Charting a Company’s Direction - Indiana...

©2014 KEAW

Strategic

Management Charting a

Company’s Direction

Vision, Mission & Values Objectives & Strategy

Five Strategic Management Tasks

Module #2

Charting a Company’s Direction 2

“Are you sure you have a strategy?” Donald C. Hambrick and James W. Frederickson Academy of Management Executive 2001 Vol. 15 No. 4

Putting Strategy in its Place Strategic Analysis   Industry Analysis   Customer/marketplace trends   Customer activity cycle   Environment forecast   Competitor analysis   Assessment of internal strengths, weaknesses, resources, culture   Stakeholders

Mission   Fundamental purpose   Values   Vision

Objectives   Specific targets, short-term &   long-term Goals

Strategy! The central integrated,

externally oriented concept of how we will achieve our objectives

Supporting Organizational Arrangements   Structure   Process   Symbols   Rewards   People   Activities   Functional policies

It’s not about the sequence.

The robustness of the whole is

key !

Charting a Company’s Direction

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The Strategy-Making, Strategy-Executing Process

Strategic Plan

CES 19e Fig 2.1

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Strategic Management Principle

E f f e c t i v e S t r a t e g y

B e g i n s w i t h a

V I S I O N

of w h e r e t h e O r g a n i z a t i o n

N e e d s t o H e a d !!


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Microsoft’s Strategic Vision

Empower people through great software anytime,

anyplace and on any device.


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1.   Crystallizes an organization’s long-term direction

2.   Reduces risk of rudderless decision-making

3.   Assists in gaining support of organizational members for changes to make the vision a reality

4.   Helps keep strategy-related actions of managers on common path

5.   Helps an organization prepare for the future

Payoffs of a Clear Strategic Vision


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Developing a Strategic Vision

Involves thinking strategically about . . . .   Firm’s future business plans   Where to “go”

Tasks include:   Creating a roadmap of the future   Providing long-term direction   Determining target markets & buyers   Deciding future business position

to stake out   Giving firm a strong identity

Task 1 of Strategic Management

What kind of company . . . . . . Are we trying to become?


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What is a Vision? A small child sitting on a high wall is watching a man at work below. “Mister,” he called, “why are you hitting that rock?” Michelangelo looked up and called back, “Because there’s an angel in the rock and it wants to come out.” To Michelangelo, creating a statue meant chipping away at the rock that imprisoned the angel until the work of art was set free. Like Michelangelo, we need to see, or imagine we see, “the angel in the rock” before we can take up our sculptor’s tools to release it.

(Story from Marilee Zdenek, The Right-Brain Experience)


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Importance of the Strategic Vision

  Impact of new technologies   How customer needs and

expectations are changing   What it will take to outrun

competitors   Which promising market

opportunities ought to be aggressively pursued

  External and internal factors driving what a company needs to do to prepare for the future

A managerial imperative exists to LOOK BEYOND TODAY . . . . and think strategically about what might impact the business in the future:

??


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Characteristics of a Strategic Vision

1.   Charts a company’s future strategic course

2.   Defines the business makeup for typically 3 to 5 years (or more)   Specifies future

technology-product-customer focus

  Indicates capabilities to be developed

  Requires managers to exercise foresight


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Three Elements of a Strategic Vision

Use the mission statement as a starting point

Develop a strategic vision that spells out a course to pursue

Communicate the vision in a clear & exciting manner


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The Vision What would the company like to achieve?

A good vision is meant to stretch a company by articulating an ambitious but attainable future state.


Caterpillar Be the global leader in customer value.

eBay Provide a global trading platform where practically

anyone can trade practically anything.

2-12

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Characteristics of an Effectively Worded Vision Statement


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Common Shortcomings in Company Vision Statements


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Strategic Mission versus Vision

A mission statement focuses on current business activities 'who we are & what we do”   Current product

and service offerings

  Customer needs being served

  Technological and business capabilities

A vision statement concerns a firm’s future business path “where we are going”   Markets to be

pursued

  Future technology-product - customer focus

  Kind of company that management is trying to create


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The Mission

  What is it that the company does?   What is the company’s business?

  Who is being satisfied (what customer groups)?

  What is being satisfied (what customer needs)?

  How customer needs are being satisfied (by what products, services, skills, knowledge, and distinctive competencies)?

