologies Making quality, integrity, and excellence hallmarks

of the way we do business Attracting, developing, and motivating the best people Continually growing improving our business

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Dental Products Division of 3M CorporationBecome THE supplier of choice to the global dental professional

markets, providing world-class quality and innovative products. [All employees of the division wear badges bearing these words, and whenever a new product or

business procedure is being considered, management asks “Is this representative of THE leading dental company?”]

NikeTo bring innovation inspiration to every athlete in the world.

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IntelOur vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the

building block supplier to the Internet economy and spurring efforts to make the Internet more useful.

Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet . . . We have seen only the early stages of deployment of

digital technologies.

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HeinzOur vision, quite simply, is to be the world’s premier food company, offering nutritious, superior tasting foods to people everywhere. Being the premier food company does not mean being the biggest but it does mean being the best in terms of

consumer value, customer service, employee talent, and consistent and predictable growth.

General ElectricWe will become number one or number two in every market we

serve, and revolutionize this company to havethe speed and agility of a small enterprise.

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The mission statement of most companies focuses on current business activities - “who we are and what we do”

Current product and service offerings

Customer needs being served

Technologicaland businesscapabilities

A strategic vision concerns a firm’s future business path - “where we are going”

Markets to be pursued Future technology-product-

customer focus Kind of company

management is trying to create

Strategic Vision vs. Strategic Vision vs. MissionMission

Strategic Vision vs. Strategic Vision vs. MissionMission

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Defines current business activities, highlighting boundaries of current business Present products and services Types of customers served

Conveys Who we are, What we do, and Why we are here

A 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 profit is an objective or intended outcome!

Characteristics ofCharacteristics ofa Mission Statementa Mission Statement

Characteristics ofCharacteristics ofa Mission Statementa Mission Statement

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Key Elements ofKey Elements ofa Mission Statementa Mission Statement

Key Elements ofKey Elements ofa Mission Statementa Mission Statement

Three factors to consider

Customer needs –What is being satisfied

Customer groups –Who is being satisfied

Technologies/resources/business approaches used and activities performed –How customer needs are satisfied

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Trader Joe’sTrader Joe’sMission StatementMission Statement

Trader Joe’sTrader Joe’sMission StatementMission Statement

To give our customers the best food and beverage values that they can find anywhere and to provide them with the information required for informed

buying decisions. We provide these with a dedication to the highest quality of customer satisfaction

delivered with a sense of warmth, friendliness, fun, individual pride, and company spirit.

(a unique grocery store chain)

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A statement of values is often provided to guide the company’s pursuit of its vision

Values – Beliefs, business principles, and ways of doing things that are incorporated into Company’s operations Behavior of workforce

Values statements Contain between four and eight values Are ideally tightly connected to and reinforce company’s vision,

strategy, and operating practices

Values

Values

Linking the Vision Linking the Vision With Company ValuesWith Company Values

Linking the Vision Linking the Vision With Company ValuesWith Company Values

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Example: Company Example: Company ValuesValues

Home Depot

Creating shareholder value

Building strong relationships

Entrepreneurial spirit Excellent customer

service

Giving back to the community

Respect for all people

Doing the right thing

Taking care of people

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Du Pont

Safety Ethics

Environmental stewardship

Respect for people

Example: Company Example: Company ValuesValues

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An exciting, inspirational vision Contains memorable language Clearly maps company’s future direction Challenges and motivates workforce Provokes emotion and enthusiasm

Winning support for the vision involves Putting “where we are going and why” in writing Distributing the statement organization-wide Having executives explain the vision

to the workforce

Communicating theCommunicating theStrategic VisionStrategic Vision

Communicating theCommunicating theStrategic VisionStrategic Vision

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Examples: Vision Examples: Vision SlogansSlogans


Levi Strauss & Company“We will clothe the world by marketing the most appealing and

widely worn casual clothing in the world.”

Microsoft Corporation“Empower people through great software—any time, any

place, and on any device.”

Mayo Clinic“The best care to every patient every day.”

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Scotland Yard“To make London the safest major city in the world.”

Greenpeace“To halt environmental abuse andpromote environmental solutions.”

Charles Schwab“To provide customers with the most useful and

ethical financial services in the world.”

