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TRANSCRIPT
©2014 KEAW
Strategic
Management Charting a
Company’s Direction
Vision, Mission & Values Objectives & Strategy
Five Strategic Management Tasks
Module #2
Charting a Company’s Direction 2
“Are you sure you have a strategy?” Donald C. Hambrick and James W. Frederickson Academy of Management Executive 2001 Vol. 15 No. 4
Putting Strategy in its Place Strategic Analysis Industry Analysis Customer/marketplace trends Customer activity cycle Environment forecast Competitor analysis Assessment of internal strengths, weaknesses, resources, culture Stakeholders
Mission Fundamental purpose Values Vision
Objectives Specific targets, short-term & long-term Goals
Strategy! The central integrated,
externally oriented concept of how we will achieve our objectives
Supporting Organizational Arrangements Structure Process Symbols Rewards People Activities Functional policies
It’s not about the sequence.
The robustness of the whole is
key !
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The Strategy-Making, Strategy-Executing Process
Strategic Plan
CES 19e Fig 2.1
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Strategic Management Principle
E f f e c t i v e S t r a t e g y
B e g i n s w i t h a
V I S I O N
of w h e r e t h e O r g a n i z a t i o n
N e e d s t o H e a d !!
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Microsoft’s Strategic Vision
Empower people through great software anytime,
anyplace and on any device.
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1. Crystallizes an organization’s long-term direction
2. Reduces risk of rudderless decision-making
3. Assists in gaining support of organizational members for changes to make the vision a reality
4. Helps keep strategy-related actions of managers on common path
5. Helps an organization prepare for the future
Payoffs of a Clear Strategic Vision
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Developing a Strategic Vision
Involves thinking strategically about . . . . Firm’s future business plans Where to “go”
Tasks include: Creating a roadmap of the future Providing long-term direction Determining target markets & buyers Deciding future business position
to stake out Giving firm a strong identity
Task 1 of Strategic Management
What kind of company . . . . . . Are we trying to become?
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What is a Vision? A small child sitting on a high wall is watching a man at work below. “Mister,” he called, “why are you hitting that rock?” Michelangelo looked up and called back, “Because there’s an angel in the rock and it wants to come out.” To Michelangelo, creating a statue meant chipping away at the rock that imprisoned the angel until the work of art was set free. Like Michelangelo, we need to see, or imagine we see, “the angel in the rock” before we can take up our sculptor’s tools to release it.
(Story from Marilee Zdenek, The Right-Brain Experience)
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Importance of the Strategic Vision
Impact of new technologies How customer needs and
expectations are changing What it will take to outrun
competitors Which promising market
opportunities ought to be aggressively pursued
External and internal factors driving what a company needs to do to prepare for the future
A managerial imperative exists to LOOK BEYOND TODAY . . . . and think strategically about what might impact the business in the future:
??
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Characteristics of a Strategic Vision
1. Charts a company’s future strategic course
2. Defines the business makeup for typically 3 to 5 years (or more) Specifies future
technology-product-customer focus
Indicates capabilities to be developed
Requires managers to exercise foresight
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Three Elements of a Strategic Vision
Use the mission statement as a starting point
Develop a strategic vision that spells out a course to pursue
Communicate the vision in a clear & exciting manner
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The Vision What would the company like to achieve?
A good vision is meant to stretch a company by articulating an ambitious but attainable future state.
Charting a Company’s Direction
Caterpillar Be the global leader in customer value.
eBay Provide a global trading platform where practically
anyone can trade practically anything.
2-12
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Characteristics of an Effectively Worded Vision Statement
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Common Shortcomings in Company Vision Statements
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Strategic Mission versus Vision
A mission statement focuses on current business activities 'who we are & what we do” Current product
and service offerings
Customer needs being served
Technological and business capabilities
A vision statement concerns a firm’s future business path “where we are going” Markets to be
pursued
Future technology-product - customer focus
Kind of company that management is trying to create
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The Mission
What is it that the company does? What is the company’s business?
Who is being satisfied (what customer groups)?
What is being satisfied (what customer needs)?
How customer needs are being satisfied (by what products, services, skills, knowledge, and distinctive competencies)?
The mission is a statement of a company’s raison d’etre, its reason for existence today.
A company’s mission is best approached from a customer-oriented business definition.
