000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 Chapter 1 What Is Strategy

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000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 Chapter 1 What Is Strategy and Why Is It Important? 1

000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 000100101001001111010100100010010100100111101010010001001010010011110101 Chapter 1 What Is Strategy and Why Is It Important? 1 Mc. Graw-Hill/Irwin 1 -1

“Without a strategy the organization is like a ship without a rudder, going around

“Without a strategy the organization is like a ship without a rudder, going around in circles. ” Joel Ross and Michael Kami

Chapter Outline u What Is Strategy? u What Does the Strategy-Making, Strategy-Executing Process Entail?

Chapter Outline u What Is Strategy? u What Does the Strategy-Making, Strategy-Executing Process Entail? è Phase 1: Developing a Strategic Vision è Phase 2: Setting Objectives è Phase 3: Crafting a Strategy è Phase 4: Implementing and Executing the Strategy è Phase 5: Evaluating Performance and Initiating Corrective Adjustments u What Is the Role of the Board of Directors in the Strategy-Making, Strategy-Executing Process? u Why Is Strategy Important? 3 Mc. Graw-Hill/Irwin 1 -3

Thinking Strategically: The Three Big Strategic Questions 1. Where are we now? 2. Where

Thinking Strategically: The Three Big Strategic Questions 1. Where are we now? 2. Where do we want to go? è Business(es) to be in and market positions to stake out è Buyer needs and groups to serve è Outcomes to achieve 3. How will we get there? 4 Mc. Graw-Hill/Irwin 1 -4

What Is Strategy? u Consists of the combination of competitive moves and business approaches

What Is Strategy? u Consists of the combination of competitive moves and business approaches used by managers to run the company u Management’s “game plan” to è Stake out a market position è Attract and please customers è Compete successfully è Conduct operations è Achieve organizational objectives 5 Mc. Graw-Hill/Irwin 1 -5

Striving for Competitive Advantage u Central thrust of a company’s strategy involves moves to

Striving for Competitive Advantage u Central thrust of a company’s strategy involves moves to strengthen a company’s è Long-term competitive position and è Financial performance u Key components of strategy è Offensive moves è Defensive moves What separates a powerful strategy from an ordinary one is management’s ability to forge a series of moves, both in the marketplace and internally, that produce sustainable competitive advantage! 6 Mc. Graw-Hill/Irwin 1 -6

Strategic Approaches to Building Competitive Advantage u Strive to be the industry’s low-cost provider

Strategic Approaches to Building Competitive Advantage u Strive to be the industry’s low-cost provider u Outcompete rivals on a key differentiating feature u Focus on a narrow market niche, doing a better job than rivals of serving the unique needs of niche buyers u Develop expertise, resource strengths, and capabilities not easily imitated by rivals 7 Mc. Graw-Hill/Irwin 1 -7

Fig. 1. 1: Identifying a Company’s Strategy 8 Mc. Graw-Hill/Irwin 1 -8

Fig. 1. 1: Identifying a Company’s Strategy 8 Mc. Graw-Hill/Irwin 1 -8

Fig. 1. 2: A Company’s Strategy Is Partly Planned and Partly Reactive 9 Mc.

Fig. 1. 2: A Company’s Strategy Is Partly Planned and Partly Reactive 9 Mc. Graw-Hill/Irwin 1 -9

Why Do Strategies Evolve? u A company’s strategy is a work in progress u

Why Do Strategies Evolve? u A company’s strategy is a work in progress u Changes may be necessary to react to è A failing strategy è Shifting market conditions è Evolving customer preferences è Fresh moves of competitors è Technological breakthroughs è Crisis situations 10 Mc. Graw-Hill/Irwin 1 - 10

What Is a Business Model? u A business model addresses “How do we make

What Is a Business Model? u A business model addresses “How do we make money in this business? ” è Is the strategy capable of delivering good bottom-line results? u Do the revenue-cost-profit economics of the strategy make good business sense? è Look at revenue streams the strategy is expected to produce è Look at associated cost structure and potential profit margins è Do resulting earnings streams and ROI indicate the strategy makes sense and the company has a viable business model for making money? 11 Mc. Graw-Hill/Irwin 1 - 11