The mission is a statement of a company’s raison d’etre, its reason for existence today.

A company’s mission is best approached from a customer-oriented business definition.


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Abell’s Framework for Defining the Business

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice

Hall, 1980), p. 7.


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Intel’s Strategic Vision & Mission Statements

Our vision: Getting to a billion connected

computers worldwide, millions of servers, and trillions of dollars of e-commerce.

Intel’s mission statement: Delight our customers, employees and shareholders by relentlessly

delivering the platform and technology advancements that become essential to the way

we work and live


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Trader Joe’s Mission 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)


1.   Defines current business activities   Customer needs – what needs are being satisfied   Customer groups – who is being satisfied   Technologies & competencies employed –

how value is delivered to satisfy customer needs 2.   Highlights boundaries of current business

  What we DO   What we DON’T do

3.   Conveys   Who we are   What we do   Where we are now

4.   Company specific, not generic — so as to give a company its own identity

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Characteristics of a Mission Statement


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Mission Statement Broad vs Narrow

Broad Definition  Household

furnishings  Tele -

communications  Beverages  Global mail &

package services  Travel & tourism

Narrow Definition   Wrought-iron lawn

furniture   Long-distance

telephone service   Soft drinks   Overnight package

delivery   Caribbean cruises

Narrow enough - to specify real area of interest. Boundary - for what to do & what NOT to do. Beacon - where top management is taking the firm.


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A company’s mission is not to make a profit !!

The real mission is always –

What will we DO . . . . . . to make a profit ?


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The ima

Communicating the Vision and the Mission

An exciting, inspirational vision/mission can:   Crystallize current & long term direction   Challenge and motivate the workforce   Arouse a strong sense of organizational

purpose   Encourage buy-in from employees

(investors, vendors, customers)   Galvanize people to live the

business’ vision/mission


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Examples: Vision Slogans

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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Examples: Vision Slogans

New 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.”

Greenpeace “To halt environmental abuse and promote environmental solutions.”

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A firm’s CORE VALUES are the beliefs, traits, and behavioral

norms that the firm’s personnel are expected to

display in conducting business and pursuing its

strategic vision and mission.


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Linking the Vision & Mission with Core Values

In high-performance organizations, values respect the interests of key stakeholders.

The core values of a company should state:   How managers and employees should conduct

themselves   How they should do business   What kind of organization they need to build to

help achieve the company’s vision, mission & strategy.

  Become an integral part of the firm’s culture   What ‘make it tick’ when strongly espoused and

supported by top management   Often seen as an important source of competitive

advantage


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Firm’s Ethical Responsibilities to its Stakeholders

Owners/shareholders - Rightfully expect some form of return on their investment

Employees - Rightfully expect respect for their worth and devoting their energies to firm

Customers - Rightfully expect a seller to provide them with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitable relationship with firms they supply

Community - Rightfully expect businesses to be good citizens in their community


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Values at Nucor

  “Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.”

  “Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.”

  “Employees have the right to be treated fairly and must believe that they will be.”

  “Employees must have an avenue of appeal when they believe they are being treated unfairly.”

At Nucor, values emphasizing pay for performance, job security, and fair treatment for employees help to create an atmosphere that leads to high employee productivity.


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Shared Values and Corporate Culture

Values & culture often shape the strategic moves a business will:

  Consider … or   Reject

It is generally unwise for a business to undertake strategic moves which conflict with:

  Its CULTURE … or   VALUES that are widely shared by

managers & employees Charting a Company’s Direction

 Responding positively to emerging societal priorities and expectations

 Demonstrating willingness to take needed action ahead of regulatory confrontation

 Balancing stockholder & stakeholder interests against the larger interest of society as a whole

 Being a ‘good citizen’ in community 31

‘Corporate Social Responsibility’

Conducting business activities within the bounds of what is considered legal, moral and ethical . . . . and in the public interest


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Hewlett-Packard’s Basic Values: “The HP Way”

  Sharing firm’s success with employees   Showing trust and respect for employees   Providing customers with products or

services of the greatest value   Being genuinely interested in providing

customers with effective solutions to their problems

  Making profit a high stockholder priority   Avoiding use of long-term debt to finance

growth   Individual initiative, creativity, & teamwork   Being a good corporate citizen


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Core Values for Amazon ♦ Customer

Obsession We start with the customer and work backward.

