McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

Chapter 2: Leading the Chapter 2: Leading the

Process of Crafting and Process of Crafting and

Executing StrategyExecuting Strategy

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University

““If you don’t know whereIf you don’t know where

you are going, any roadyou are going, any road

will take you there.” will take you there.”

Cheshire Cat to AliceCheshire Cat to AliceLewis Carroll, Lewis Carroll, Alice in WonderlandAlice in Wonderland

““If you articulate a visionIf you articulate a visionthat makes people passionate, that makes people passionate,

there are so many amazing there are so many amazing things you can do.” things you can do.”

Dr. Sophie VandebroekDr. Sophie Vandebroek

Xerox CorporationXerox Corporation

2-4

Chapter Learning Objectives

1. Grasp why it is critical for company managers to think long and hard about where a company needs to head and why.

2. Understand the importance of setting both strategic and financial objectives.

3. Recognize that the task of crafting a company strategy draws on the entrepreneurial talents of managers at all organizational levels.

4. Understand why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets.

5. Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently.

6. Understand why the strategic management process is ongoing, not an every-now-and-then task.

7. Learn what leadership skills management must exhibit to drive strategy execution forward.

8. Become aware of the role and responsibility of a company’s board of directors in overseeing the strategic management process.

2-5

Chapter Roadmap

What Does the Strategy-Making, Strategy-Executing process Entail?

Phase 1: Developing a Strategic Vision

Phase 2: Setting Objectives

Phase 3: Crafting a Strategy

Phase 4: Implementing and Executing the Strategy

Phase 5: Evaluating Performance and Initiating Corrective Adjustments

Leading the Strategic Management Process

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

Figure 2.1: The Strategy-Making, Strategy-Executing Process

2-7

Developing a Strategic Vision

Involves thinking strategically about

Future direction of company

Changes in company’s product/market/customer technology to improve

Current market position

Future prospects

Phase 1Phase 1

A 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.

Table 2.1: Factors to Consider in Deciding on a Company’s Future Direction

2-9

Key Elements of a Strategic Vision

Delineates management’s aspirations for the business

Provides a panoramic view of “where we are going” Charts a strategic path Is distinctive and specific to

a particular organization Avoids use of generic language that

is dull and boring and that couldapply to most any company

Captures the emotions ofemployees and steers themin a common direction

Is challenging and a bit beyond a company’s immediate reach

2-10

Role of a Strategic Vision

A well-conceived, well-communicated vision functions as a valuable managerial tool to Give the organization a sense of direction, mold

organizational identity, and create a committed enterprise

Illuminate the company’s directional path Provide managers with a reference point to

Make strategic decisions Translate the vision into hard-edged

objectives and strategies Prepare the company for the future

A 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 that

move the company along the intended strategic path!

Table 2.2: Characteristics of an Effectively Worded Vision Statement

Table 2.3: Common Shortcomings in Company Vision Statements

Example of Strategic Vision

Red HatRed HatTo 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.

Example of Strategic Vision

UBSUBS We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment

banking and securities businesses. We continually earn recognition and trust from clients, shareholders,

and staff through our ability to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what

we do. Our purpose is to help our clients make financial decisions with

confidence. We use our resources to develop effective solutions and services for

our clients. We foster a distinctive, meritocratic culture of ambition, performance

and learning as this attracts, retains and develops the best talent for our company.

By growing both our client and our talent franchises, we add sustainable value for our shareholders.

Examples of Strategic Visions

CaterpillarCaterpillar

Be the global leader in customer value.

eBayeBayProvide a global trading

platform where practically anyonecan trade practically anything.

Strategic Vision vs. Mission

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

Markets to be pursued

Future product/market/customer/technology focus

Kind of company management is trying to create

A company’s mission statement typically focuses on its present business purpose - “who we are and what we do”

Current product and service offerings

Customer needs and customer groups being served

Geographic coverage

2-17

Characteristics of a Mission Statement

Identifies boundaries of a company’s current business and says something about Present products and services Types of customers served Geographic coverage

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

A 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!