Relationship Between Strategy and Business Model Strategy - Deals with a company’s competitive initiatives

Relationship Between Strategy and Business Model Strategy - Deals with a company’s competitive initiatives and business approaches r St 12 gy e at Mc. Graw-Hill/Irwin s es n i s el Bu od M Business Model Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable 1 - 12

Microsoft’s Business Model Employ a cadre of highly skilled programmers to develop proprietary code;

Microsoft’s Business Model Employ a cadre of highly skilled programmers to develop proprietary code; keep source code hidden from users Sell resulting OS and software packages to PC makers and users at relatively attractive prices and achieve large unit sales Most costs in developing software fixed; variable costs are small - once breakeven volume is reached, revenues from additional sales are almost pure profit Provide technical support to users at no cost 13 Mc. Graw-Hill/Irwin 1 - 13

Redhat Linux’s Business Model Rely on collaborative efforts of volunteer programmers to create the

Redhat Linux’s Business Model Rely on collaborative efforts of volunteer programmers to create the software; make source code open and available to all users Add value to free, downloadable version of Linux by offering users Red Hat Linux systems containing upgraded and tested features Charge a modest fee to those preferring to subscribe to Red Hat Linux version Make money by employing a cadre of technical support personnel who provide technical support to users for a fee Make as much or more money on providing technical support services, training, and consulting as on selling subscriptions to Red Hat Linux 14 Mc. Graw-Hill/Irwin 1 - 14

Figure 1. 3: The Strategy-Making, Strategy-Executing Process 15 Mc. Graw-Hill/Irwin 1 - 15

Figure 1. 3: The Strategy-Making, Strategy-Executing Process 15 Mc. Graw-Hill/Irwin 1 - 15

Develop a Strategic Vision & Mission Phase 1 of the Strategic Management Process u

Develop a Strategic Vision & Mission Phase 1 of the Strategic Management Process u Involves thinking strategically about è Future of company è Where are we going? u Tasks include è Creating a roadmap of the future è Deciding future business position to stake out è Providing long-term direction è Giving company a strong identity 16 Mc. Graw-Hill/Irwin 1 - 16

Strategic Vision u A strategic vision concerns a firm’s future business path -- “where

Strategic Vision u A strategic vision concerns a firm’s future business path -- “where we are going” è Markets to be pursued è Future technology-product-customer focus è Kind of company management is trying to create 17 Mc. Graw-Hill/Irwin 1 - 17

Characteristics of a Strategic Vision u Well-stated vision statements è Are distinctive and specific

Characteristics of a Strategic Vision u Well-stated vision statements è Are distinctive and specific to a particular organization è Avoid generic language è Excite strong emotions è Are challenging, uncomfortable, nail biting 18 Mc. Graw-Hill/Irwin 1 - 18

Example: Vision Statement Verizon Communications To be the customer’s first choice for communications and

Example: Vision Statement Verizon Communications To be the customer’s first choice for communications and information services in every market we serve, domestic and international. 19 Mc. Graw-Hill/Irwin 1 - 19

Example: Vision Statement Levi Strauss & Company We will clothe world by marketing the

Example: Vision Statement Levi Strauss & Company We will clothe world by marketing the most appealing and widely worn casual clothing in the world. 20 Mc. Graw-Hill/Irwin 1 - 20

Example: Vision Statement Microsoft Corporation Empower people through great software -- anytime, anyplace, and

Example: Vision Statement Microsoft Corporation Empower people through great software -- anytime, anyplace, and on any device. 21 Mc. Graw-Hill/Irwin 1 - 21

Example: Vision Statements Mayo Clinic The best care to every patient every day. Scotland

Example: Vision Statements Mayo Clinic The best care to every patient every day. Scotland Yard To make London the safest city in the world. 22 Mc. Graw-Hill/Irwin 1 - 22

Example: Vision Statement Toyota We want to set the tone for the era. .

