Business Strategy Chapter 2: Charting a Company's Direction: Its vision, mission, objectives, and strategy
Wording a vision statement- Dos
- Be graphic: Paint a clear picture of where the company is headed and the market position(s) the company is striving to stake out. - Be forward-looking and directional: Describe the strategic course that will help the company prepare for the future. - Keep it focused: Focus on providing managers with guidance in making decisions and allocating resources. - Have some wiggle room: Language that allows some flexibility allows the directional course to be adjusted as market, customer, and technology circumstances change. - Be sure the journey is feasible: The path and direction should be within the realm of what the company can accomplish; over time, a company should be able to demonstrate measurable progress in achieving the vision. - Indicate why the directional path makes good business sense: The directional path should be in the long-term interests of stakeholders, especially shareowners, employees, and suppliers. - Make it memorable: To give the organization a sense of direction and purpose, the vision needs to be easily communicated. Ideally, it should be reducible to a few choice lines or a memorable "slogan."
Wording a vision statement- Don'ts
- Don't be vague or incomplete: Never skimp on specifics about where the company is headed or how the company intends to prepare for the future. - Don't dwell on the present: A vision is not about what a firm once did or does now; it's about "where we are going." - Don't use overly broad language: All-inclusive language that gives the company license to pursue any opportunity must be avoided. - Don't state the vision in bland or uninspiring terms: The best vision statements have the power to motivate company personnel and inspire shareholder confidence about the company's future. - Don't be generic: A vision statement that could apply to companies in any of several industries (or to any of several companies in the same industry) is not specific enough to provide any guidance. - Don't rely on superlatives: Visions that claim the company's strategic course is one of being the "best" or "most successful" usually lack specifics about the path the company is taking to get there. - Don't run on and on: A vision statement that is not short and to the point will tend to lose its audience.
A Company's Strategy-Making Hierarchy
1. Corporate Strategy: orchestrated by the CEO and other senior executives. 2. Business Strategy: Orchestrated by the senior executives of each line of business, often with advice from the heads of functional areas within the business and other key people. 3. Functional-Area Strategies: Orchestrated by the heads of major functional activities within a particular business, often in collaboration with other key people. 4. Operating Strategies: Orchestrated by brand managers, plant managers and the heads of other strategically important activities such as distribution, purchasing, and website operations, often with input from other key people.
A Firm's Strategy-Making Hierarchy (1 of 2)
1. Corporate strategy: • Multibusiness strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses. 2. 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
The strategy-making, Strategy-executing process (5 steps to develop a good strategy and make sure it is being executed properly)
1. Developing a strategic vision, a mission statement, and a set of core values. 2. Setting objectives 3. Crafting a strategy to achieve the objectives and the company vision. 4. Executing the effectively. 5. Monitoring developments, evaluating performance, and initiating corrective adjustments. Then revise as needed in light of the company's actual performance, changing conditions, new opportunities, and new ideas.
What Does the Strategy-Making, Strategy-Executing Process Entail? (5 steps to develop a good strategy and make sure it is being executed properly)
1. Developing a strategic vision, a mission statement, and a set of core values. 2. Setting objectives for measuring the firm's performance and tracking its progress. 3. Crafting a strategy to move the firm along its strategic course and achieve its objectives. 4. Executing the chosen strategy efficiently and effectively. 5. Monitoring developments, evaluating performance, and initiating corrective adjustments
A Firm's Strategy-Making Hierarchy (2 of 2)
3. Functional area strategies: • Add relevant detail to the "hows" of business strategy. • Provide a game plan for managing a particular activity in ways that support the business strategy. 4. Operational strategies: •Add detail and completeness to business and functional strategies. •Provide a game plan for managing specific operating activities with strategic significance. NOTE: These four strategies all impact each other.
The Need for a Balanced Approach to Objective Setting
A balanced scorecard strives to place: • Balanced emphasis on achieving both financial and strategic objectives by tracking measures of both financial performance and the competitiveness of its market position. • The four dimensions of a Balanced Scorecard: 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
Developing a Company Mission Statement (mission statement is how the company is viewed today)
A well-conceived company mission statement: • Uses specific language to give the firm its own unique identity. • Describes the firm's current business and purpose—"who we are, what we do, and why we are here." • Focuses on describing the firm's business, not on "making a profit"—earning a profit is an objective, not a mission
Converting the Vision and Mission into Specific Performance Targets Characteristics of well-stated objectives
Characteristics of Well-Stated Objectives: 1. Quantifiable (measurable) 2. Challenging (motivating) 3. Deadline for achievement
Strategy-Making Involves Managers at All Organizational Levels.