2-18

Key Elements of aMission Statement

A complete mission statement should cover three things: Customer needs being met –

What is being satisfied Customer groups or markets being served –

Who is being satisfied What 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 satisfied

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 a profit is an objective or intended outcome!

Mission Statement: Trader Joe’s

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)

Mission Statement: OSHA

To promote the safety and health of America’s

workers by setting and enforcing standards;

Providing training, outreach, and education;

Establishing partnerships;

Encouraging continual process improvement in

workplace safety and health.

Occupational Safety and Health Administration

2-21

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 conducted Company 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 citizenship

But values statements remain a bunch of nice words until espoused beliefs, traits, and behaviors are Incorporated into company’s operations and work

practices Used as benchmarks for job appraisal, promotions, and

rewards

Values

Values

Linking the Visionwith Company Values

If company personnel are not held accountablefor displaying company values in doing their jobs, then the

company values statement is a bunch of empty words!

Example: American Express’Company Values

Customer commitment

Quality andIntegrity

TeamworkRespect

for people

Example: Toyota’s Company Values

TeamworkTeamwork

Getting quality right the first timeGetting quality right the first time

LearningLearning

Continuous improvementContinuous improvement

Embracing change in pursuit of low-cost, top-notch manufacturing excellence in motor vehiclesEmbracing change in pursuit of low-cost, top-notch manufacturing excellence in motor vehicles

Respect for and development of employeesRespect for and development of employees

Example: DuPont’s Company Values

Safety Ethics

Environmental stewardship

Respectfor people

Example: Abbott Laboratories’ Company Values

Pioneering Achieving

EnduringCaring

Example: Yahoo’s Core Values

Customer FixationCustomer Fixation – Respect our customers above all else.Customer FixationCustomer Fixation – Respect our customers above all else.

TeamworkTeamwork – Treat one another with respect and communicate openly.TeamworkTeamwork – Treat one another with respect and communicate openly.

CommunityCommunity – Share an infectious sense of mission to make an impact on society.CommunityCommunity – Share an infectious sense of mission to make an impact on society.

FunFun – Believe humor is essential to success.FunFun – Believe humor is essential to success.

What Yahoo What Yahoo Doesn’t Doesn’t ValueValue – Singles out 54 things it does not value – losing, bureaucracy, “good enough,” arrogance, status quo, formality, quick fixes … What Yahoo What Yahoo Doesn’t Doesn’t ValueValue – Singles out 54 things it does not value – losing, bureaucracy, “good enough,” arrogance, status quo, formality, quick fixes …

InnovationInnovation – Thrive on creativity an ingenuity.InnovationInnovation – Thrive on creativity an ingenuity.

ExcellenceExcellence – Committed to winning with integrity.ExcellenceExcellence – Committed to winning with integrity.

2-27

Winning support for the vision involves Putting “where we are going and why” in writing

Distributing the statement organization-wide

Having executives explain vision to employees

An engaging, inspirational vision Challenges and motivates workforce

Articulates a compelling casefor where company is headed

Evokes positive support and excitement

Arouses a committed organizationaleffort to move in a common direction

Communicating the Strategic Vision

2-28

Capturing the Vision in a Slogan

FedEx“Satisfying worldwide demand for fast,

time-definite, reliable distribution.”

Home Depot“Helping people improve the

places where they live and work.”

2-29

Capturing the Vision in a Slogan

Scotland Yard“To make London the safest

major city in the world.”

Charles Schwab“To provide customers with

the most useful and ethical financial

services in the world.”