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Abell’s Framework for Defining the Business
Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice
Hall, 1980), p. 7.
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Intel’s Strategic Vision & Mission Statements
Our vision: Getting to a billion connected
computers worldwide, millions of servers, and trillions of dollars of e-commerce.
Intel’s mission statement: Delight our customers, employees and shareholders by relentlessly
delivering the platform and technology advancements that become essential to the way
we work and live
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Trader Joe’s 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.
(a unique grocery store chain)
Charting a Company’s Direction
1. Defines current business activities Customer needs – what needs are being satisfied Customer groups – who is being satisfied Technologies & competencies employed –
how value is delivered to satisfy customer needs 2. Highlights boundaries of current business
What we DO What we DON’T do
3. Conveys Who we are What we do Where we are now
4. Company specific, not generic — so as to give a company its own identity
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Characteristics of a Mission Statement
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Mission Statement Broad vs Narrow
Broad Definition Household
furnishings Tele -
communications Beverages Global mail &
package services Travel & tourism
Narrow Definition Wrought-iron lawn
furniture Long-distance
telephone service Soft drinks Overnight package
delivery Caribbean cruises
Narrow enough - to specify real area of interest. Boundary - for what to do & what NOT to do. Beacon - where top management is taking the firm.
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Strategic Management Principle
A company’s mission is not to make a profit !!
The real mission is always –
What will we DO . . . . . . to make a profit ?
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The ima
Communicating the Vision and the Mission
An exciting, inspirational vision/mission can: Crystallize current & long term direction Challenge and motivate the workforce Arouse a strong sense of organizational
purpose Encourage buy-in from employees
(investors, vendors, customers) Galvanize people to live the
business’ vision/mission
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Examples: Vision Slogans
Levi Strauss & Company “We will clothe the world by marketing the most appealing
and widely worn casual clothing in the world.”
Charting a Company’s Direction
Microsoft Corporation “Empower people through great software—any
time, any place, and on any device.”
Mayo Clinic
“The best care to every patient every day.”
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Examples: Vision Slogans
New Scotland Yard “To make London the safest major city in the world.”
Charting a Company’s Direction
Charles Schwab “To provide customers with the most useful and ethical financial services in the world.”
Greenpeace “To halt environmental abuse and promote environmental solutions.”
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Strategic Management Principle
A firm’s CORE VALUES are the beliefs, traits, and behavioral
norms that the firm’s personnel are expected to
display in conducting business and pursuing its
strategic vision and mission.
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Linking the Vision & Mission with Core Values
In high-performance organizations, values respect the interests of key stakeholders.
The core values of a company should state: How managers and employees should conduct
themselves How they should do business What kind of organization they need to build to
help achieve the company’s vision, mission & strategy.
Become an integral part of the firm’s culture What ‘make it tick’ when strongly espoused and
supported by top management Often seen as an important source of competitive
advantage
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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
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Values at Nucor
“Management is obligated to manage Nucor in such a way that employees will have the opportunity to earn according to their productivity.”
“Employees should be able to feel confident that if they do their jobs properly, they will have a job tomorrow.”
“Employees have the right to be treated fairly and must believe that they will be.”
“Employees must have an avenue of appeal when they believe they are being treated unfairly.”
At Nucor, values emphasizing pay for performance, job security, and fair treatment for employees help to create an atmosphere that leads to high employee productivity.
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Shared Values and Corporate Culture
Values & culture often shape the strategic moves a business will:
Consider … or Reject
It is generally unwise for a business to undertake strategic moves which conflict with:
Its CULTURE … or VALUES that are widely shared by
managers & employees Charting a Company’s Direction
Responding positively to emerging societal priorities and expectations
Demonstrating willingness to take needed action ahead of regulatory confrontation
Balancing stockholder & stakeholder interests against the larger interest of society as a whole
Being a ‘good citizen’ in community 31
‘Corporate Social Responsibility’
Conducting business activities within the bounds of what is considered legal, moral and ethical . . . . and in the public interest
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Hewlett-Packard’s Basic Values: “The HP Way”
Sharing firm’s success with employees Showing trust and respect for employees Providing customers with products or
services of the greatest value Being genuinely interested in providing
customers with effective solutions to their problems
Making profit a high stockholder priority Avoiding use of long-term debt to finance
growth Individual initiative, creativity, & teamwork Being a good corporate citizen
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Core Values for Amazon ♦ Customer
Obsession We start with the customer and work backward.