Example: Vision Statement Toyota We want to set the tone for the era. . . Green and affordable. . . That means establishing a new paradigm for harmonizing personal transport with the environment. It means revolutionary cost savings in products and production processes. 23 Mc. Graw-Hill/Irwin 1 - 23

Example: Vision Statement Intel Our vision: Getting to a billion connected computers worldwide, millions

Example: Vision Statement Intel Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet. 24 Mc. Graw-Hill/Irwin 1 - 24

Example: Vision Statements Greenpeace To halt environmental abuse and promote environmental solutions. Goldman Sachs

Example: Vision Statements Greenpeace To halt environmental abuse and promote environmental solutions. Goldman Sachs To be the world’s premier investment bank in every sector. 25 Mc. Graw-Hill/Irwin 1 - 25

Example: Vision Statement General Electric We will become number one or number two in

Example: Vision Statement General Electric We will become number one or number two in every market we serve, and revolutionize this company to have the speed and agility of a small enterprise. 26 Mc. Graw-Hill/Irwin 1 - 26

Mission u A mission statement focuses on current business activities -- “who we are

Mission u A mission statement focuses on current business activities -- “who we are and what we do” è Current product and service offerings è Customer needs being served è Technological and business capabilities 27 Mc. Graw-Hill/Irwin 1 - 27

Characteristics of a Mission Statement u Defines current business activities, highlighting boundaries of current

Characteristics of a Mission Statement u Defines current business activities, highlighting boundaries of current business è Present products and services è Types of customers served u Conveys è What we do, è Why we are here, and è Where we are now A company’s mission is not to make a profit! The real mission is always — “What will we do to make a profit? ” 28 Mc. Graw-Hill/Irwin 1 - 28

Example: Mission Statement (a unique grocery store chain) Our mission: To give our customers

Example: Mission Statement (a unique grocery store chain) Our mission: 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. 29 Mc. Graw-Hill/Irwin 1 - 29

Communicating the Vision u An exciting, inspirational vision è Contains memorable language è Clearly

Communicating the Vision u An exciting, inspirational vision è Contains memorable language è Clearly maps company’s future direction è Challenges and motivates workforce è Provokes emotion and enthusiasm 30 Mc. Graw-Hill/Irwin 1 - 30

Linking the Vision With Company Values u A statement of values is often provided

Linking the Vision With Company Values u A statement of values is often provided to guide the company’s pursuit of its vision u Values -- Beliefs, business principles, and ways of doing things incorporated into s lu e Va è Company’s operations è Behavior of workforce u Values statements è Contain between four and eight values è Are ideally tightly connected to and reinforce company’s vision, strategy, and operating practices 31 Mc. Graw-Hill/Irwin 1 - 31

Example: Company Values Home Depot Creating shareholder value Entrepreneurial spirit Building strong relationships Excellent

Example: Company Values Home Depot Creating shareholder value Entrepreneurial spirit Building strong relationships Excellent customer service Giving back to the community Taking care of people Respect for all people Doing the right thing 32 Mc. Graw-Hill/Irwin 1 - 32

Example: Company Values Du Pont 33 Safety Ethics Respect for people Environmental stewardship Mc.

Example: Company Values Du Pont 33 Safety Ethics Respect for people Environmental stewardship Mc. Graw-Hill/Irwin 1 - 33

Setting Objectives Phase 2 of the Strategic Management Process u Converts strategic vision and

Setting Objectives Phase 2 of the Strategic Management Process u Converts strategic vision and mission into specific performance targets u Creates yardsticks to track performance u Pushes firm to focus on results u Helps prevent complacency and coasting 34 Mc. Graw-Hill/Irwin 1 - 34

Characteristics of Objectives u Represent commitment to achieve specific performance targets u Well-stated objectives

Characteristics of Objectives u Represent commitment to achieve specific performance targets u Well-stated objectives are è Quantifiable è Measurable è Contain a deadline for achievement u Spell-out how much of what kind of performance by when 35 Mc. Graw-Hill/Irwin 1 - 35

Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial on

Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving financial on improving longterm, competitive performance business position $ 36 Mc. Graw-Hill/Irwin 1 - 36

Examples: Financial Objectives u X % increase in annual u u u u 37

Examples: Financial Objectives u X % increase in annual u u u u 37 revenues X % increase annually in after-tax profits X % increase annually in earnings per share Regular dividend increases Larger gross profit margin Larger operating profit margin Larger net profit margin X % return on capital employed (ROCE) Mc. Graw-Hill/Irwin u X % return on assets (ROA) u X % return on shareholder u u u investment (ROE) Upward-trending stock price that builds significant shareholder value over time Strong bond and credit ratings Reduced levels of debt Sufficient internal cash flows to fund new capital investment Diversified revenue base 1 - 37

Examples: Strategic Objectives u Winning additional market u u u 38 share (or reaching

Examples: Strategic Objectives u Winning additional market u u u 38 share (or reaching X % market share) Consistently getting new or improved products to market ahead of rivals Overtaking key competitors on product performance or quality or customer service Achieving lower overall costs than rivals Deriving X % of revenues from sale of new products introduced in past 5 years Being a recognized technological leader Mc. Graw-Hill/Irwin u Achieving national or global market coverage for firm’s products u Having broader or more attractive product selection than rivals u Deriving X % of revenues from online sales u Having a better-known or more respected brand name than rivals u Improving global sales and distribution capabilities 1 - 38

Objective Setting: A Balanced Scorecard Approach u A “balanced scorecard” for measuring company performance

Objective Setting: A Balanced Scorecard Approach u A “balanced scorecard” for measuring company performance requires both financial objectives and strategic objectives u Company achievement of satisfactory financial performance, by itself, is not enough è A company’s financial performance measures are “lagging indicators” that reflect the results of past decisions and actions u Of equal or greater importance is a company’s performance on the measures of its strategic well-being—its competitiveness and market position u Unless a company’s performance in the marketplace reflects improving competitive strength and market penetration, its progress is less than inspiring and its ability to continue delivering good financial performance is suspect è The “lead indicators” of a company’s future financial performance and business prospects are growing competitiveness and strength in the marketplace 39 Mc. Graw-Hill/Irwin 1 - 39

Balanced Scorecard Approach -Strategic vs. Financial Objectives? u Pursuit of better financial performance may

Balanced Scorecard Approach -Strategic vs. Financial Objectives? u Pursuit of better financial performance may assume priority over strategic performance targets when è Firm is struggling financially è Resource commitments for new strategic initiatives may hurt bottom-line for several years è Proposed strategic moves are risky u Otherwise, strategic objectives merit top priority — a firm consistently foregoing opportunities to strengthen its long-term competitive position è Risks diluting its competitiveness è Risks losing momentum in its markets è Hurts its ability to fend off rivals’ challenges 40 Mc. Graw-Hill/Irwin 1 - 40

Example: Strategic and Financial Objectives Unilever u Grow revenues by 5 -6 % annually;

Example: Strategic and Financial Objectives Unilever u Grow revenues by 5 -6 % annually; u Increase operating profit margins from 11 % to 16 % within five years; u Trim the company’s 1, 200 food, household, and personal care products down to 400 core brands; u Focus sales and marketing efforts on those brands with potential to become respected, market-leading global brands; and u Streamline the company’s supply chain. 41 Mc. Graw-Hill/Irwin 1 - 41

Examples: Strategic Objectives Banc One Corporation To be one of the top three banking

Examples: Strategic Objectives Banc One Corporation To be one of the top three banking companies in terms of market share in all significant markets we serve. Bristol-Myers Squibb To focus globally on those businesses in health and personal care where we can be number one or number two through delivering superior value to the customer. 42 Mc. Graw-Hill/Irwin 1 - 42

Example: Strategic Objectives Ford Motor Company u To ä ä ä satisfy our customers