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Overcoming Resistance toOvercoming Resistance toa New Strategic Visiona New Strategic Vision

Overcoming Resistance toOvercoming Resistance toa New Strategic Visiona New Strategic Vision

Mobilizing support for a new vision entails

Reiterating basis for the new direction

Addressing employee concerns head-on

Calming fears

Lifting spirits

Providing updates and progressreports as events unfold

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Strategic Inflection Strategic Inflection PointsPoints

Strategic Inflection Strategic Inflection PointsPoints

.. when companies come to a major fork in the road:

.. market conditions are changing rapidly

.. the strategy simply runs out of stream

.. actions of competitors block success of co’s strategic course

Need for critical decisions…:

New directional path

A major new strategy

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Intel’s Intel’s “Strategic Inflection “Strategic Inflection

Points”Points”

Intel’s Intel’s “Strategic Inflection “Strategic Inflection

Points”Points” Prior to mid-1980s

Focus on memory chips Starting in mid-1980s

Abandon chip business (lower-cost Japanese cos taking over market) and Become preeminent supplier of microprocessors to PC

industry Make PC central appliance in workplace and home Be undisputed leader in driving PC technology forward

1998Shift focus from PC technology to becoming preeminent

building block supplier to Internet economy

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Crystallizes an organization’s long-term direction

Reduces risk of rudderless decision-making

Assists in gaining support oforganizational members forchanges to make the vision a reality

Helps keep strategy-related actionsof managers on common path

Helps an organization prepare for the future

Payoffs of aPayoffs of aClear Strategic VisionClear Strategic Vision

Payoffs of aPayoffs of aClear Strategic VisionClear Strategic Vision

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Setting ObjectivesSetting ObjectivesSetting ObjectivesSetting Objectives

Purpose of setting objectives Converts vision into specific performance targets Creates yardsticks to track performance Pushes firm to be inventive, intentional, and

focused in its actions

Setting challenging, achievableobjectives guards against Complacency Internal confusion Status quo performance

Phase 2 of the Strategy-Making ProcessPhase 2 of the Strategy-Making Process

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Characteristics of Characteristics of ObjectivesObjectives

Characteristics of Characteristics of ObjectivesObjectives

Represent commitment to achieve specific performance targets

Spell-out how much of what kindof performance by when

Well-stated objectives are Quantifiable

Measurable

Contain a deadline for achievement

Establishing objectives converts thevision into concrete performance outcomes!

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Outcomes focusedon improving financial performance

Outcomes focused on improving long-term competitive business position

Financial Objectives Strategic Objectives

$

Types of Objectives Types of Objectives RequiredRequired

Types of Objectives Types of Objectives RequiredRequired

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X % increase in annual revenuesX % increase annually in after-tax profitsX % increase annually in earnings per shareAnnual dividend increases of X %Profit margins of X %X % return on capital employed (ROCE) Increased shareholder valueStrong bond and credit ratingsSufficient internal cash flows to fund 100% of new capital

investmentStable earnings during periods of recession

Examples: Examples: FinancialFinancial

ObjectivesObjectives

Examples: Examples: FinancialFinancial


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Winning an X % market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or

customer service Deriving X % of revenues from sale of new products introduced in past

5 years Achieving technological leadership Having better product selection than rivals Strengthening company’s brand name appeal Having stronger national or global sales and distribution capabilities

than rivals Consistently getting new or improved products to market ahead of

rivals

Examples: Examples: StrategicStrategic


Examples: Examples: StrategicStrategic


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Unilver’s Strategic and Unilver’s Strategic and Financial Objectives Financial Objectives

Unilver’s Strategic and Unilver’s Strategic and Financial Objectives Financial Objectives

Grow annual revenues by 5-6% annuallyIncrease operating profit margins from 11% to 16%

within 5 yearsTrim company’s 1200 food, household, and personal

care products down to 400 core brandsFocus sales and marketing efforts on those brands with

potential to become respected,market-leading global brands

Streamline company’s supply chain

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The Kroger Company’s The Kroger Company’s Strategic and Financial Strategic and Financial

Objectives Objectives

The Kroger Company’s The Kroger Company’s Strategic and Financial Strategic and Financial

Objectives Objectives

Reduce our operating and administrativecost by $500 million by year-end 2003

Leverage our $51 billion size to achieve greater economies of scale

Reinvest in our core business toincrease sales and market share

Grow earnings per share by 10-12% in 2002-2003 and by 13-15% annually starting in 2004.