2-30

Recognizing Strategic Inflection Points

Sometimes an order-of-magnitude change occurs in a company’s environment that

Dramatically alters its future prospects

Mandates radical revision of its strategic course

Critical decisions have to be made about where to go from here

A major new directional path may have to be taken

A major new strategy may be needed

Responding quickly to unfolding changes in the marketplace lessons a company’s chances of

Becoming trapped in a stagnant business or

Letting attractive new growth opportunities slip away

2-31

Intel’s “Strategic Inflection Points”

Prior to mid-1980s Focus on memory chips

Starting in mid-1980s Abandon memory chip business (due to lower-cost

Japanese companies taking over the market) and Become preeminent supplier of microprocessors to PC

industry

Be undisputed leader in drivingPC technology forward

1998 Shift focus from PC technology to becoming the

preeminent building block supplier to Internet economy

2-32

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

Overcoming Resistance toa New Strategic Vision

2-33

Test Your Knowledge

The difference between a company's mission statement and the concept of a strategic vision is that

A. the mission statement lays out the desire to make a profit, whereas the strategic vision addresses what strategy the company will employ in trying to make a profit.

B. a mission statement deals with “where we are headed ” whereas a strategic vision provides the critical answer to “how will we get there?”

C. a mission deals with what a company is trying to do and a vision concerns what a company ought to do.

D. a mission statement typically concerns an enterprise’s present business scope and purpose—“who we are, what we do, and why we are here”—whereas the focus of a strategic vision is on the direction the company is headed and what its future product-customer-market-technology focus will be.

E. a mission is about what to accomplish for shareholders whereas a strategic vision concerns what to accomplish for customers.

2-34

Crystallizes an organization’s long-term direction

Reduces risk of rudderless decision-making

Creates a committed enterprise where organizational members enthusiastically pursue efforts to make the vision a reality

Provides a beacon to keep strategy-related actions of all managers on common path

Helps an organization prepare for the future

Payoffs of a Clear Strategic Vision

2-35

Setting Objectives

Purpose of setting objectives

Converts vision into specific performance targets

Creates yardsticks to track performance

Well-stated objectives are

Quantifiable

Measurable

Contain a deadline for achievement

Spell-out how much of what kindof performance by when

Phase 2Phase 2

2-36

Importance of SettingStretch Objectives

Objectives should be set at levels that stretch an organization to Perform at its full potential,

delivering the best possible results

Push firm to be more inventive

Exhibit more urgency to improve its business position

Be intentional and focused in its actions

There’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 Required

Financial Objectives Strategic Objectives

Outcomes focused

on improving financial

performance

Outcomes focused on improving competitive strength and market

standing

$

2-38

Examples: Financial Objectives

Annual revenue growth of X% X % increase in after-tax profits annual Earnings per share growth of X% annually Annual dividend increases of X% Profit margins of X% X% return on capital employed (ROCE) Annual stock price increases that average X% over

time Strong bond and credit ratings Sufficient internal cash flows to fund 100% of new

capital investment Stable earnings during periods of recession

2-39

Winning an X% market share within 3 years Achieving lower overall costs than rivals Overtaking key competitors on product performance

or quality or customer service within 2 years Deriving X% of revenues from sale of new products

introduced in past 5 years Being the recognized industry leader in product

innovation and/or technological know-how Having a wider product line than rivals Consistently getting new or improved products to

market ahead of rivals Having stronger national or global sales and

distribution capabilities than rivals

Examples: Strategic Objectives

2-40

Achieving 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 later

However, setting well-chosen strategic objectives and achieving them signals Growing competitiveness Growing strength in the marketplace

A company that is growing competitively stronger is developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a

company’s capability to deliver improved future financial performance

Good Strategic Performance Is the Key to Better Financial Performance

Unless a company sets and achieves stretch strategic objectives

it is not developing the competitive muscle to deliver even

better financial results in the years ahead!

2-41

A balanced scorecard for measuringcompany performance is optimal; it entails

Setting financial and strategic objectives Placing 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 position

A Balanced Scorecard Approach –Setting Strategic and Financial Objectives

The 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!

