Chapter 2 The Managerial Process of Crafting and Executing Strategy

The Managerial Process of Crafting and Executing Strategy 2ChapterScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy State University-Florida and Western Region Chapter RoadmapWhat Does the Process of Crafting and Executing Strategy Entail?Developing a Strategic Vision: Phase 1 of the Strategy-Making, Strategy-Executing ProcessSetting Objectives: Phase 2 of the Strategy-Making, Strategy-Executing ProcessCrafting a Strategy: Phase 3 of the Strategy-Making, Strategy-Executing ProcessImplementing and Executing the Strategy: Phase 4 of the Strategy-Making, Strategy-Executing ProcessInitiating Corrective Adjustments: Phase 5 of the Strategy-Making, Strategy-Executing ProcessCorporate Governance: The Role of the Board of Directors in the Strategy-Making, Strategy-Executing ProcessFig. 2.1: The Strategy-Making, Strategy-Executing ProcessDeveloping a Strategic VisionInvolves thinking strategically aboutFuture direction of companyChanges in company’s product-market-customer-technology to improveCurrent market positionFuture prospectsPhase 1 of the Strategy-Making ProcessA strategic vision is a road map showing the route a company intends to take in developing and strengthening its business. It paints a picture of a company’s destination and provides a rationale for going there. Delineates management’s aspirations for the business –Charts a strategic path for the future“Where are we going?”Steers energies of employeesin a common direction Molds organizational identityIs distinctive and specific to a particular organizationAvoids use of generic languageTriggers strong emotionsIs challenging, uncomfortable, nail bitingKey Elements of aStrategic VisionThe mission statement of most companies focuses on current business activities - “who we are and what we do”Current product and service offeringsCustomer needs being servedTechnologicaland businesscapabilitiesA strategic vision concerns a firm’s future business path - “where we are going” Markets to be pursuedFuture technology-product-customer focusKind of company management is trying to createStrategic Vision vs. MissionDefines current business activities, highlighting boundaries of current business Present products and servicesTypes of customers servedConveysWho we are,What we do, andWhy we are hereA 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 is profit is an objective or intended outcome!Characteristics ofa Mission StatementKey Elements ofa Mission StatementThree factors to considerCustomer needs –What is being satisfiedCustomer groups –Who is being satisfiedTechnologies/resources/business approaches used and activities performed –How customer needs are satisfiedA statement of values is often provided to guide the company’s pursuit of its visionValues – Beliefs, business principles, and ways of doing things that are incorporated intoCompany’s operationsBehavior of workforceValues statementsContain between four and eight valuesAre ideally tightly connected to and reinforce company’s vision, strategy, and operating practices ValuesLinking the Vision With Company ValuesOvercoming Resistance toa New Strategic VisionMobilizing support for a new vision entailsReiterating basis for the new directionAddressing employee concerns head-onCalming fearsLifting spiritsProviding updates and progressreports as events unfoldSetting ObjectivesPurpose of setting objectivesConverts vision into specific performance targetsCreates yardsticks to track performancePushes firm to be inventive, intentional, andfocused in its actions Setting challenging, achievableobjectives guards againstComplacencyInternal confusionStatus quo performancePhase 2 of the Strategy-Making ProcessCharacteristics of ObjectivesRepresent commitment to achieve specific performance targetsSpell out how much of what kindof performance by whenWell-stated objectives areQuantifiableMeasurableContain a deadline for achievementEstablishing objectives converts thevision into concrete performance outcomes!Outcomes focusedon improving financial performanceOutcomes focused on improving long-term competitive business positionFinancial Objectives Strategic Objectives$Types of Objectives RequiredBalanced Scorecard Approach – Strategic and Financial ObjectivesBalanced scorecard approach for measuringcompany performance requires both –Financial objectivesStrategic objectivesEmphasis on financial performance may assumepriority over strategic performance when company’sFinancial performance is dismal andSurvival is threatenedOtherwise, management is advised to put more emphasis on achieving strategic objectivesThe surest path to sustained future profitabilityyear after year is to relentlessly pursue strategic outcomesthat strengthen a company’s business position andgive it a growing competitive advantage over rivals!Short-Term vs.Long-Term ObjectivesShort-term objectivesTargets to be achieved