Performance and Control

Strategy: A View From the TopChapter 2, Strategy and PerformanceJanuary 22, 2009Group 4

Shana HartfordAustin StewartCarly BuellApril MillerBrittany SnethkampBrian CoteRyan Buell

1How is strategy measured?Strategy is used to position a company for competitive advantageWhen implementing a strategy the organization strives to get results So how is this done? Measuring Performance

Strategy is used to position a company for a competitive advantage. When an organization comes up with a strategy their ultimate goal is to create a competitive advantage over its competitors; however the intended goal of an organization is not always met when implementing the strategy. Often times only a fraction of the promised financial value perceived by CEOs is delivered. Why is this?

In this chapter we will discuss how strategy is related to performance of the company. Is the intended value not delivered because the potential strategy was not good enough or was the performance of the company not at its best? Two widely cited studies on this subject will be discussed: Good to Great and What Really Works: the 4+2 Formula.

In this chapter we will discuss two

2Strategy and PerformanceGood to Great: Why some companies make the leap and others dont

What Really Works: The 4+2 Formula for Sustained Business Success

Strategy and Performance: A Conceptual Framework

The Balanced Scorecard3What makes a good company great:Quality and nature of top leadership:Focus on long-term benefits of the company and teamDont let personal ego and individual financial gain influence leadership style

Nature of the leadership team:Having the right people in the right position will dissipate management problems that plague companiesSecuring high-quality, high-talent individuals with level 5 leadership abilities must be undertaken before an over arching strategy can be developed.

Willingness to identify and assess defining facts in the company and in the larger business environment

Level 5 Leadership displays a mix of determination and profound humilityThese types of leaders are more interested in the long-term benefit of the company and the team as opposed to individual financial gain and personal ego.

In todays market trends in consumer perferences are constantly changing and the inability to keep apace with these changes often results in company failureEX: going green in todays society there are many opportunities to become eco friendly without this option say at a wal-mart the company might face losing customers to those who have adapted to a more eco friendly environment??

4Hedgehog vs. FoxThe fox knows many things, but the hedgehog knows one big thingTo transition from good to great can be done not by doing many things well, but instead by doing one thing better than anyone else in the worldBecome a hedgehog by determining what you can and cannot be best at, determining what drives the companys economic engine, and determining what the companys people are passionate aboutWalgreens vs. Eckerd

Like previously mentioned strategys purpose is to gain a competitive advantage over competitors in the industry how is this done?5Success as a HedgehogThe key to success is through:Disciplined peopleDisciplined thoughtDisciplined action

6Flywheel vs. Doom LoopWithout discipline in these three areas understanding your hedgehog strategy is very hard to achieve. Collins describes success in two different cycles: the advantageous business cycle known as the flywheel and the doom loop which is its complete opposite. 7Flywheel effect vs. Doom Loop8The 4 + 2 FormulaStudy aimed at identifying must-have management practicesExamined more than 200 well-established practicesStudy showed that these companies outperformed peers without exceptionFormula stated that you need four primary and 2 secondary practicesPrimary PracticesStrategyMust be clearFocus on growthFocused value propositionExecutionExceed customer expectationsIncrease productivityIdentify most important processes to customer needsPrimary PracticesCultureEncourage outstanding contributionsLook outside the industry for competitorsStructureToo great a focus on protocols and procedures can impede progressSuccessful companies try to eliminate unnessecary bureaucracy Embracing Two of Four Secondary PracticesWinning companies from the study had superior performance in any two of these four secondary practices:

TalentInnovation LeadershipMergers and Partnerships121. Talent: Hold on to Talented Employees and Find More2. Innovation: Make Industry-transforming Innovationsthe ease with which any executive who leaves can be replaced from withingrowing talent in-house is often cheaper, more reliable, and promotes continuity and loyaltydedicate major resources to building and retaining an effective workforce and management team

focus on finding new product ideas or technological breakthroughs that have the potential to transform their industries, not just marginal improvementsapply new technologies to their business processes, which can yield huge savings and have power to transform an industry133. Leadership: Find Leaders Who Are Committed to the Business and Its People The most important qualities of a CEO are:the ability to build relationships with people at all levels of the org.to inspire the rest of the management team to do the sameability to seize opportunities before their competitors and solve problems early

Some leaders rely on intuitionOthers assign special groups to monitor changes in everything from politics to demographicsOthers seek outside consultants to watch for changes in the marketplace

144. Mergers and Partnerships: Seek Growth Through Mergers and Partnerships This was a winning practice for only a few of the companies studied.

Companies that do relatively small deals on a consistent basis are likely to be more successful than those that do large, occasional deals.