2-42

General Motors’ Objectives

Reduce the percentage of automobiles using conventional internal combustion engines (ICE) through the development of hybrid ICEs, plug-in hybrid ICEs, range-extended electric vehicles, and hydrogen fuel cell electric engines

Reduce automotive structural costs to benchmark levels of 23 percent of revenue by 2012 from 34 percent in 2005

Reduce annual U.S. labor costs by an additional $5 billion by 2011

2-43

The Home Depot’s Objectives

Be the number one destination for professional contractors, whose business accounted for roughly 30 percent of 2006 sales

Improve in-stock positions so customers can find and buy exactly what they need

Deliver differentiated customer service and the know-how that our customers have come to expect from The Home Depot

Repurchase $22.5 billion of outstanding shares during 2008

Open 55 new store locations with 5 store relocations in 2008

2-44

The Objectives at Yum! Brands (KFC, Pizza Hut, Taco Bell)

Open 100 KFC restaurants in Vietnam by 2010 Expand Taco Bell restaurant concept to Dubai, India,

Spain and Japan during 2008 and 2009 Increase number of international restaurant locations

from 12,000 in 2007 to 15,000 in 2012 Increase operating profit from international operations

from $480 million in 2007 to $770 million in 2012 Expand Pizza Hut’s menu to include pasta and chicken

dishes Decrease the number of company owned restaurant units

in U.S. from 20% of units in 2007 to less than 10% of units by 2010

Increase the number of Taco Bell units in the U.S. by 2%–3% annually between 2008 and 2010

2-45

Avon’s Objectives

Increase our beauty sales and market share

Strengthen our brand image Enhance the representative experience Realize annualized cost savings of $430

million through improvements in marketing processes, sales model and organizational activities

Achieve annualized cost savings of $200 million through a strategic sourcing initiative

2-46

Test Your Knowledge

Which of the following represents the best example of a well-stated strategic objective (as opposed to a well-stated financial objective)?

A. Achieve revenue growth of 150% annually

B. Achieve a AA bond rating within 3 years and an annual cash flow of $750 million

C. Invest more money in R&D to enable the company to offer customers the widest selection of products in the industry

D. Increase market share from 15% to 20% and achieve the lowest overall costs of any producer in the industry, both within three years

E. Pay more attention to reducing costs over the next two years

2-47

For Discussion: Your Opinion

Which matters most to a company’s future

financial performance — setting and pursuing

financial performance targets or setting and

pursuing strategic performance targets?

What arguments support your answer?

2-48

Both Short-Term and Long-Term Objectives Are Needed

Short-term objectives

Targets to be achieved soon

Milestones or stair steps for reaching long-range performance targets

Long-term objectives

Targets to be achieved within3 to 5 years

Calls for actions now that willpermit reaching targetedlong-range performance later

2-49

Concept of Strategic Intent

A 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!

2-50

Characteristics of Strategic Intent

Indicates 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 odds

Involves 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 time

Entails sustained, aggressive actions to take market share away from rivals and achieve a much stronger market position

2-51

Test Your Knowledge

A company pursues strategic intent when

A. it pursues its strategic vision.

B. it crafts a strategy and proceeds to implement it.

C. it adopts a strategic plan and tries to execute it.

D. it sets objectives and pursues their achievement.

E. it relentlessly pursues an ambitious strategic objective and concentrates its full resources and competitive actions on achieving that objective.

2-52

Objectives Are Needed at All Levels

1. First, set 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

The objective-setting process is more top-down than bottom up

2-53

Importance of Top-Down Objectives

Provides guidelines for objective-setting and strategy-making in lower-level organizational units

Helps ensure that performance targets set by business units, divisions, and departments are directly connected to achieving company-wide objectives

Top-down objective-setting hastwo advantages Leads to cohesive and compatible objectives

and strategies up and down the organization Helps unify internal efforts to move

company along the chosen strategic path

2-54

Crafting a Strategy

Strategy-making involves astute entrepreneurship Actively searching for opportunities

to do new things or

Actively searching for opportunities to do existing things in new or better ways

Strategizing involves Developing timely responses to happenings

in the external environment and

Steering company activities in new directions dictated by shifting market conditions

Phase 3Phase 3

2-55

Crafting a Good Strategy Requires Good Business Entrepreneurship

Developing a winning strategy involves

Diagnosing the direction and force of the market changes underway and making timely strategic adjustments

Spotting new or better waysto satisfy customer needs

Figuring out how to outwit and outmaneuver competitors

Pursuing ways to strengthen the firm’s competitive capabilities

Proactively trying to out-innovate rivals

2-56

The 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!