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Seagate Technology’s Seagate Technology’s Strategic Objectives Strategic Objectives Seagate Technology’s Seagate Technology’s Strategic Objectives Strategic Objectives

Solidify the company’s No. 1 position inthe overall market for hard-disk drives

Get more Seagate drives into popular consumer electronics products (i.e. video recorders)

Take share away from Western Digital in providing disk drives for Microsoft’s Xbox

Capture a 10% share of the market for 2.5-inch hard drives for notebook computers by 2004

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Heinz’s Financial andHeinz’s Financial andStrategic Objectives Strategic Objectives Heinz’s Financial andHeinz’s Financial andStrategic Objectives Strategic Objectives

Achieve earnings per share in the rangeof $2.15-$2.25 in 2004

Increase operating cash flow by 45% to $750 million Reduce net debt by $1.3 billion in 2003 and further strengthen the

company balance sheet in 2004 Continue to introduce new and improved food products Remove the clutter in the company product offerings by reducing

the number of SKUs Increase spending on trade promotion and advertising by $200

million to strengthen the recognition and market shares of the company’s core brands

Divest non-core underperforming product lines

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DuPont’s Financial andDuPont’s Financial andStrategic ObjectivesStrategic Objectives

DuPont’s Financial andDuPont’s Financial andStrategic ObjectivesStrategic Objectives

To achieve annual revenue growth of 5 to 6% and annual earnings-per-share growth averaging 10%

Grow per-share profits faster than revenues by

(a) Increasing productivity,

(b) Selling enough new products each year that average prices and average margins rise, and

(c) Using surplus cash to buy back shares Sell the company’s low-margin textiles and interiors

division (with sales of $6.6 billion and operating profits of only $114 million)

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3M Corporation’s 3M Corporation’s FinancialFinancial

and Strategic Objectivesand Strategic Objectives

3M Corporation’s 3M Corporation’s FinancialFinancial

and Strategic Objectivesand Strategic Objectives

To achieve annual growth in earnings per share of 10% or better, on average

A return on stockholders’ equityof 20-25%

A return on capital employedof 27% or better

Have at least 30% of sales come from products introduced in the past four years

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Strategic Performance Strategic Performance Fosters Better Financial Fosters Better Financial

PerformancePerformance

Strategic Performance Strategic Performance Fosters Better Financial Fosters Better Financial

PerformancePerformance A company’s achievement of satisfactory financial performance, by itself,

is not enough

Financial performance measures are “lagging indicators” reflecting results of past decisions and actions

Of equal or greater importance is a company’s performance on measures of its strategic well-being —its competitiveness and market position

Strategic performance measures are “leading indicators” of a company’s future financial performance and business prospects

Achievement of strategic performance targets Signals growing competitiveness

Signals growing strength in the marketplace

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Balanced Scorecard Approach Balanced Scorecard Approach – Strategic – Strategic andand Financial Financial


Balanced Scorecard Approach Balanced Scorecard Approach – Strategic – Strategic andand Financial Financial

ObjectivesObjectives Balanced scorecard approach for measuring

company performance requires both – Financial objectives Strategic objectives

Emphasis on financial performance may assumepriority over strategic performance when company’s Financial performance is dismal and Survival is threatened

Otherwise, management is advised to put more emphasis on achieving strategic objectives

The surest path to sustained future profitabilityyear after year is to relentlessly pursue strategic outcomes

that strengthen a company’s business position andgive it a growing competitive advantage over rivals!

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Short-Term vs.Short-Term vs.Long-Term ObjectivesLong-Term Objectives

Short-Term vs.Short-Term vs.Long-Term ObjectivesLong-Term Objectives

Short-term objectives

Targets to be achieved soon

Milestones or stair steps for reaching long-range performance

Long-term objectives

Targets to be achieved within3 to 5 years

Prompt actions now that willpermit reaching targetedlong-range performance later

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A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its

competitive actions andenergies on achieving that objective!