Example: Strategic Objectives Ford Motor Company u To ä ä ä satisfy our customers by Providing quality cars and trucks, Developing new products, Reducing the time it takes to bring new vehicles to market, ä Improving the efficiency of all our plants & processes, and ä Building on our teamwork with employees, unions, dealers, and suppliers. 43 Mc. Graw-Hill/Irwin 1 - 43

Example: Strategic and Financial Objectives Alcan Aluminum To be the lowest-cost producer of aluminum

Example: Strategic and Financial Objectives Alcan Aluminum To be the lowest-cost producer of aluminum and to outperform the average return on equity of the Standard and Poor’s industrial stock index. 44 Mc. Graw-Hill/Irwin 1 - 44

Example: Strategic and Financial Objectives 3 M Corporation u Annual growth in earnings per

Example: Strategic and Financial Objectives 3 M Corporation u Annual growth in earnings per share of 10% or better, on average; u A return on stockholders’ equity of 20 -25%; u A return on capital employed of 27% or better; and u Have at least 30% of sales come from products introduced in the past four years. 45 Mc. Graw-Hill/Irwin 1 - 45

Short-Range Versus Long-Range Objectives u Short-Range objectives è Targets to be achieved soon è

Short-Range Versus Long-Range Objectives u Short-Range objectives è Targets to be achieved soon è Serve as stair steps for reaching long-range performance u Long-Range objectives è Targets to be achieved within 3 to 5 years è Prompt actions now that will permit reaching targeted long-range performance later 46 Mc. Graw-Hill/Irwin 1 - 46

Concept of Strategic Intent A company exhibits strategic intent when it relentlessly pursues an

Concept of Strategic Intent A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective and concentrates its competitive actions and energies on achieving that objective! 47 Mc. Graw-Hill/Irwin 1 - 47

Characteristics of Strategic Intent u Indicates firm’s intent to stake out a particular position

Characteristics of Strategic Intent u Indicates firm’s intent to stake out a particular position over the longterm u Involves establishing a BHAG – “big, hairy, audacious goal” and then devoting the company’s full resources and energies to achieving it over time (Moon Shot) u Signals relentless commitment to winning in the marketplace 48 Mc. Graw-Hill/Irwin 1 - 48

Objectives Are Needed at All Levels Objective-setting process is mostly top-down, not bottom-up! 1.

Objectives Are Needed at All Levels Objective-setting process is mostly top-down, not bottom-up! 1. First, establish organization-wide objectives and performance targets 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives 4. Individual objectives are established last 49 Mc. Graw-Hill/Irwin 1 - 49

Crafting a Strategy Phase 3 of the Strategic Management Process u Strategy-making involves entrepreneurship

Crafting a Strategy Phase 3 of the Strategic Management Process u Strategy-making involves entrepreneurship – searching for opportunities è To do new things or è To do existing things in new or better ways u Strategizing involves è Picking up on happenings in the external environment and è Steering company activities in new directions dictated by shifting market conditions 50 Mc. Graw-Hill/Irwin 1 - 50

Activities Involved in Crafting a Strategy u Studying market trends and actions of competitors

Activities Involved in Crafting a Strategy u Studying market trends and actions of competitors u Listening to customers, anticipating their changing needs u Scrutinizing business possibilities based on new technology Our strategy will be. . . u Building firm’s market position via acquisitions or new products u Pursuing ways to strengthen firm’s competitive capabilities 51 Mc. Graw-Hill/Irwin 1 - 51

The Hows That Define a Firm's Strategy u How to grow the business u

The Hows That Define a Firm's Strategy u How to grow the business u How to please customers u How to outcompete rivals Strategy is HOW to. . . u How to respond to changing market conditions u How to manage each functional piece of the business and develop needed organizational capabilities u How to achieve strategic and financial objectives 52 Mc. Graw-Hill/Irwin 1 - 52

Linking Strategy With Ethics u A company’s ethics and high moral standards go beyond

Linking Strategy With Ethics u A company’s ethics and high moral standards go beyond è Merely complying with laws and regulations u A strategy that exemplifies high ethical and moral standards addresses è Issues of duty and è What is morally responsible è What it is “right” to do and not do u A strategy is not ethical unless it can pass moral scrutiny 53 Mc. Graw-Hill/Irwin 1 - 53

