The Managerial Process of Crafting and Executing Strategy

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The Managerial Process of Crafting and
Executing Strategy
Chapter
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Chapter Outline

• Five Phases of the Strategic Process
• Developing a Strategic Vision
• Setting Objectives
• Crafting a Strategy
• Implementing and Executing the Strategy
• Initiating Corrective Adjustments

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Developing a Strategic Vision
Phase 1 of the Strategy-Making Process

• Involves thinking strategically about
• Firms future business plans
• Where to go
• Tasks include
• Providing long-term direction
• Giving firm a strong identity

A 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 companys destination and provides a
rationale for going there.
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Characteristics of a Strategic Vision

• Charts a companys future strategic course
• Defines the business makeup for 5 years (or more)
• Specifies future product-customer focus
• Indicates capabilities to be developed
• Requires managers to exercise foresight

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Characteristics ofa Mission Statement

• Defines current business activities, highlighting
  boundaries of current business
• Present products and services
• Types of customers served
• Conveys
• Who we are,
• What we do, and
• Why we are here

A companys mission is not to make a profit! Its
true mission is its answer to What will we do to
make a profit?
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Strategic Vision vs. Mission

• A strategic vision concerns a firms future
  business path -- where we are going
• Geographic and product markets to be pursued
• Kind of company that management is trying to
  create

• A mission statement focuses on current business
  activities -- who we are and what we do
• Current product and service offerings
• Customer needs being served
• Technological and business capabilities

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Examples of Strategic Visions
Heinz Our vision, quite simply, is to be the
worlds premier food company, offering
nutritious, superior tasting foods to people
everywhere. Being the premier food company does
not mean being the biggest but it does mean being
the best in terms of consumer value, customer
service, employee talent, and consistent and
predictable growth.
General Electric We will become number one or
number two in every market we serve, and
revolutionize this company to havethe speed and
agility of a small enterprise.
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Apple Computer Mission Statement
Apple Computer
Apple Computer, Inc., ignited the personal
computer revolution in the 1970s with the Apple
II, and reinvented the personal computer in the
1980s with the Macintosh. Apple is now committed
to its original mission--to bring the best
personal computing products and support to
students, educators, designers, scientists,
engineers, business persons and consumers in over
140 countries around the world.
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Setting Objectives
Phase 2 of the Strategy-Making Process

• Purpose of setting objectives
• Converts vision into specific performance targets
• Creates yardsticks to track performance
• Pushes firm to be inventive, intentional,
  andfocused in its actions
• Helps prevent complacency and coasting

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Characteristics of Objectives

• Represent commitment to achieve specific
  performance targets
• Spell-out how much of what kindof performance by
  when
• Well-stated objectives are
• Quantifiable
• Measurable
• Contain a deadline for achievement

Establishing objectives converts the vision into
concrete performance outcomes!
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Types of Objectives Required
Financial Objectives
Strategic Objectives

• Outcomes focusedon improving financial
  performance

• Outcomes focused on improving long-term
  competitive business position

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Examples FinancialObjectives

• Grow earnings per share 15 annually
• Boost annual return on investment (or EVA) from
  15 to 20 within three years
• Increase annual dividends per share to
  stockholders by 5 each year
• Strive for stock price appreciation equal to or
  above the SP 500 average
• Maintain a positive cash flow every year
• Achieve and maintain a AA bond rating

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Examples StrategicObjectives

• Increase firms market share
• Overtake key rivals on quality or customer
  service or product performance
• Attain lower overall costs than rivals
• Boost firms reputation with customers
• Attain stronger foothold in international markets
• Become leader in new product introductions
• Consistently getting new or improved products to
  market ahead of rivals

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Examples Strategic Objectives
Bank One Corporation
To be one of the top three banking companies in
terms of market share in all significant markets
we serve.
Dominos Pizza
To safely deliver a hot, quality
pizza in 30 minutes or less at a fair
price and a reasonable profit.
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Examples Strategic Objectives
Citigroup
To attain one billion customers worldwide.
McDonalds
To achieve 100 percent total customer
satisfaction . . . everyday . . . in every
restaurant . . . for every customer.
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Example Corporate Objectives
Anheuser-Busch (strategic financial objectives)

• To make all our companies leaders in their
  industries in quality while exceeding customer
  expectations.
• To achieve a 50 share of the U.S. beer market.
• To establish and maintain a dominant leadership
  position in the international beer market.
• To provide all our employees with challenging and
  rewarding work, . . . , and opportunities for
  personal development, advancement, and
  competitive compensation.
• To provide our shareholders with superior returns
  by achieving double-digit annual earnings per
  share growth.