♦ Innovation If you don’t listen to your customers you will fail. But if you only listen to your customers you will also fail.
♦ Bias for Action
We live in a time of unheralded revolution and instrumental opportunity–provided we make every minute count.
♦ Ownership Ownership matters when you’re building a great company. Owners think long – term, please passionately for their projects and ideas, and are empowered to respectfully challenge decisions.
♦ High-Hiring Bar
When making a hiring decision we ask ourselves: “Will I admire this person? Will I learn from this person? Is this person a superstar?”
♦ Frugality We spend money on the things that really matter and believe that frugality breeds resourcefulness, self-sufficiency and intention.
Charting a Company’s Direction
Toyota’s Company Values
Teamwork
Getting quality right the first time
Learning
Continuous improvement
Embracing change in pursuit of low-cost, top-notch manufacturing excellence in motor vehicles
Respect for and development of employees
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Setting Goals & Objectives
Converts strategic vision and mission into specific, measurable, & timely performance targets
Focuses efforts & aligns actions throughout the organization
Serve as yardsticks for tracking performance & progress
Provide motivation for employees to achieve greater levels of effort
Task 2 of Strategic Management
benchmarks
targets ?
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Types of Goals & Objectives Required
Outcomes focused on improving financial performance, eg: EPS growth
ROI or EVA improvement Stock price appreciation Cash flow goals Dividend & Reinvestment Working Capital Bond ratings
Focused on improving long-term, competitive business position, eg: Market share Penetrate new markets Foreign markets New products introduced Product quality Customer service Brand recognition
Financial Strategic
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Key characteristics of well-constructed goals:
1. Precise and measurable – to provide a yardstick or standard to judge performance
2. Address crucial issues – with a limited number of key goals that help to maintain focus
3. Challenging but realistic – to provide employees with incentive for improving
4. Specify a time period – to motivate and inject a sense of urgency into goal attainment
Major Long-Term Goals A goal is a precise and measurable desired
future state that a company must realize if it is to attain its vision or mission.
Focus on LONG-RUN performance and competitiveness
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General Electric’s Strategic Corporate Objectives
• Become the most competitive
enterprise in the world. • Be number one or number two
in each business we are in. • Globalize every activity in the
company. • Embrace the Internet and
become a global e-business.
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McCormick & Company Financial Objectives
¿ To achieve a 20% return on equity. ¿ To achieve a net sales growth rate of 10% per year. ¿ To maintain an average earnings per share growth
rate of 15% per year. ¿ To maintain total debt-to-total capital at 40% or
less. ¿ To pay out 25% to 35% of net income in dividends. ¿ To make selective acquisitions which complement
our current businesses and can enhance our overall returns.
¿ To dispose of those parts of our businesses which do not or cannot generate adequate returns or do not fit with our business strategy.
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Unilever’s Strategic & Financial Objectives
Grow annual revenues by 5-6% annually Increase operating profit margins from
11% to 16% within 5 years Trim company’s 1200 food, household,
and personal care products down to 400 core brands
Focus sales and marketing efforts on those brands with potential to become respected, market-leading global brands
Streamline company’s supply chain
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Which Takes Precedence . . .
Financial or Strategic Objectives 1. Pressures for better short-term financial
performance become pronounced when: Business is struggling financially Resource commitments for new strategic initiatives
may hurt bottom-line for several years Proposed strategic moves are risky
2. Otherwise . . . . strategic objectives merit top priority. A business that consistently passes up opportunities to strengthen its long-term competitive position: Risks diluting its competitiveness Risks losing momentum in its markets Hurts its ability to fend off rivals’ challenges
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Establishing Objectives Represent commitment to
achieve specific performance targets by a certain time
Should be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when
10% ROI
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Long-Range Goals vs Short-Term Objectives
Long-Range Goals Targets to be achieved
within 3 to 5 years Prompt actions now . . .
that will permit reaching targeted long-range performance later
Short-Range Objectives Targets to be achieved soon Serve as stair steps for
reaching long-range performance
support
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Strategic Management Principle
Long-term goals need to be more of a top-down process . . .
in order to guide lower-level managers & organizational units toward outcomes that support the achievement of overall business & company
objectives. Charting a Company’s Direction
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Objectives are Needed at All Organizational Levels
1. First, establish organization-wide goals, objectives & performance targets
2. Next, set business unit & product line objectives
3. Then, establish functional & departmental objectives
4. Finally, individual objectives are established last
The strategic goal-setting process is more top-down than bottom-up.
