SM Ch 2

Strategy making

Addresses a series of strategic hows. Requires choosing among strategic alternatives. Promotes actions to do things differently from competitors rather than running with the herd. Is a collaborative team effort that involves managers in various positions at all organizational levels.

Overly ambitious stretch goals

Are usually beyond the organization's capabilities to reach, regardless of the level of effort. Involve radical expectations and often go underachieved and run the risk of killing motivation, eroding employee confidence, and damaging both worker and company performance. Can work as envisioned if - (1) The company has ample resources and capabilities. (2) Its recent performance is strong.

Setting objectives for every organizational level

Breaks down overall performance targets into targets for each of the organization's separate units. Fosters setting lower-level performance targets or outcomes that support achievement of firm-wide strategic and financial objectives. Extends the top-down objective-setting process to all organizational levels.

Managing the strategy execution process

Creating a strategy-supporting structure. Staffing the organization to obtain needed skills and expertise. Developing and strengthening strategy-supporting resources and capabilities. Allocating ample resources to the activities critical to strategic success. Ensuring that policies and procedures facilitate effective strategy execution. Organizing the work effort along the lines of best practice. Installing information and operating systems that enable company personnel to perform essential activities. Motivating people and tying rewards directly to the achievement of performance objectives. Creating a company culture conducive to successful strategy execution. Exerting the internal leadership needed to propel implementation forward.

Converting strategic plans into actions requires

Directing organizational action. Motivating people. Building and strengthening the firm's competencies and competitive capabilities. Creating and nurturing a strategy-supportive work climate. Meeting or beating performance targets.

Strategic plan

A strategic vision + mission + objectives + strategy = a strategic plan Strategic plan: Lays out its direction, business model, competitive strategy, and performance targets for some specified period of time.

Realistic stretch goals

Are definitely reachable, with a strong and coordinated effort on the part of company personnel.

Balanced scorecard

Balanced Scorecard: Widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. Four dimensions - (1) Financial objectives. (2) Strategic objectives that signal greater competitive strength (and thus greater capability to achieve higher levels of financial performance). (3) Internal process objectives relating to productivity and quality. (4) Organizational objectives concerning human capital, culture, infrastructure, and innovation.

A company's strategy-making hierarchy

Corporate strategy: Establishes an overall game plan for managing a set of businesses in a diversified, multi-business company. a. How to gain synergies from managing a portfolio of businesses together rather than as separate businesses. Business strategy: Primarily concerned with strengthening the company's market position and building competitive advantage in a single-business company or in a single business unit of a diversified multi-business corporation. a. Monitoring and aligning lower-level strategies. Functional-area strategies: Concern the approaches employed in managing particular functions within a business-like research and development, production, procurement of inputs, sales and marketing, distribution, customer service, and finance. a. Add relevant "hows" of business strategy. Operating strategies: Concern the relatively narrow approaches for managing key operating units and specific operating activities with strategic significance. a. Add completeness and detail to business and functional strategies.

Wording a vision statement

Dos - 1. Be graphic. 2. Be forward-looking and directional. 3. Keep it focused. 4. Have some wiggle room. Donts - 1. Don't be vague or incomplete. 2. Don't dwell on the present. 3. Don't use overly broad language. 4. Don't state the vision in bland or uninspiring terms.

Evaluating performance and initiating corrective adjustment

Evaluating performance - Deciding whether the enterprise is passing the three tests of a winning strategy - good fit, competitive advantage, strong performance. Initiating corrective adjustment - Deciding whether to continue or change the firm's vision and mission, objectives, strategy, and strategy execution methods. Applying lessons based on organizational learning.

What kinds of objectives to set

Financial objectives: Communicate management's goals for financial performance. Are focused internally on the firm's operations and activities. Strategic objectives: Lay out target outcomes concerning a company's marketing standing, competitive position, and future business prospects. Are focused externally on competition. Short-term objectives: Focus attention on quarterly and annual performance improvements to satisfy near-term shareholder expectations. Long-term objectives: Force consideration of what to do now to achieve optimal long-term performance. Help pose a barrier to overemphasizing achieving just short-term results and postponing/delaying actions needed to achieve long-tern performance targets.

Communicating the strategic vision

Fosters employee commitment to the firm's chosen strategic direction. Ensures understanding of its importance. Motivates, informs, and inspires internal and external stakeholders. Demonstrates top management support for the firm's future strategic direction and competitive efforts.

Good strategic performance is the key to better financial performance

Good financial performance is not enough. Current financial results are lagging indicators and do not assure the development of competitive capabilities for delivering better financial results in the future. Setting and achieving stretch strategic objectives signal improvements in a firm's competitiveness and strength in the marketplace. Ongoing good strategic performance is a leading indicator of a firm's increasing capability to deliver improved future financial performance.