Winners made better choices:Created value in most of their deals, generating returns in 3 years that exceeded the premium paid Didnt treat acquisitions and partnerships casually or as one-off dealsInvested substantial financial and human resources in developing an efficient, ongoing process for deal makingOften they have codified principles, lessons drawn from experience, that enable them to more consistently choose the right partner and integrate them quickly

Underperformers destroyed shareholder value in most their deals

15Strategy and PerformanceNo single individual can do all that is required to make a company successful.Corporate success depends on the willingness and ability of every manager to think about how their actions influence the performance of the company as a whole.When strategies are not effective, the focus should be on changing the organizational environment to encourage decision making that is aligned with the overall objectives of the company. Developing the Right Organizational Model Three critical dimensions:PeopleKnowledgeIncentives Strategy and Performance: A Conceptual FrameworkPurposeLeadershipStrategyStructureProcessesCultureSystemsPeoplePerformance/ControlStrategy, Purpose, and LeadershipStrategy-structure-systems paradigm: the key to successfully executing a complex strategy was to create the right organizational structure and disciplined planning and control support systems.It was dominant until global competition and the technology revolution. Redefined strategic intent to involve employees at all levels in the strategic management process.StructureIn order to become more competitive, companies are adopting a flatter organizational structure.Old problem: How to organize and divide up tasksNew problem: How to focus on issues of coordination

Structure involves identifying dimensions that are crucial to organizations ability to adapt and evolve strategically

Choosing the right organizational model is difficult, no ONE right form of an organization exists

5 Dominant ApproachesFunctional: particular task requires efforts of substantial number of specialistsGeographically: operating in diverse set of geographic regionsDecentralized: reduce complexity in multi-business environmentStrategic Business Unit: define groupings of businesses that share key strategic elementsMatrix Structure: multiple channels of authority favored when coordination among different interests is keySystems & ProcessesEnhances organizational effectiveness and facilitates coping with changeSupport systems: critical to successful strategy implementationPlanning: ensures orderly process, balanced external and internal focusBudgeting and Accounting: accurate historical data, set benchmark targets, defining measures of performanceInformation: supports internal and external communicationReward and Incentive: creating energy through motivation and commitmentProcess: systematic way of doing thingsPeople: attracting, motivating, & retaining the right peopleCulture: performance linked to strength of companys corporate culture, system of shared values, assumptions, and beliefs among firms employeesArtifacts: visible or audible processes, policies, and proceduresShared values: why things should be as they areBasic assumptions: invisible reasons why group members perceive, think, and feel the way they do about operational issuesBalanced ScorecardA set of measures designed to provide strategists with a quick, yet comprehensive, view of the business.Developed by Robert Kaplan and David NortonThe scorecard asks managers to look at their business from four perspectives:CustomerCompany CapabilityInnovation and LearningFinancial

24Balanced ScorecardThe balanced scorecard provides answers to four basic questions:How do customers see us?At what must we excel?Can we continue to improve and create value?How do we look to our companys shareholders?25Balance ScorecardThe balance scorecard requires managers to translate a broad customer-driven mission statement into factors that directly relate to customer concerns such as product quality, on-time delivery, product performance, service, and cost.Creating a balanced scorecard forces companies to integrate their strategic planning and budgeting processes. 26Performance and Control Most methods for measuring & evaluating performance at different levels in the organization are focused on:Outcome control= The attainment of specific targets in pursuit of specific goals. Achieved by altering the incentive structure for business units, executive teams, or individual managers.

However, when changing an existing corporate culture is key to enhancing performance or implementing a new strategic direction, such as a merger or acquisition, use : Behavior control = The company directly monitors the behavior of specific business units, executive teams, or individual managers. EX: approval of capital expenditure requests, or specific hiring, or promotion decisions.27The Role of the BoardCreating a culture of high performance is central to a board of directors fundamental mandate, which is to direct the affairs of the company. In directing a board should determine & prioritize what it is the board should focus its attention & efforts on.

To create a high performance culture, a board should:1. Define its role, agenda, and information needs.2. Ensure that management not only performs, but performs with integrity.3. Set expectations about the tone & culture of the company.4. Formulate corporate strategy with management.5. Ensure that the corporate culture, the agreed strategy, management incentive compensation, and the companys approach to audit & accounting, internal controls, and disclosure are consistent and aligned.6. Help management understand the expectations of shareholders and regulators.

28Directors must have access to a broad mix of indicators to be able to judge how a corporation is performing.

This requires a push and pull approach to information sharing with companies providing directors with regular, standardized information that is timely, comprehensive, prioritized, and available upon their request.

29Chapter 2 Strategy and PerformanceClass TakeawaysHedgehog and Flywheels4+2 Formula Conceptual FrameworkThe Balanced ScorecardThe Role of The Board30