Top-down goals lead to cohesive strategies & objectives for the organization . . . .
. . . . and help unify internal efforts Charting a Company’s Direction
The Balanced Scorecard Approach Strategic & Financial Objectives
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A more complete & balanced view
of how an organization is
performing
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Crafting a Strategy
Crafting an organization’s strategy deals with: How to make the strategic vision
a reality . . . . . and achieve target objectives
Making choices among strategic alternatives
The game plan for: Pleasing customers Conducting operations Building a sustainable
competitive advantage » Is a collaborative team effort
involving managers in various positions at all organizational levels
HOW …. Our game plan for running the company ….
Task 3 of Strategic Management
Charting a Company’s Direction
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 competitive advantage based on
Low cost … or Product superiority … or Unique organizational capabilities
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Crafting a Strategy
Strategy is
WHETHER to . . .
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Strategy involves deciding how to: Respond to changing
buyer preferences Respond to new
market conditions Grow the business
over the long-term Achieve performance
targets Outcompete rivals
Strategy is HOW to . . .
Crafting a Strategy
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Concept of Strategic Intent Strategic intent is when a business relentlessly pursues an ambitious strategic objective . . . and concentrates its competitive actions & energies on achieving that objective !!
Indicates a business’s intent to stake out a particular position over the long-term
Involves establishing a BHAG – ‘big, hairy, audacious goal’
Signals relentless commitment to winning
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Business Strategy
Business- Level Managers
Responses to changes in industry & competitive conditions
Competitive moves to produce sustainable competitive advantage
Building competitively valuable competencies & capabilities
Uniting strategic initiatives of functional areas
Functional Strategies Functional Managers
Game plan for a strategically-relevant function, activity, or business process
Details how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved
Operating Strategies Operating Managers
Narrower strategies for managing strategically relevant operating units
Adds detail to business and managerial strategies
Strategy-Making in a Business Unit or Single-Business
Two-Way Influence
Two-Way Influence
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Networking of Vision, Missions, Objectives & Strategies
Two-Way Influence Two-Way Influence Two-Way Influence
Level 1 Business-Level Managers
Business Level
Objectives
Business Strategic
Vision & Mission
Business Level
Strategy
Level 3 Plant Managers, Lower-Level Supervisors
Operating Objectives
Operating Missions
Operating Strategies
Two-Way Influence Two-Way Influence Two-Way Influence
Functional Objectives
Functional Missions
Functional Strategies
Level 2 Functional Managers
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A Firm’s Strategy-Making Hierarchy
Corporate Strategy
Multibusiness Strategy—how to gain synergies from managing a portfolio of businesses together rather than as separate businesses
Business Strategy
• How to strengthen market position and gain competitive advantage
• Actions to build competitive capabilities of single businesses • Monitoring and aligning lower-level strategies
Functional Area
Strategies
• Add relevant detail to the how’s of the business strategy • Provide a game plan for managing a particular activity in ways
that support the business strategy
Operating Strategies
• Add detail and completeness to business and functional strategies
• Provide a game plan for managing specific operating activities with strategic significance
Two-Way Influence
Two-Way Influence
Two-Way Influence
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Corporate Strategy – is strategy at the multi-business level, concerning how to improve company performance or gain competitive advantage by managing a set of businesses simultaneously. Business Unit Strategy – is strategy at the single-business level, concerning how to improve the performance or gain a competitive advantage in a particular line of business.
Corporate Multi-Business Strategy
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Uniting the Company’s Strategy-Making Effort
A company’s strategy is a collection of strategies and initiatives being acted on by managers in various businesses and at various organizational levels
Separate levels of strategy must be unified into a cohesive, company-wide action plan
Pieces of strategy should fit together like the pieces of a puzzle
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Strategic Management Principle
Objectives and strategies that are unified from the top to the bottom of the
strategy-making hierarchy require a team effort !!
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Influences of Key Executives Managers generally stamp the
strategies they craft with their own personal: Ambitions Values Styles Ethical beliefs Business philosophies Attitudes toward risk.