♦  Innovation If you don’t listen to your customers you will fail. But if you only listen to your customers you will also fail.

♦ Bias for Action

We live in a time of unheralded revolution and instrumental opportunity–provided we make every minute count.

♦ Ownership Ownership matters when you’re building a great company. Owners think long – term, please passionately for their projects and ideas, and are empowered to respectfully challenge decisions.

♦ High-Hiring Bar

When making a hiring decision we ask ourselves: “Will I admire this person? Will I learn from this person? Is this person a superstar?”

♦ Frugality We spend money on the things that really matter and believe that frugality breeds resourcefulness, self-sufficiency and intention.


Toyota’s Company Values

Teamwork

Getting quality right the first time

Learning

Continuous improvement

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

Respect for and development of employees

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Setting Goals & Objectives

  Converts strategic vision and mission into specific, measurable, & timely performance targets

  Focuses efforts & aligns actions throughout the organization

  Serve as yardsticks for tracking performance & progress

  Provide motivation for employees to achieve greater levels of effort


benchmarks

targets ?


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Types of Goals & Objectives Required

Outcomes focused on improving financial performance, eg:   EPS growth

  ROI or EVA improvement   Stock price appreciation   Cash flow goals   Dividend & Reinvestment   Working Capital   Bond ratings

Focused on improving long-term, competitive business position, eg:   Market share   Penetrate new markets   Foreign markets   New products introduced   Product quality   Customer service   Brand recognition

Financial Strategic


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Key characteristics of well-constructed goals:

1.   Precise and measurable – to provide a yardstick or standard to judge performance

2.   Address crucial issues – with a limited number of key goals that help to maintain focus

3.   Challenging but realistic – to provide employees with incentive for improving

4.   Specify a time period – to motivate and inject a sense of urgency into goal attainment

Major Long-Term Goals A goal is a precise and measurable desired

future state that a company must realize if it is to attain its vision or mission.

Focus on LONG-RUN performance and competitiveness


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General Electric’s Strategic Corporate Objectives

• Become the most competitive

enterprise in the world. • Be number one or number two

in each business we are in. • Globalize every activity in the

company. • Embrace the Internet and

become a global e-business.


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McCormick & Company Financial Objectives

¿  To achieve a 20% return on equity. ¿  To achieve a net sales growth rate of 10% per year. ¿  To maintain an average earnings per share growth

rate of 15% per year. ¿  To maintain total debt-to-total capital at 40% or

less. ¿  To pay out 25% to 35% of net income in dividends. ¿  To make selective acquisitions which complement

our current businesses and can enhance our overall returns.

¿  To dispose of those parts of our businesses which do not or cannot generate adequate returns or do not fit with our business strategy.


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Unilever’s Strategic & Financial Objectives

  Grow annual revenues by 5-6% annually   Increase operating profit margins from

11% to 16% within 5 years   Trim company’s 1200 food, household,

and personal care products down to 400 core brands

  Focus 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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Which Takes Precedence . . .

Financial or Strategic Objectives 1.   Pressures for better short-term financial

performance become pronounced when:   Business is struggling financially   Resource commitments for new strategic initiatives

may hurt bottom-line for several years   Proposed strategic moves are risky

2.   Otherwise . . . . strategic objectives merit top priority. A business that consistently passes up opportunities to strengthen its long-term competitive position:   Risks diluting its competitiveness   Risks losing momentum in its markets   Hurts its ability to fend off rivals’ challenges


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Establishing Objectives  Represent commitment to

achieve specific performance targets by a certain time

 Should be stated in quantifiable terms and contain a deadline for achievement

 Spell-out how much of what kind of performance by when

10% ROI


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Long-Range Goals vs Short-Term Objectives

Long-Range Goals   Targets to be achieved

within 3 to 5 years  Prompt actions now . . .

that will permit reaching targeted long-range performance later

Short-Range Objectives   Targets to be achieved soon  Serve as stair steps for

reaching long-range performance

support


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Long-term goals need to be more of a top-down process . . .

in order to guide lower-level managers & organizational units toward outcomes that support the achievement of overall business & company

objectives. Charting a Company’s Direction

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Objectives are Needed at All Organizational Levels

1.  First, establish organization-wide goals, objectives & performance targets

2.  Next, set business unit & product line objectives

3.  Then, establish functional & departmental objectives

4.  Finally, individual objectives are established last

The strategic goal-setting process is more top-down than bottom-up.

