Chapter 2 mgt Summary - book \"Crafting and Executing Strategy\" PDF

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Chapter 2: Charting a Company’s Direction What Does the Strategy Making, Strategy Executing Process Entail? (5 Stages)

 Step 1: Developing a Strategic Vision, Mission and set of Core Values o Vision must chart the company’s long direction o Mission Statement describes company’s purpose o Core values guide the pursuit of the vision and mission o Developing the Strategic Vision 

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A strategic vision describes “where we are going” management’s aspirations for the company and the course and direction charted to achieve them  Delineates management’s future aspirations for the firm to its stakeholders  Provides direction—“where we are going”  Sets out the compelling rationale for the firm’s direction  Uses distinctive and specific language to set the firm apart from its rivals  An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to actions that move the company is the intended direction Communicating the Strategic Vision  Little value unless its communicated down the line  Important to provide a compelling rationale for a dramatically new strategic vision and company direction  Fosters employee commitment to the firm’s chosen strategic direction  Motivates, informs, and inspires internal and external stakeholders  Demonstrates top management support Developing a Company Mission Statement    

Mission statement describes the enterprise’s present business and purpose-“who we are, what we do, and why we are here” Identifies the company’s products and/or services Specifies the buyer needs that the company seeks to satisfy and the customer groups or markets that it serves Gives the company its own identity

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Should focus on describing the firm’s business, not on “making a profit" The distinction between a strategic vision and a mission statement is fairly clear-cut:  A strategic vision portrays a firm’s aspirations for its future (“where we are going”)  A firm’s mission describes its purpose and its present business (“who we are, what we do, and why we are here”). Linking the Vision and Mission with Company Values 

Core values: certain designated beliefs, traits and behavioral norms that management has determined should guide the pursuit of its vision and mission  Become an integral part of the firm’s culture  Matched with the firm’s vision, mission, and strategy contribute to the firm’s business success  Patagonia Example o Patagonia’s Mission Statement  Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis o Patagonia’s Core Values  Quality: Pursuit of ever-greater quality in everything we do  Integrity: Relationships built on integrity and respect  Environmentalism: Serve as a catalyst for personal and corporate action  Not Bound by Convention: Our success—and much of the fun—lies in developing innovative ways to do  Stage 2: Setting Objectives o Objectives are an organization’s performance targets- the specific results management wants to achieve o Importance of Setting Stretch Objectives  One of the best ways to promote company performance is to set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results  To convert the vision and mission into specific, measurable, timely 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 o 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  Ex: 30% increase in annual revenue  Strategic Objectives:

 Communicate top management’s goals for financial performance  Are focused internally on the firm’s operations and activities  Ex: wining an 30% market share  Should include both near and long term performance targets  Short term (quarterly/annually) focuses attention on delivering performance improvement in the current period and satisfy shareholder expectations for near term progress  Longer term (3-5 years) force managers to consider what to do now to put the company in positon to perform better later o The need for a balanced Approach to Objective Setting  A balanced scorecard measures a firm’s optimal performance by  Placing a balanced emphasis on achieving both financial and strategic objectives  Tracking both measures of financial performance and measures of whether a firm is strengthening its competitiveness and market position  Good financial performance is not enough  Current financial results are lagging indicators of past decisions and actions  Good strategic performance is a leading indicator of a firm’s increasing capability to deliver improved future financial performance  Setting and achieving stretch strategic objectives signals a firm’s growth in both competitiveness and strength in the marketplace  Stage 3: Crating a Strategy o Strategy Making  Addresses a series of strategic how’s  Requires choosing among strategic alternatives  Promotes actions to do things differently from competitors  Is a collaborative team effort that involves managers in various positions at all organizational levels o Strategy Making Involves Managers at All Organizational Levels  CEO is ultimately responsibility for leading the strategy-making process as strategic visionary and as chief architect of strategy  Senior Executives have influential strategy making roles and help fashion the chief strategy components  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  In most companies, crafting and executing strategy is collaborate team effort in which every manger has role for the area he or she heads; its rarely something only high level managers do

A Company’s Strategy-Making Hierarchy  Corporate strategy: establishes an overall game plan for managing a set of businesses in diversified multi-businesses company  Addresses what businesses to hold, divest in, diversification  Orchestrated by CEO and other senior executives  Business Strategy: primarily concerned with strengthening the company’s market position and building competitive advantage in a single business company or in a single business unit of diversified multi-business corporation  Responsibility of business unit heads  Seeing that lower level strategies are well conceived  Keeping corporate level officers informed of emerging strategic issues  Orchestrated by the senior executives of each line of bsiness, often advice from the heads of functional area  Functional-area Strategies: concern the approaches employed in managing particular functions within a business (R&R, production, sales)  Orchestrated by the heads of major functional activities within a particular business, often in collaboration with key people  Operating Strategies: concern the relatively narrow approaches for managing key operating unites (plants, distribution centers)  How to manage activities of strategic significant within each functional area, adding detail and completed  Orchestrated by brand managers, plant manager, and heads of other strategically important activities o Uniting the Strategy-Making Hierarchy  A company’s strategy is at full power only when its many pieces are united  Executives must clearly community mission, vision and objectives o Strategic Vision+ Mission+ Objectives + Strategy = A strategic Plan  A company strategic plan lays out its future direction, business purpose, performance targets and strategy  Stage 4: Executing the Strategy o 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  Stage 5: Evalauting Performance and Intiatiing Corrective Adjustment o Evaluating Performance  Deciding whether the enterprise is passing the three tests of a winning strategy— good fit, competitive advantage, strong performance o Initiating Corrective Adjustments o

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Deciding whether to continue or change the firm’s vision and mission, objectives, strategy, and/or strategy execution methods  Based on organizational learning  The Role of Board of Directors o Obligations of BOD are to oversee the firm’s financial accounting and reporting practices compliance with the Sarbanes-Oxley Act...