2-57

The Hows That Define a Firm's Strategy

How to grow the business

How to please customers

How to outcompete rivals

How to respond to changing market conditions

How to manage each functionalpiece of the business (R&D, production, marketing, HR, finance, and so on)

How to achieve targeted levels of performance

2-58

Who Is Involved in Strategy Making?

CEO (chief executive officer)

Has ultimate responsibility for leadingthe strategy-making process

Functions as strategic visionary andchief architect of strategy

Senior executives

Typically have influential roles in fashioning those strategy components involving their areas of responsibility

Managers 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 running

2-59

Why 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 expertise

The 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 units

In today’s companies every manager typically has a strategy-making role—ranging from

major to minor—for the area he or she heads!

2-60

For Discussion: Your Opinion

Crafting a company’s strategy is really a job for

senior executives and the company’s board of

directors.

True or false? Discuss and explain.

Figure 2.2: A Company’s Strategy-Making Hierarchy

2-62

Corporate Strategy

Moves to diversify into different industries

Actions to boost the combined performance of the company’s different businesses

Actions to capture cross-business synergies

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

Orchestrated by headquarters executives and involves

2-63

Crafting competitive moves to build sustainable competitive advantage

Seeing that lower-level strategies withinthe business are well-matched to the overall business strategy

Gaining approval of business-level strategic moves by corporate-level officers and directors

Business Strategy

Concerns the actions and approaches crafted to produce successful performance in one specific line of business. Is usually the responsibility of the manager in charge of the business and involves

2-64

Crafting functional strategic initiatives that will support the overall business strategy

Adding function-related strategic details to the overall business strategy

Functional Strategies

Concerns the game plan for a function, activity, or process within a business; is usually orchestrated by the functional head and involves

2-65

Are generally crafted by frontline managers (subject to review and approval by higher-ranking managers)

Concern the relatively narrow strategic initiatives and approaches for managing key operating units (geographic regions, distribution centers, plants) and strategically-relevant operating activities (advertising, supply chain activities, Internet sales)

Add further detail and completeness to functional and business strategies

Operating Strategies

Levels of Strategy-Makingin 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

Levels of Strategy-Making ina Single-Business Company

Business Strategy

Two-Way Influence

Functional Strategies

Operating Strategies

Business-Level Managers

OperatingManagers

Functional Managers

Two-Way Influence

2-68

Test Your Knowledge

The strategy-making hierarchy in a single business company consists of

A. it pursues business strategy, divisional strategies, and departmental strategies.

B. business strategy, functional strategies, and operating strategies, whereas in a diversified company it consists of corporate strategy, business strategies (one for each business the diversified company is in), functional strategies, and operating strategies.

C. business strategy and operating strategy.

D. company strategy, divisional strategies, and functional strategies.

E. corporate strategy, divisional strategies, and departmental strategies.

2-69

Uniting the Company’sStrategy-Making Effort

A 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 puzzle

Key approaches used to unifyall strategic initiatives into acohesive, company-wide action plan Effectively communicate company’s vision,

objectives, and major strategies to all personnel Diligently review lower-level strategies for

consistency and support of higher-level strategies—revise as needed

What Is a Strategic Plan?

Its strategic vision and business mission

Its strategy

Its strategic andfinancial objectives

A

Company’s

Strategic Plan

Consists of

2-71

Implementing and Executing Strategy

Operations-oriented activity aimed atperforming core business activities in astrategy-supportive manner

Tougher and more time-consumingthan crafting strategy

Key tasks include

Improving the efficiency with which the strategy is being executed

Showing measurable progress in achieving both operating excellence and targeted results

Phase 4Phase 4

2-72

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 Implementing and Executing the Strategy Involve?