The unrelentless
pursuit of perfection !
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John Deere’s Strategic Vision & Mission
Who Are We ?
John Deere has grown and prospered through a long-standing partnership with the world’s
most productive farmers. Today, John Deere is a global company with several equipment
operations and complementary service businesses. These businesses are closely interrelated, providing the company with
significant growth opportunities and other synergistic benefits.
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John Deere’s Strategic Vision & Mission
Where Are We Going ?
Deere is committed to providing genuine value to the company’s stakeholders. In support of that commitment, Deere aspires to: Grow and pursue leadership positions in
each of our businesses. Extend our preeminent leadership position
in the agricultural equipment market worldwide.
Create new opportunities to leverage the John Deere brand globally.
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John Deere’s Strategic Vision & Mission
How Will We Get There ?
1. By pursuing the broader corporate goals of profitable growth and continuous improvement, each of the company’s businesses is expected to: Achieve world-class performance by
attaining a strong competitive position in target markets.
Exceed customer expectations for quality and value.
Earn in excess of the cost of capital over a business cycle.
Charting a Company’s Direction
How Will We Get There ? 2. By growing profitably and continuously
improving, each of the company’s businesses will benefit from & contribute to Deere’s unique intangible assets: Our distinguished brand. Our heritage of integrity and
teamwork. Our advanced skills. The special relationships that have long
existed between the company and our employees, customers, dealers and other business partners around the world.
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John Deere’s Strategic Vision & Mission
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Executing the Strategy
Converting strategic plans into actions requires: Directing organizational
action Motivating people Building and strengthening
the firm’s competencies and competitive capabilities
Creating & nurturing a strategy-supportive climate
Meeting or beating performance targets
Task 4 of Strategic Management
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Managing the Strategy Execution Process
1. Building a capable organization 2. Allocating resources to strategy-critical
activities 3. Establishing strategy-supportive policies 4. Motivating people to pursue the target
objectives 5. Tying rewards to achievement of results 6. Creating a strategy-supportive corporate
culture 7. Installing needed information, communication,
and operating systems 8. Instituting best practices and programs for
continuous improvement 9. Exerting the leadership necessary to drive the
process forward and keep improving Charting a Company’s Direction
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Strategic Management Principle
Strategy implementation and execution is an action-oriented, ‘make-it-happen’ process . . . . involving people management,
developing competencies & capabilities, budgeting, policy-making, motivating, culture-
building, and leadership Charting a Company’s Direction
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Evaluating Performance and Initiating Corrective Actions
The tasks of crafting, implementing, and executing a strategy are not a one-time exercise 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
Task 5 of Strategic Management
All these trigger the need for corrective actions and adjustments
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Benefits of a‘Strategic Thinking’ Approach to Managing
1. Guides entire business regarding . . . . ‘what it is we are trying to do and to achieve’
2. Makes managers more alert to: ‘winds of change’, new opportunities, and threatening developments
3. Unifies numerous strategy-related decisions and organizational efforts
4. Creates a proactive atmosphere 5. Promotes development of an evolving
business model focused on bottom-line success
6. Provides basis for evaluating competing budget requests
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Role of the Board of Directors in Corporate Governance
Obligations of the Board of Directors 1. Critically appraise the firm’s direction, strategy
and business approaches 2. Evaluate the caliber of senior executives’ strategic
leadership skills 3. Institute a compensation plan that reward top
executives for actions and results that serve stakeholder interests – especially stockholders
4. Oversee the firm’s financial accounting and reporting practices and compliance with the Sarbanes-Oxley Act
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Achieving Effective Corporate Governance
A strong, independent board of directors: 1. Is well informed about the firm’s performance
2. Guides and judges the CEO and other executives
3. Can curb management actions the board believes are inappropriate or unduly risky
4. Can certify to shareholders that the CEO is doing what the board expects
5. Provides insight and advice to top management
6. Is actively involved in debating the pros and cons of key strategic decisions and actions
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Strategic Management Principle
Competent execution of a well-conceived strategy is the BEST test of managerial excellence . . . and a
proven recipe for organizational success !!!
Good Strategy + Good Execution = Good Management
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“If you don’t have a strategy you will be . . . part of somebody else’s strategy.”
- Alvin Toffler
“Quote”
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Good Strategy + Good Execution = Good Management
Charting a Company’s Direction