Top-down goals lead to cohesive strategies & objectives for the organization . . . .

. . . . and help unify internal efforts Charting a Company’s Direction

The Balanced Scorecard Approach Strategic & Financial Objectives

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A more complete & balanced view

of how an organization is

performing


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Crafting a Strategy

Crafting an organization’s strategy deals with:   How to make the strategic vision

a reality . . . . . and achieve target objectives

  Making choices among strategic alternatives

  The game plan for:   Pleasing customers   Conducting operations   Building a sustainable

competitive advantage »  Is a collaborative team effort

involving managers in various positions at all organizational levels

HOW …. Our game plan for running the company ….



Strategy involves determining whether to:

  Concentrate on a single business . . . . or several businesses (diversification)

  Cater to a broad range of customers . . . or focus on a particular niche

  Develop a wide . . . or narrow product line   Pursue competitive advantage based on

  Low cost … or   Product superiority … or   Unique organizational capabilities

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Crafting a Strategy

Strategy is

WHETHER to . . .


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Strategy involves deciding how to:   Respond to changing

buyer preferences   Respond to new

market conditions   Grow the business

over the long-term   Achieve performance

targets   Outcompete rivals

Strategy is HOW to . . .

Crafting a Strategy


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Concept of Strategic Intent Strategic intent is when a business relentlessly pursues an ambitious strategic objective . . . and concentrates its competitive actions & energies on achieving that objective !!

  Indicates a business’s intent to stake out a particular position over the long-term

  Involves establishing a BHAG – ‘big, hairy, audacious goal’

 Signals relentless commitment to winning


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Business Strategy

Business- Level Managers

  Responses to changes in industry & competitive conditions

  Competitive moves to produce sustainable competitive advantage

  Building competitively valuable competencies & capabilities

  Uniting strategic initiatives of functional areas

Functional Strategies Functional Managers

  Game plan for a strategically-relevant function, activity, or business process

  Details how key activities will be managed

  Provide support for business strategy

  Specify how functional objectives are to be achieved

Operating Strategies Operating Managers

  Narrower strategies for managing strategically relevant operating units

  Adds detail to business and managerial strategies

Strategy-Making in a Business Unit or Single-Business

Two-Way Influence

Two-Way Influence


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Networking of Vision, Missions, Objectives & Strategies

Two-Way Influence Two-Way Influence Two-Way Influence

Level 1 Business-Level Managers

Business Level

Objectives

Business Strategic

Vision & Mission

Business Level

Strategy

Level 3 Plant Managers, Lower-Level Supervisors

Operating Objectives

Operating Missions

Operating Strategies

Two-Way Influence Two-Way Influence Two-Way Influence

Functional Objectives

Functional Missions

Functional Strategies

Level 2 Functional Managers


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A Firm’s Strategy-Making Hierarchy

Corporate Strategy

Multibusiness Strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses

Business Strategy

•  How to strengthen market position and gain competitive advantage

•  Actions to build competitive capabilities of single businesses •  Monitoring and aligning lower-level strategies

Functional Area

Strategies

• Add relevant detail to the how’s of the business strategy • Provide a game plan for managing a particular activity in ways

that support the business strategy

Operating Strategies

• Add detail and completeness to business and functional strategies

• Provide a game plan for managing specific operating activities with strategic significance

Two-Way Influence

Two-Way Influence

Two-Way Influence


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Corporate Strategy – is strategy at the multi-business level, concerning how to improve company performance or gain competitive advantage by managing a set of businesses simultaneously. Business Unit Strategy – is strategy at the single-business level, concerning how to improve the performance or gain a competitive advantage in a particular line of business.

Corporate Multi-Business Strategy


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Uniting the Company’s Strategy-Making Effort

A company’s strategy is a collection of strategies and initiatives being acted on by managers in various businesses and at various organizational levels

Separate levels of strategy must be unified into a cohesive, company-wide action plan

Pieces of strategy should fit together like the pieces of a puzzle


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Objectives and strategies that are unified from the top to the bottom of the

strategy-making hierarchy require a team effort !!