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.
Stage 4: 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 and nurturing a strategy-supportive work climate • Meeting or beating performance targets
Linking the Vision and Mission with Core Values
Core values: • Are the beliefs, traits, and behavioral norms that employees are expected to display in conducting the firm's business and in pursuing its strategic vision and mission. • 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.
STAGE 1: Developing a Strategic Vision, Mission Statement, and Set of Core Values Developing a Strategic Vision
Developing a strategic vision: •Defines management's goals for the firm to its stakeholders •Provides direction: "where we are going" •Sets out the compelling rationale (strategic soundness) for the firm's direction •Uses distinctive and specific language to set the firm apart from its rivals
A Strategic Vision + Mission + Objectives + Strategy = A Strategic Plan Elements of a firm's strategic plan:
Elements of a firm's strategic plan: •Its strategic vision, business mission, and core values •Its strategic and financial objectives •Its chosen strategy
Stage 5: Evaluating Performance and Initiating Corrective Adjustments
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 top management's goals for financial performance. • Are focused internally on the firm's operations and activities. Strategic Objectives: • Are the firm's goals related to market standing and competitive position. • Are focused externally on competition vis-à-vis the firm's rivals.
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.
Cautions About Stretch Goals
Realistic stretch goals: • Are definitely reachable, with a strong and coordinated effort on the part of company personnel. 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 unachieved, and run the risk of killing motivation, eroding employee confidence, and damaging both worker and company performance. •Can work as envisioned if: •the company has ample resources and capabilities. •its recent performance is strong.
Setting Stretch Objectives
Setting stretch objectives promotes better overall performance because stretch targets 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. •Create an exciting work environment and attract the best people. •Help prevent internal inertia and contentment with modest gains in performance.
The Need for Short-Term and Long-Term Objectives
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-term performance targets.
Stage 3: Crafting a Strategy
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.
Stage 2: Setting Objectives
The purposes of setting objectives: • To convert the vision and mission into specific, measurable, challenging yet achievable, deadline performance targets. • To focus efforts and align actions throughout the organization. • To serve as yardsticks for tracking a firm's performance and progress. • To provide motivation and inspire employees to greater levels of effort
Putting the strategic vision in place (how to spread word of the vision)
What needs to be done: • 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. Make it visible for all employees
Communicating the Strategic Vision
Why communicate the 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
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 (1 of 2)
• Creating a strategy-supporting structure • Staffing the firm with the 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 work effort to achieve best practices
An "Ideal" Mission Statement
• Identifies the company's product or services. • Specifies the customer needs it seeks to satisfy. • Identifies the customer groups or markets it is endeavoring to serve. • Gives the company its own identity that sets the company firm apart from its rivals. • Clarifies the firm's purpose and business makeup to stakeholders
Why a Sound, Well-Communicated Strategic Vision Matters
• It crystallizes 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 Common Financial Objectives
•An x percent increase in annual revenues •Annual increases in after-tax profits of x percent •Annual increases in earnings per share of x percent •Annual dividend increases of x percent •Profit margins of x percent •An x percent return on capital employed (ROCE) or return on shareholders' equity investment (ROE) •Increased shareholder value—in the form of an upward-trending stock price •Bond and credit ratings of x •Internal cash flows of x dollars to fund new capital investment
Managing the Strategy Execution Process (2 of 2)
•Installing information and operating systems that enable company personnel to perform essential activities. •Motivating people by tying rewards and incentives to the achievement of performance objectives. •Creating a company culture conducive to successful strategy execution. •Exerting the internal leadership needed to propel implementation forward
Examples of Common Strategic Objectives
•Winning an x percent market share •Achieving lower overall costs than rivals •Overtaking key competitors on product performance or quality or customer service •Deriving x percent of revenues from the sale of new products introduced within the past five years •Having broader or deeper technological capabilities than rivals •Having a wider product line than rivals •Having a better-known or more powerful brand name than rivals •Having stronger national or global sales and distribution capabilities than rivals •Consistently getting new or improved products to market ahead of rivals
