CHAPTER 2 Leadership and the Strategic Management Process

CHAPTER 2 Leadership and the Strategic Management Process Mc. Graw-Hill/Irwin Copyright © 2009 by The Mc. Graw-Hill Companies, Inc. All rights reserved. 1 -1

The Strategy Making/Strategy Execution Process § Crafting and executing strategy is a collaborative team effort üInvolves managers from various levels of the organization üIs rarely something only high-level executives engage in 2 -2

Strategy-Making Role of Corporate Intrapreneurs § Encouraging lower-level managers/employees to join in on the strategy-making effort – Unleashes talents and energies of employees to develop proposals for » New products or product lines » New business ventures » New strategic initiatives § Requires that senior executives ü Create an organizational climate where freethinking and new ideas are welcome 2 -3

The Strategy-Making, Strategy-Executing Process 2 -4

Key Elements of a Strategic Vision § Provides a panoramic view of “where we are going” § Is distinctive and specific to a particular organization üAvoids use of generic language that is dull and that could apply to most any company 2 -5

Characteristics of Effectively Worded Vision Statements § Graphic—Paints a picture of the kind of company that management is trying to create § Directional—Is forward looking § Focused—Is specific enough to provide guidance in decision making § Flexible—Is not so focused that it makes it difficult to adjust to change 2 -6

Characteristics of Effectively Worded Vision Statements § Feasible—Is within the real of what is possible § Desirable—Indicates why the directional path makes sense § Easy to Communicate—Can be explained in simple terms 2 -7

Example of a Strategic Vision Provide a global trading platform where practically anyone can trade practically anything. 2 -8

Strategic Vision vs. Mission § A strategic vision § The mission concerns a firm’s statement of a future business firm focuses on its path - “where present business we are going” purpose - “who ü Markets to be pursued we are and what ü Future we do” product/market/ customer/technology focus 2 -9 ü Current product and service offerings ü Customer needs being served 2 -9

Example of a Mission Statement 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. 2 -10

Communicating the Strategic Vision An engaging, inspirational vision üChallenges and motivates workforce üArticulates a compelling case for where company is headed üEvokes positive support and excitement üArouses a committed organizational effort to move in a common direction 2 -11

Payoffs of a Clear Strategic Vision § Crystallizes an organization’s long-term direction § Reduces risk of rudderless decision-making § Creates a committed enterprise to make the vision a reality § Provides a beacon to keep strategy-related actions of all managers on common path § Helps an organization prepare for the future 2 -12

Setting Objectives § Purpose of setting objectives üConverts vision into specific performance targets üCreates yardsticks to track performance § Well-stated objectives are üQuantifiable üMeasurable üContain a deadline for achievement 2 -13

The Need for a Balanced Scorecard § Achieving good financial performance is not enough üCurrent financial results are “lagging indicators” reflecting results of past decisions and actions üGood strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance 2 -14

Balanced Scorecard Objectives Financial Objectives Strategic Objectives Customer Outcomes focused on improving § Value creation Financial Performance Learning and Growth Internal Processes § Value creating processes § Aligning organizational, information, and human capital with strategy 2 -15

Examples of Financial Objectives § X % increase in annual revenues § X % increase annually in after-tax profits § Profit margins of X % § X % return on capital employed (ROCE) § Sufficient internal cash flows to fund 100% of new capital investment 2 -16

Examples of Strategic Objectives § Customer ü Winning an X % market share ü Achieving a customer retention rate of X % ü Acquire X number of new customers § Internal Processes ü Reduce product defects to X % ü Introduction of X number of new products in the next three years § Learning and Growth ü Increase employee training to X hours/year ü Reduce turnover to X % per year 2 -17

Short-Term Long-Term vs. Objectives § Short-term objectives üTargets to be achieved soon üMilestones or stair steps for reaching long-range performance § Long-term objectives üTargets to be achieved within 3 to 5 years 2 -18

Objectives Are Needed at All Levels 1. First, set business-level objectives 2. Next, establish functional-area objectives 3. Then, operating-level objectives are established last 2 -19

Crafting a Strategy Making Hierarchy for a Single Business Company 2 -20

Uniting the Company’s Strategy-Making Effort § A firm’s strategy is a collection of initiatives undertaken by managers at all levels in the organizational hierarchy § Pieces of strategy should fit together like the pieces of a puzzle 2 -21

Implementing and Executing Strategy § Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner § Key tasks include ü Improving efficiency of internal processes ü Aligning, integrating, and enhancing human capital, information capital, and organizational capital 2 -22

What Does Strategy Implementation Involve? § Staffing the organization to provide needed expertise § Allocating resources to strategy-critical activities § Establishing strategysupportive policies § Installing information, communication, and operating systems 2 -23

What Does Strategy Implementation Involve? § Pushing for continuous improvement in how value-creating activities are performed § Tying rewards to achievement of results § Creating a strategy-supportive corporate culture § Exerting the leadership necessary to drive the process forward and keep improving 2 -24

Strategy Maps as Communication Tools 2 -25

Leading the Strategy Execution Process Good strategy execution calls for 3 managerial actions 1. Stay on top of what is happening (MBWA) 2. Push organizational units to achieve good results 3. Display ethical integrity and lead social responsibility initiatives 2 -26

Evaluating Performance and Making Corrective Adjustments § Tasks of crafting and implementing the strategy are not a one-time exercise ü Customer needs and competitive conditions change ü New opportunities appear ü One or more aspects of executing the strategy may not be going well § All these trigger a need for corrective actions and adjustments 2 -27

Corporate Governance: Strategic Role of a Board of Directors § Be inquiring critics and overseers § Evaluate caliber of senior executives’ strategy-making and strategy-executing skills § Institute a compensation plan for top executives rewarding them for results that serve interests of shareholders §Oversee a company’s financial accounting and reporting practices 2 -28