Concept of Strategic Concept of Strategic IntentIntent

Concept of Strategic Concept of Strategic IntentIntent

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Characteristics ofCharacteristics ofStrategic IntentStrategic Intent

Characteristics ofCharacteristics ofStrategic IntentStrategic Intent

Indicates firm’s intent to making quantam gains in competing against key rivals and to establishing itself as a winner in the marketplace, often against long odds

Involves establishing a grandiose performance target that is out of proportion to its immediate capabilities and market position but then devoting the company’sfull resources and energies to achieving the target over time

Signals relentless commitment toachieving a particular market position and competitive standing

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1. First, establish organization-wide objectives and performance targets

2. Next, set business andproduct line objectives

3. Then, establish functionaland departmental objectives

4. Individual objectives are established last

Objectives Are NeededObjectives Are Neededat All Levelsat All Levels

Objectives Are NeededObjectives Are Neededat All Levelsat All Levels

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Importance ofImportance ofTop-Down ObjectivesTop-Down Objectives

Importance ofImportance ofTop-Down ObjectivesTop-Down Objectives

Guide objective-setting and strategy-making at lower levels

Ensures financial and strategic performance targets for all business units, divisions, and departments are directly connected to achieving company-wide objectives

Integration of objectives has two advantages

Helps produce cohesion among objectives andstrategies of different parts of organization

Helps unify internal efforts to move acompany along the chosen strategic path

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Crafting a StrategyCrafting a StrategyCrafting a StrategyCrafting a Strategy

Strategy-making involves entrepreneurship –searching for opportunities

To do new things or

To do existing things in new or better ways

Strategizing involves

Picking up on happenings in the external environment and

Steering company activities in new directions dictated by shifting market conditions


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Activities Involved inActivities Involved inCrafting a StrategyCrafting a Strategy

Activities Involved inActivities Involved inCrafting a StrategyCrafting a Strategy

Studying market trends and actions of competitors

Listening to customers, anticipating their changing needs

Scrutinizing business possibilitiesbased on new technology

Building firm’s market positionvia acquisitions or new products

Pursuing ways to strengthenfirm’s competitive capabilities

Our strategy will be . . .

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Who Participates in Who Participates in CraftingCrafting

a Company’s Strategy?a Company’s Strategy?

Who Participates in Who Participates in CraftingCrafting

a Company’s Strategy?a Company’s Strategy? Chief executive officer - CEO

Senior corporate executives

Chief financial officer - CFO

Managers of business divisions andmajor product lines

Key VPs for production, marketing, human resources, and other functional departments

Every company manager has a strategy-making,strategy-executing role – ranging from minor to major –

for the area he or she heads!

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Strategizing: An Strategizing: An IndividualIndividual

or Team Responsibility? or Team Responsibility?

Strategizing: An Strategizing: An IndividualIndividual

or Team Responsibility? or Team Responsibility? Teams are increasingly used because

Finding market- and customer-driven solutions is necessary

Complex strategic issues cut across functional areas and departmental units

Ideas of people with differentbackgrounds and experiences strengthen strategizing effort

Groups charged with crafting thestrategy often include the peoplecharged with implementing it

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Fig. 2.2: A Company’s Strategy-Making Fig. 2.2: A Company’s Strategy-Making HierarchyHierarchy

Fig. 2.2: A Company’s Strategy-Making Fig. 2.2: A Company’s Strategy-Making HierarchyHierarchy

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Levels of Strategy-MakingLevels of Strategy-Makingin a Diversified Companyin a Diversified CompanyLevels of Strategy-MakingLevels of Strategy-Makingin a Diversified Companyin a Diversified Company

Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Business-Level Managers

Functional Managers

OperatingManagers

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Levels of Strategy-Making Levels of Strategy-Making inin

a Single-Business Companya Single-Business Company

Levels of Strategy-Making Levels of Strategy-Making inin

a Single-Business Companya Single-Business Company

Business Strategy

Two-Way Influence

Functional Strategies

Operating Strategies

Business-Level Managers

OperatingManagers

Functional Managers

Two-Way Influence

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Tasks of Corporate Tasks of Corporate StrategyStrategy

Tasks of Corporate Tasks of Corporate StrategyStrategy

Moves to achieve diversification

Actions to boost performance of individual businesses

Capturing valuable cross-business synergies to provide1 + 1 = 3 effects!

Establishing investment priorities and steering corporate resources into the most attractive businesses

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Initiating approaches to produce successful performance in a specific business

Crafting competitive moves to build sustainable competitive advantage

Developing competitively valuablecompetencies and capabilities

Uniting strategic activities of functional areas

Gaining approval of business strategies by corporate-level officers and directors

Tasks of Business Tasks of Business StrategyStrategy

Tasks of Business Tasks of Business StrategyStrategy

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Game plan for a strategically-relevantfunction, activity, or business process

Detail how key activitieswill be managed

Provide support forbusiness strategy

Specify how functional objectivesare to be achieved

Tasks of Functional Tasks of Functional StrategiesStrategies

Tasks of Functional Tasks of Functional StrategiesStrategies

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Tasks of Operating Tasks of Operating StrategiesStrategies