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Influences of Key Executives Managers generally stamp the

strategies they craft with their own personal:   Ambitions   Values   Styles   Ethical beliefs   Business philosophies   Attitudes toward risk.

The unrelentless

pursuit of perfection !


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John Deere’s Strategic Vision & Mission

Who Are We ?

John Deere has grown and prospered through a long-standing partnership with the world’s

most productive farmers. Today, John Deere is a global company with several equipment

operations and complementary service businesses. These businesses are closely interrelated, providing the company with

significant growth opportunities and other synergistic benefits.


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Where Are We Going ?

 Deere is committed to providing genuine value to the company’s stakeholders. In support of that commitment, Deere aspires to:   Grow and pursue leadership positions in

each of our businesses.   Extend our preeminent leadership position

in the agricultural equipment market worldwide.

  Create new opportunities to leverage the John Deere brand globally.


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How Will We Get There ?

1.   By pursuing the broader corporate goals of profitable growth and continuous improvement, each of the company’s businesses is expected to:   Achieve world-class performance by

attaining a strong competitive position in target markets.

  Exceed customer expectations for quality and value.

  Earn in excess of the cost of capital over a business cycle.


How Will We Get There ? 2.   By growing profitably and continuously

improving, each of the company’s businesses will benefit from & contribute to Deere’s unique intangible assets:   Our distinguished brand.   Our heritage of integrity and

teamwork.   Our advanced skills.   The special relationships that have long

existed between the company and our employees, customers, dealers and other business partners around the world.

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Executing the Strategy

Converting strategic plans into actions requires:   Directing organizational

action   Motivating people   Building and strengthening

the firm’s competencies and competitive capabilities

  Creating & nurturing a strategy-supportive climate

  Meeting or beating performance targets



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Managing the Strategy Execution Process

1.   Building a capable organization 2.   Allocating resources to strategy-critical

activities 3.   Establishing strategy-supportive policies 4.   Motivating people to pursue the target

objectives 5.   Tying rewards to achievement of results 6.   Creating a strategy-supportive corporate

culture 7.   Installing needed information, communication,

and operating systems 8.   Instituting best practices and programs for

continuous improvement 9.   Exerting the leadership necessary to drive the

process forward and keep improving Charting a Company’s Direction

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Strategy implementation and execution is an action-oriented, ‘make-it-happen’ process . . . . involving people management,

developing competencies & capabilities, budgeting, policy-making, motivating, culture-

building, and leadership Charting a Company’s Direction

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Evaluating Performance and Initiating Corrective Actions

The tasks of crafting, implementing, and executing a 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 the strategy 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


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Benefits of a‘Strategic Thinking’ Approach to Managing

1.   Guides entire business regarding . . . . ‘what it is we are trying to do and to achieve’

2.   Makes managers more alert to: ‘winds of change’, new opportunities, and threatening developments

3.   Unifies numerous strategy-related decisions and organizational efforts

4.   Creates a proactive atmosphere 5.   Promotes development of an evolving

business model focused on bottom-line success

6.   Provides basis for evaluating competing budget requests


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Role of the Board of Directors in Corporate Governance

Obligations of the Board of Directors 1.   Critically appraise the firm’s direction, strategy

and business approaches 2.   Evaluate the caliber of senior executives’ strategic

leadership skills 3.   Institute a compensation plan that reward top

executives for actions and results that serve stakeholder interests – especially stockholders

4.   Oversee the firm’s financial accounting and reporting practices and compliance with the Sarbanes-Oxley Act


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Achieving Effective Corporate Governance

A strong, independent board of directors: 1.   Is well informed about the firm’s performance

2.   Guides and judges the CEO and other executives

3.   Can curb management actions the board believes are inappropriate or unduly risky

4.   Can certify to shareholders that the CEO is doing what the board expects

5.   Provides insight and advice to top management

6.   Is actively involved in debating the pros and cons of key strategic decisions and actions


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Competent execution of a well-conceived strategy is the BEST test of managerial excellence . . . and a

proven recipe for organizational success !!!

Good Strategy + Good Execution = Good Management


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“If you don’t have a strategy you will be . . . part of somebody else’s strategy.”

- Alvin Toffler

“Quote”


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Good Strategy + Good Execution = Good Management


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