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Strategic Performance Fosters Better
Financial Performance

• A companys achievement of satisfactory financial
  performance, by itself, is not enough
• Financial performance measures are lagging
  indicators reflecting results of past decisions
  and actions
• Of equal or greater importance is a companys
  performance on measures of its strategic
  well-being its competitiveness and market
  position
• Strategic performance measures are leading
  indicators of a companys future financial
  performance and business prospects
• Achievement of strategic performance targets
• Signals growing competitiveness
• Signals growing strength in the marketplace

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Balanced Scorecard Approach Strategic and
Financial Objectives

• Balanced scorecard approach for measuringcompany
  performance requires both
• Financial objectives
• Strategic objectives
• Emphasis on financial performance may
  assumepriority over strategic performance when
  companys
• Financial performance is dismal and/or
• Survival is threatened
• Otherwise, management is advised to put more
  emphasis on achieving strategic objectives

The surest path to sustained future
profitabilityyear after year is to relentlessly
pursue strategic outcomesthat strengthen a
companys business position andgive it a growing
competitive advantage over rivals!
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Short-Term vs.Long-Term Objectives

• Short-term objectives
• Targets to be achieved soon
• Milestones or stair steps for reaching long-range
  performance
• Long-term objectives
• Targets to be achieved within3 to 5 years
• Prompt actions now that willpermit reaching
  targetedlong-range performance later

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Crafting a Strategy
Phase 3 of the Strategy-Making Process

• Strategy involves determining whether to
• Concentrate on a single business or several
  businesses (diversification)
• Cater to a broad range of customers or focus on a
  particular niche
• Develop a wide or narrow product line
• Pursue a competitive advantage based on
• Low cost or
• Product superiority

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Core Elements ofMcDonalds Strategy

• Add 1750 restaurants annually
• Promote frequent customer visits via attractive
  menu items, low-price specials, and Extra Value
  Meals
• Be highly selective in granting franchises
• Locate on sites offering convenience to customers
  and profitable growth potential
• Focus on limited menu and consistent quality
• Careful attention to store efficiency
• Extensive advertising and use of Mc prefix
• Hire courteous personnel pay an equitable wage
  provide good training

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Types of Strategies

• Corporate-level Strategies
• Define the businesses that our company will
  compete in
• Business-level Strategies
• Define how we will compete in those businesses

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Tasks of Corporate Strategy

• Moves to achieve diversification
• Actions to boost performance of individual
  businesses
• Capturing valuable cross-business synergies to
  provide1 1 3 effects!
• Establishing investment priorities
  and steering corporate resources into the
  most attractive businesses

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Tasks of Business Strategy

• Forming responses to changes in industry and
  competitive conditions, buyer needs and
  preferences, economy, regulations, etc.
• Crafting competitive moves to produce sustainable
  competitive advantage
• Building competitively valuable competencies and
  capabilities
• Uniting strategic initiatives of functional areas
• Addressing strategic issues facing the company

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Tasks of Functional Strategies

• Game plan for a strategically-relevantfunction,
  activity, or business process
• Detail how key activitieswill be managed
• Provide support forbusiness strategy
• Specify how functional objectivesare to be
  achieved

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Tasks of Operating Strategies

• Concern narrower strategies formanaging
  activities andstrategically-relevant operating
  units
• Add detail to businessand functional strategies

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Uniting the CompanysStrategy-Making Effort

• A firms strategy is really a collection of
  initiatives undertaken by managers at all levels
  in the organizational hierarchy
• All the various strategic initiatives must be
  unified intoa cohesive, company-wide action plan
• Pieces of strategy should fittogether like the
  pieces of a puzzle

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What Is a Strategic Plan?
Where firm is headed -- Strategic vision and
business mission
A Companys Strategic Plan Consists of
Short-term and long-term performance targets --
Strategic and financial objectives
Action approaches to achieve targeted results --
A comprehensive strategy
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Implementing and Executing Strategy
Phase 4 of the Strategy-Making Process

• Taking actions to put a freshly-chosen strategy
  into place
• Improving the competence and efficiency with
  which
• the strategy is being executed
• Showing measurable progress in
• achieving the targeted results and objectives

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What Does Strategy Implementation Involve?

• Allocating resources to strategy-critical
  activities
• Establishing strategy-supportive policies
• Motivating people to pursue the target objectives
• Tying rewards to achievement of results
• Creating a strategy-supportive corporate culture
• Installing needed information, communication, and
  operating systems
• Instituting best practices and programs for
  continuous improvement
• Exerting the leadership necessary to drive the
  process forward and keep improving

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Evaluating Performance andMaking Corrective
Adjustments
Phase 5 of the Strategy-Making Process

• The tasks of crafting, implementing, and
  executing a strategy are not a one-time exercise
• Customer needs and competitiveconditions change
• New opportunities appear technology advances
  any number of other outside developments occur
• One or more aspects of executing thestrategy may
  not be going well
• Organizational learning occurs
• All these trigger the need for corrective actions
  and adjustments

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Monitoring, Evaluating, and Adjusting as
Needed

• Taking actions to adjust to the march of events
  tends to result in one or more of the following
• Altering long-term direction and/orredefining
  the mission/vision
• Raising, lowering, or changingperformance
  objectives
• Modifying the strategy
• Improving strategy execution