Strategy making involves managers at all organizational levels

In most companies, crafting and executing strategy is a collaborative effort in which every manager has a role for the area he or she heads; it is rarely something that only high-level managers do. The larger and more diverse the operations of an enterprise, the more points of strategic initiative it has and the more levels of management that have a significant strategy-making role. Chief executive officer (CEO) - Has ultimate responsibility for leading the strategy-making process as the strategic visionary and chief architect of strategy. Senior executives - Fashion the major strategy components involving their areas of responsibility. Managers of subsidiaries, divisions, geographic regions, plants, and other operating units (and key employees with specialized expertise). Utilize on-the-scene familiarity with their business units to orchestrate their specific pieces of the strategy.

A strong, independent board of directions

Is well informed about the firm's performance. Guides and judges the CEO and other executives. Can curb management actions the board believes are inappropriate or unduly risky. Can certify to shareholders that the CEO is doing what the board expects. Provides insight and advice to top management. Is intensely involved in debating the pros and cons of key strategic decisions and actions.

Why a sound, well-communicated strategic vision matters

It crystalizes senior executives' own views about the firm's long-term direction. It reduces the risk of rudderless decision making. It is a tool for winning the support of organization members to help make the vision a reality. It provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the firm's overall strategy. It helps an organization prepare for the future.

Examples of strategic visions

Keurig - Become the world's leading personal beverage systems company. Effective elements - focused, flexible, and makes good business sense. Shortcomings - not graphic, lacks specifics, and not forward-looking. Nike - Nike fosters a culture of invention. We create products, services and experiences for todays athlete while solving problems for the next generation. Effective elements - forward-looking and flexible. Shortcomings - vague and lacks detail, not focused, generic, and not necessarily feasible.

Developing a company mission statement

Mission statement: Describes the scope and purpose of its present business (who we are, what we do, and why we are here). A well-conceived company mission statement - (a) Uses specific language to give the firm its own unique identity. (b) Describes the firm's current business and purpose. (c) Focuses on describing the firm's business, not on "making a profit" - earning a profit is an objective, not a mission. An "idea" mission statement - (a) Identifies the company's product or services. (b) Specifies the buyer needs it seeks to satisfy. (c) Identifies the customer groups or markets it is endeavoring to service. (d) Gives the company its own identity that sets the company firm apart from its rivals. (e) Clarifies the firm's purpose and business makeup to stakeholders.

Objectives

Objectives: Organization's performance targets - the specific results management wants to achieve. Well-chosen objectives are - (1) Specific. (2) Measurable or quantifiable. (3) Time-limited. (4) Challenging or motivating. (5) Achievable. To focus efforts and align actions throughout the organization. To service as yardsticks for tracking a firm's performance and progress. To provide motivation and inspire employees to greater levels of effort.

A company's board of directors has four important obligations to fulfill

Oversee the company's financial accounting and financial reporting practices. Critically appraise the company's direction, strategy, and business approaches. Evaluate the caliber of senior executives' strategic leadership skills. Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, and most especially those of stakeholders.

Putting the strategic vision in place

Put the vision in writing and distribute it. Hold meetings to personally explain the vision and its rationale. Create a memorable slogan or phrase that effectively expresses the essence of the vision. Emphasize the positive payoffs for making the vision happen.

Setting stretch objectives

Set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results. Promotes better overall performance because they - Push a firm to be more inventive. Increase the urgency for improving financial performance and competitive position. Cause the firm to be more intentional and focused in its actions. Created an exciting work environment and attract the best people. Help prevent internal inertia and contentment with modest gains in performance.

Charting a company's direction

Stage 1 - Developing a strategic vision, mission, and core values. Stage 2 - Setting objectives. Stage 3 - Crafting a strategy to achieve the objectives and the company vision. Stage 4 - Executing the strategy. Stage 5 - Monitoring developmentss, evaluating performance, and initiating corrective adjustments.

Strategic vision

Strategic vision: Describes management's aspirations for the company's future and the course and direction character to achieve them. Developing a strategic vision - a. Delineates management's aspirations for the firm to its stakeholders. b. Provides direction - "Where are we going?" c. Sets out the compelling rationale (strategic soundness) for the firm's direction. d. Uses distinctive and specific language to set the firm apart from its rivals.

Linking the vision and mission with company values

Values: Beliefs, traits, and behavioral norms that company personnel are expected to display in conducting the company's business and pursuing its strategic mission and vision. Become an integral part of the firm's culture and what makes it tick when strongly espoused and supported by top management. Match the firm's vision, mission, and strategy, contributing to the firm's business success.