2-73

Organizational Characteristics of Good Strategy Execution

Requires a concerted effort to achieve operating excellence

Involves a company’s entire management team

Hinges on skills and cooperationof operating mangers who can Push needed changes in their

organizational units

Consistently deliver good results

Success is best indicated by Meeting or beating performance targets

Progress in achieving the strategic vision

2-74

Crafting and implementing a strategy is 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 a need for corrective actions and adjustments on an as-needed basis

Evaluating Performance andMaking Corrective Adjustments

Phase 5Phase 5

2-75

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

Monitoring, Evaluating, and Adjusting as Needed

2-76

Leading the StrategicManagement Process

Diverse leadership challenges include Exerting take-charge leadership Being a spark plug for change and action Ramrodding things through Achieving results

Leading the strategic managementprocess can involve various stylesand approaches Being a hard-nosed authoritarian Being a perceptive listener Being a compromising decision maker Delegating authority to people closest to the action Being a coach Assuming a highly visible role in guiding the process Making brief ceremonial appearances

Numerous Roles of Strategic Leaders

Visionary

Chief Entrepreneur & Strategist Capabilities

Builder

Resource Acquirer & Allocator

Culture Builder

Chief Administrator

& Strategy Implementer

Process Integrator

Coach

Crisis Solver

Taskmaster

Spokesperson

Negotiator

Motivator

Arbitrator

Consensus Builder

PolicymakerPolicy

Enforcer

Mentor

Head Cheerleader

2-78

1. Stay on top of what’s happening

2. Make sure company has agood strategic plan

3. Put constructive pressure oncompany to achieve good results

4. Push corrective actions to improve overall strategic performance

5. Lead development of stronger corecompetencies and competitive capabilities

6. Display ethical integrity and lead social responsibility initiatives

Things a Chief Strategy Implementer Must Do to Be Successful

2-79

Develop a broad network of formaland informal sources of information

Talk with many people at all levels

Be an avid practitioner of MBWA

Observe situation firsthand

Monitor operating results regularly

Get feedback from customers

Watch competitive reactions of rivals

Role #1: Stay on Topof What’s Happening

2-80

Role #2: Make Sure CompanyHas a Good Strategic Plan

Two key responsibilities of CEO and top-level executives

Effectively communicate company’s vision, objectives, and major strategy components to down-the-line managers and key personnel

Exercise due diligence in reviewing lower-level strategies for consistency and support of higher-level strategies

Effective leadership minimizespotential for conflict betweendifferent levels in the strategy hierarchy

2-81

Stimulate Corporate Intrapreneurship

Encourage individuals and teams to develop and champion proposals forNew technologies or technological

applicationsNew products or product linesNew business venturesNew strategic initiatives

Requires senior executives to Judge which proposals merit support Provide organizational and budgetary support

for worthwhile proposals Create an organizational climate where free-

thinking and new ideas are welcome

2-82

Approaches to Promoting Innovation

Encourage individuals and groups to brainstorm proposals for new business ventures or improving existing products

Take special pains to nourish and support people eager to test new business ventures and explore adding new or improved products

Ensure Rewards for successful champions

are large and visible People are not punished when their ideas are

not pursued and are encouraged to try again

Use various kinds of ad hoc organizational forms to support ideas and experimentation

2-83

Successful leaders spend time Mobilizing organizational energy behind

Good strategy execution and

Operating excellence

Nurturing a results-oriented work climate

Promoting enabling cultural drivers

Strong sense of involvement on part of company personnel

Emphasis on individual initiative and creativity

Respect for contributions of individuals and groups

Pride in doing things right

Role #3: Put Constructive Pressure on Company to Achieve Good Results

2-84

Role #4: Push Corrective Actions to Improve Strategy-Making and Strategy-Execution