Tasks of Operating Tasks of Operating StrategiesStrategies

Concern narrower strategies formanaging grassroots activities andstrategically-relevant operating units

Add detail to businessand functional strategies

Delegation of responsibilityto frontline managers

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Uniting the Company’sUniting the Company’sStrategy-Making EffortStrategy-Making EffortUniting the Company’sUniting the Company’sStrategy-Making EffortStrategy-Making Effort

A firm’s strategy is really a collection of initiatives undertaken by managers at all levels in the organizational hierarchy

All the various strategic initiatives must be unified intoa cohesive, company-wide action plan

Pieces of strategy should fittogether like the pieces of a puzzle

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Its strategic vision and business mission

Its strategy

Its strategic andfinancial objectives

What Is a Strategic What Is a Strategic Plan?Plan?

What Is a Strategic What Is a Strategic Plan?Plan?

A Company’s

Strategic Plan

Consists of

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Action-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive manner

Tougher and more time-consumingthan crafting strategy

Key tasks include

Improving efficiency of the strategy being executed

Showing measurable progress in achieving targeted results


Implementing and Executing Implementing and Executing StrategyStrategy

Implementing and Executing Implementing and Executing StrategyStrategy

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Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Instituting best practices and programs for

continuous improvement Installing information, communication, and operating systems Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Exerting the leadership necessary to drive the process forward and

keep improving

What Does Strategy What Does Strategy Implementation Involve?Implementation Involve?

What Does Strategy What Does Strategy Implementation Involve?Implementation Involve?

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Characteristics of Good Characteristics of Good Strategy ExecutionStrategy Execution

Characteristics of Good Characteristics of Good Strategy ExecutionStrategy Execution

Involves creating strong “fits” between strategy and

Organizational capabilities

Reward structure

Internal operating systems

Organization’s work climate and culture

The stronger the “fits” the

Better the execution

Higher a company’s odds of achieving its performance targets

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Tasks of crafting and implementing the strategy are not a one-time exercise Customer needs and competitive conditions change New opportunities appear; technology

advances; any number of other outside developments occur

One or more aspects of executing thestrategy may not be going well

New managers with different ideas take over Organizational learning occurs

All these trigger the need for corrective actions and adjustments on an as-needed basis


Evaluating Performance andEvaluating Performance andMaking Corrective Making Corrective

AdjustmentsAdjustments

Evaluating Performance andEvaluating Performance andMaking Corrective Making Corrective

AdjustmentsAdjustments

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Monitoring, Evaluating, Monitoring, Evaluating, and and

Adjusting as NeededAdjusting as Needed

Monitoring, Evaluating, Monitoring, Evaluating, and and

Adjusting as NeededAdjusting as Needed Taking actions to adjust to the march of events tends to result

in one or more of the following

Altering long-term direction and/orredefining the mission/vision

Raising, lowering, or changingperformance objectives

Modifying the strategy

Improving strategy execution

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Corporate Governance: Corporate Governance: Strategic Role of a Board of Strategic Role of a Board of

Directors Directors

Corporate Governance: Corporate Governance: Strategic Role of a Board of Strategic Role of a Board of

Directors Directors Exercise strong oversight to ensure the five tasks of strategic

management are executed to benefit Shareholders or Stakeholders

Make sure executive actions are not only proper but also aligned with interests of stakeholders

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Obligations of aObligations of aBoard of DirectorsBoard of Directors

Obligations of aObligations of aBoard of DirectorsBoard of Directors

Be inquiring critics and overseers Evaluate caliber of senior executives’ strategy-making and

strategy-executing skills Institute a compensation plan for

top executives rewarding them forresults that serve interests of Stakeholders and Shareholders

Have courage to intervene when things are not going well or to rein in a CEO who steps “out of bounds”

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Good CorporateGood CorporateGovernance MattersGovernance Matters

Good CorporateGood CorporateGovernance MattersGovernance Matters

The whole fabric of effective corporate governance is undermined when boards of directors shirk their responsibility to maintain ultimate control over Company’s strategic direction, Major elements of its strategy, and Business approaches management is using to implement and execute

the strategy Board members are obligated to rein in a CEO who oversteps the

bounds of sound business principles and ethical behavior A rubber stamp board abdicates its responsibility to shareholders

Boards of directors have a very important oversight role inthe strategy-making, strategy-executing process!

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