A Firm’s Ethical Responsibilities to Its Stakeholders Owners/shareholders – Rightfully expect some form of

A 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 54 Mc. Graw-Hill/Irwin 1 - 54

What Is a Strategic Plan? Where firm is headed -Strategic vision and business mission

What Is a Strategic Plan? Where firm is headed -Strategic vision and business mission Short and long term performance targets -- Strategic and financial objectives Action approaches to achieve targeted results -- A comprehensive strategy 55 Mc. Graw-Hill/Irwin 1 - 55

Who Participates in Crafting a Company’s Strategy? 56 u Senior corporate executives u Managers

Who Participates in Crafting a Company’s Strategy? 56 u Senior corporate executives u Managers of business units and major product lines and key VPs u Functional area managers u Operating managers Mc. Graw-Hill/Irwin 1 - 56

Strategizing: An Individual or Group Responsibility? u 57 Teams are increasingly used because è

Strategizing: An Individual or Group Responsibility? u 57 Teams are increasingly used because è Finding market- and customer-driven solutions is necessary è Complex strategic issues cut across functional areas and departmental units è Ideas of people with different backgrounds and experiences strengthen strategizing effort è Groups charged with crafting the strategy often include the people charged with implementing it Mc. Graw-Hill/Irwin 1 - 57

Figure 1. 4: A Company’s Strategy-Making Hierarchy 58 Mc. Graw-Hill/Irwin 1 - 58

Figure 1. 4: A Company’s Strategy-Making Hierarchy 58 Mc. Graw-Hill/Irwin 1 - 58

Levels of Strategy-Making in a Diversified Company Corporate-Level Managers Corporate Strategy Two-Way Influence Business-Level

Levels of Strategy-Making in a Diversified Company Corporate-Level Managers Corporate Strategy Two-Way Influence Business-Level Managers Business Strategies Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers 59 Mc. Graw-Hill/Irwin Operating Strategies 1 - 59

Levels of Strategy-Making in a Single-Business Company Business-Level Managers Business Strategy Two-Way Influence Functional

Levels of Strategy-Making in a Single-Business Company Business-Level Managers Business Strategy Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers 60 Mc. Graw-Hill/Irwin Operating Strategies 1 - 60

Tasks of Corporate Strategy u Moves to achieve diversification u Actions to boost performance

Tasks of Corporate Strategy u Moves to achieve diversification u Actions to boost performance of individual businesses u Capturing valuable cross-business synergies to provide 1 + 1 = 3 effects! u Establishing investment priorities and steering corporate resources into the most attractive businesses 61 Mc. Graw-Hill/Irwin 1 - 61

Tasks of Business Strategy u Initiating approaches to produce successful performance in a specific

Tasks of Business Strategy u Initiating approaches to produce successful performance in a specific business u Crafting competitive moves to build sustainable competitive advantage u Developing competitively valuable competencies and capabilities u Uniting strategic activities of functional areas u Gaining approval of business strategies by corporate-level officers 62 Mc. Graw-Hill/Irwin 1 - 62

Tasks of Functional Strategies u Game plan for a strategically- relevant function, activity, or

Tasks of Functional Strategies u Game plan for a strategically- relevant function, activity, or business process u Detail how key activities will be managed u Provide support for business strategy u Specify how functional objectives are to be achieved 63 Mc. Graw-Hill/Irwin 1 - 63

Tasks of Operating Strategies u Concern narrower strategies for managing grassroots activities and strategically-relevant

Tasks of Operating Strategies u Concern narrower strategies for managing grassroots activities and strategically-relevant operating units u Add detail to business and functional strategies 64 Mc. Graw-Hill/Irwin 1 - 64

Uniting the Company’s Strategy-Making Effort u A firm’s strategy is a collection of initiatives