soonMilestones or stair steps for reaching long-range performanceLong-term objectivesTargets to be achieved within3 to 5 yearsPrompt actions now that willpermit reaching targetedlong-range performance later1. First, establish organization-wide objectives and performance targets2. Next, set business andproduct line objectives3. Then, establish functionaland departmental objectives4. Individual objectives are established lastObjectives Are Neededat All LevelsCrafting a StrategyStrategy-making involves entrepreneurship –searching for opportunitiesTo do new things orTo do existing things in new or better waysStrategizing involvesPicking up on happenings in the external environment andSteering company activities in new directions dictated by shifting market conditionsPhase 3 of the Strategy-Making ProcessStrategizing: An Individual or Team Responsibility?Teams are increasingly used becauseFinding market- and customer-driven solutions is necessary Complex strategic issues cut across functional areas and departmental unitsIdeas of people with differentbackgrounds and experiences strengthen strategizing effortGroups charged with crafting thestrategy often include the peoplecharged with implementing itFig. 2.2: A Company’s Strategy-Making HierarchyLevels of Strategy-Makingin a Diversified CompanyCorporate StrategyBusiness StrategiesFunctional StrategiesOperating StrategiesTwo-Way InfluenceTwo-Way InfluenceTwo-Way InfluenceCorporate-Level ManagersBusiness-Level ManagersFunctional ManagersOperatingManagersLevels of Strategy-Making ina Single-Business CompanyBusiness StrategyTwo-Way InfluenceFunctional StrategiesOperating StrategiesBusiness-Level ManagersOperatingManagersFunctional ManagersTwo-Way InfluenceTasks of Corporate StrategyMoves to achieve diversificationActions to boost performance of individual businessesCapturing valuable cross-business synergies to provide1 + 1 = 3 effects!Establishing investment priorities and steering corporate resources into the most attractive businessesInitiating approaches to produce successful performance in a specific businessCrafting competitive moves to build sustainable competitive advantageDeveloping competitively valuablecompetencies and capabilitiesUniting strategic activities of functional areasGaining approval of business strategies by corporate-level officers and directorsTasks of Business StrategyGame plan for a strategically-relevantfunction, activity, or business processDetail how key activitieswill be managedProvide support forbusiness strategySpecify how functional objectivesare to be achievedTasks of Functional StrategiesTasks of Operating StrategiesConcern narrower strategies formanaging grassroots activities andstrategically-relevant operating unitsAdd detail to businessand functional strategiesDelegation of responsibilityto frontline managersIts strategic vision and business missionIts strategy Its strategic andfinancial objectivesWhat Is a Strategic Plan?A Company’s Strategic PlanConsists ofAction-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive manner Tougher and more time-consumingthan crafting strategyKey tasks includeImproving efficiency of the strategy being executedShowing measurable progress in achieving targeted resultsPhase 4 of the Strategy-Making ProcessImplementing and Executing StrategyBuilding a capable organizationAllocating resources to strategy-critical activitiesEstablishing strategy-supportive policiesInstituting best practices and programs forcontinuous improvementInstalling information, communication, and operating systemsMotivating people to pursue the target objectivesTying rewards to achievement of resultsCreating a strategy-supportive corporate cultureExerting the leadership necessary to drive the process forward and keep improvingWhat Does Strategy Implementation Involve?Characteristics of Good Strategy ExecutionInvolves creating strong “fits” between strategy and Organizational capabilitiesReward structureInternal operating systemsOrganization’s work climate and cultureThe stronger the “fits” theBetter the executionHigher a company’s odds of achieving its performance targetsTasks of crafting and implementing the strategy are not a one-time exerciseCustomer needs and competitive conditions changeNew opportunities appear; technology advances; any number of other outside developments occurOne or more aspects of executing thestrategy may not be going wellNew managers with different ideas take overOrganizational learning occursAll these trigger the need for corrective actions and adjustments on an as-needed basisPhase 4 of the Strategy-Making ProcessEvaluating Performance andMaking Corrective AdjustmentsCorporate Governance: Strategic Role of a Board of DirectorsExercise strong oversight to ensure the five tasks of strategic management are executed to benefitShareholders orStakeholdersMake sure executive actions are not only proper but also aligned with interests of stakeholders