Requires deciding When adjustments are needed

What adjustments to make

Involves Adjusting long-term direction, objectives, and

strategy on an as-needed basis in response to unfolding events and changing circumstances

Promoting fresh initiatives to bring internal activities and behavior into better alignment with strategy

Making changes to pick up the pace when results fall short of performance targets

2-85

Sensing needs

Gathering information

Developing options andexploring their pros and cons

Putting forth action proposalsand partial solutions

Striving for a consensus

Formally adopting an agreed-on course of action

Steps Involved in MakingCorrective Adjustments

2-86

Top management intervention isrequired to establish better or new Resource strengths and competencies

Competitive capabilities

Senior managers mustlead the effort because Competencies reside in combined

efforts of different work groups and departments, thus requiring cross-functional collaboration

Stronger competencies and capabilitiescan lead to a competitive edge over rivals

Role #5: Promote Stronger CoreCompetencies and Capabilities

2-87

Role #6: Display Ethics Leadership and Lead Social Responsibility Initiatives

Set an excellent example in

Displaying ethical behaviors

Demonstrating character andpersonal integrity in actions and decisions

Declare unequivocal support for high ethical standards and expect all employees to conduct themselves in an ethical fashion

Encourage compliance and establish toughconsequences for unethical behavior

Our ethicscode is . . .

2-88

Have mandatory ethics training for employees Openly encourage employees to

report possible infractions via Anonymous calls to a hotline or

Posting to a special company Web site

Conduct an annual audit to assess Each manager’s efforts to uphold ethical standards

Actions taken by managers to remedy deficient conduct

Require all employees to sign a statement annually certifying they have complied with the ethics code

Make sure ethical violations carry appropriate punishment, including dismissal for egregious violations

Key Approaches toEnforcing Ethical Behavior

2-89

Test Your Knowledge

Assuming that a company’s senior executives are really serious about enforcing high standards of ethical behavior, then they probably need to consider doing all but which one of the following?

A. Appointing a committee of high-profile employees to serve on a committee or task force that is charged with (a) being champions of high ethical standards, (b) finding ways to ingrain high ethical standards as a cultural norm, and (3) heading up the company’s ethics enforcement process

B. Having mandatory ethics training programs for employees

C. Conducting an annual audit of each manager’s efforts to uphold ethical standards and requiring formal reports on the actions taken by managers to remedy deficient conduct

D. Requiring all employees to sign a statement annually certifying that they have complied with the company’s code of ethics and making sure that ethical violations carry appropriate punishment, including dismissal if the violation is sufficiently egregious

E. Openly encouraging company personnel to report possible infractions via anonymous calls to a hotline or e-mails sent to a designated address

2-90

For Discussion: Your Opinion

What would your reaction be if your employer

required you to sign a statement annually

certifying that you have complied with the

company’s code of ethics?

2-91

Actions Demonstrating Commitmentto a Strategy of Social Responsibility

Craft a strategy that positively improveswell-being of employees, environment, communities, and society

Use social and environmental metricsto evaluate company performance

Tie social and environmental performanceto executive compensation

Take special pains to protect environment Take an active role in community affairs Generously support charitable causes and

projects benefiting society Support workforce diversity and commit to

improving the overall well-being of employees

2-92

Exercise strong oversight to ensure 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

Corporate Governance:Strategic Role of a Board of Directors

2-93

Obligations of a Board of Directors

Be inquiring critics and overseers Evaluate caliber of senior executives’

strategy-making and strategy-executing skills

Institute a compensation plan fortop executives rewarding them forresults that serve interests of Stakeholders and Shareholders

Oversee a company’sfinancial accountingand reporting practices

2-94

Key Responsibilities of Board Members

Be well informed about a company’s performance Guide and judge CEO and other top executives Exhibit courage to curb inappropriate or unduly

risky management actions Confirm that CEO is doing what

board expects Provide insight and advice to management Be intensely involved in debating pros and cons

of key actions and decisions

Board members have a very important oversight role in

the strategy-making, strategy-executing process!