Uniting the Company’s Strategy-Making Effort u A firm’s strategy is a collection of initiatives implemented by managers at all organizational levels u Separate levels of strategy must be unified into a cohesive, companywide action plan u Pieces of strategy should fit together like the pieces of a puzzle 65 Mc. Graw-Hill/Irwin 1 - 65

Tests of a Winning Strategy u GOODNESS OF FIT TEST è How well is

Tests of a Winning Strategy u GOODNESS OF FIT TEST è How well is strategy matched to firm’s situation? u COMPETITIVE ADVANTAGE TEST è Does strategy lead to sustainable competitive advantage? u PERFORMANCE TEST è Does strategy boost firm performance? 66 Mc. Graw-Hill/Irwin 1 - 66

Implementing and Executing Strategy Phase 4 of the Strategic Management Process u Action-oriented, operations-driven

Implementing and Executing Strategy Phase 4 of the Strategic Management Process u Action-oriented, operations-driven activity aimed at shaping performance of core business activities in a strategy-supportive manner u Tougher and more time-consuming than crafting strategy u Key tasks include è Improving the competence and efficiency of the strategy being executed è Showing measurable progress in achieving targeted results 67 Mc. Graw-Hill/Irwin 1 - 67

What Does Strategy Implementation and Execution Include? u u u u u 68 Building

What Does Strategy Implementation and Execution Include? u u u u u 68 Building a capable organization Allocating resources to strategy-critical activities Establishing strategy-supportive policies Instituting best practices and programs for continuous improvement Installing needed information, communication, and operating systems Motivating people to pursue the target objectives Tying rewards to achievement of results Creating a strategy-supportive corporate culture Exerting the leadership necessary to drive the process forward and keep improving Mc. Graw-Hill/Irwin 1 - 68

Evaluating Performance and Initiating Corrective Adjustments Phase 5 of the Strategic Management Process u

Evaluating Performance and Initiating Corrective Adjustments Phase 5 of the Strategic Management Process u Tasks of crafting and implementing the strategy are not a one-time exercise è è è u 69 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 Mc. Graw-Hill/Irwin 1 - 69

Monitoring, Evaluating, and Adjusting as Needed u 70 Taking actions to adjust to the

Monitoring, Evaluating, and Adjusting as Needed u 70 Taking actions to adjust to the march of events tends to result in one or more of the following è Altering long-term direction and/or redefining the mission/vision è Raising, lowering, or changing performance objectives è Modifying the strategy è Improving strategy execution Mc. Graw-Hill/Irwin 1 - 70

Strategic Role of a Board of Directors 71 u Critically appraise and ultimately approve

Strategic Role of a Board of Directors 71 u Critically appraise and ultimately approve strategic action plans u Evaluate strategic leadership skills of the CEO and candidates to succeed the CEO Mc. Graw-Hill/Irwin 1 - 71

Why Is Strategy Important? u A compelling need exists for managers to proactively shape

Why Is Strategy Important? u A compelling need exists for managers to proactively shape how a firm’s business will be conducted u A strategy-focused firm is more likely to be a strong bottom-line performer than one that views strategy as secondary 72 Mc. Graw-Hill/Irwin 1 - 72

Good Strategy + Good Strategy Execution = Good Management u Crafting and executing strategy

Good Strategy + Good Strategy Execution = Good Management u Crafting and executing strategy are core management functions è Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s direction, develops competitively effective strategic moves and business approaches, and pursues what needs to be done internally to produce good day-in/day-out strategy execution Excellent execution of an excellent strategy is the best test of managerial excellence -- and the most reliable recipe for winning in the marketplace! 73 Mc. Graw-Hill/Irwin 1 - 73

Benefits of a “Strategic Approach” to Managing u Good strategic thinking and good management

Benefits of a “Strategic Approach” to Managing u Good strategic thinking and good management of the strategy-making, strategy-executing process è Guides entire firm regarding “what it is è è 74 we are trying to do and to achieve” Helps unify numerous strategy-related decisions across the company Creates a proactive atmosphere Promotes development of an evolving business model focused on bottom-line success Provides basis for determining how best to allocate company resources Mc. Graw-Hill/Irwin 1 - 74