CHAPTER 2CHAPTER 2

Leadership and the Leadership and the Strategic Strategic

Management Management ProcessProcess

McGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.

The Strategic Management ProcessThe Strategic Management Process

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Factors Shaping Strategic Factors Shaping Strategic DecisionsDecisions

External Considerations What are the industry’s economic characteristics? How strong are the competitive forces at play? What forces are driving change in the industry? What market positions do rivals occupy and what moves are they likely to make next? What are the key factors for future competitive success? What are the companies external opportunities?

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Factors Shaping DecisionsFactors Shaping Decisions

Internal Considerations How well is the present strategy working?How well is the present strategy working?

What are the company’s competitivelyWhat are the company’s competitively valuable resources, capabilities, and internalvaluable resources, capabilities, and internal weaknesses?weaknesses?

Are the company’s prices and costsAre the company’s prices and costs competitive?competitive?

Is the company competitively stronger orIs the company competitively stronger or weaker than key rivals?weaker than key rivals?

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Stage 1: Developing a Strategic Vision

Top management’s views about the company’s direction and future product-customer-market-technology focus

Provides a panoramic view of “where we are going”

Is distinctive and specific to a particular organizationAvoids use of generic

language that is dull and that could apply to most any company

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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

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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

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Examples of Vision StatementsExamples of Vision Statements

Provide a global trading platformwhere practically anyone can tradepractically anything.

To extend our position as the most trusted Linux and open source provider. …through a complete range of enterprise software, a powerful Internet platform, and associated support and services.

To be the global leader in customervalue.

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Strategic Vision vs. Mission

A strategic vision concerns a firm’s future business path - “wherewe are going” Markets to be pursued Future

product/market/customer/technology focus

The mission statement of a firm focuses on its present business purpose - “who we are and what we do” Current product and

service offerings Customer needs

being served

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Examples of a Mission StatementsExamples of a Mission Statements

Give customers the best food and beverage values…provide information for informed buying decisions. We provide these with a dedication to the highest quality of customer satisfaction … with a sense of warmth, friendliness, fun, individual pride, and company spirit.

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Examples of a Mission Examples of a Mission StatementsStatements

To help people and businesses throughout the world realize their full potential.

To organize the world’s information and make it universally accessibleand useful.

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An engaging, inspirational visionChallenges and motivates workforceArticulates a compelling case for

where company is headedEvokes positive support and

excitementArouses a committed organizational

effort to move in a common direction

Communicating the Strategic Communicating the Strategic VisionVision

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1. Crystallizes a firm’s long-term direction

2. Reduces risk of rudderless decision-making

3. Encourages employees to make the vision a reality

4. Keeps common path for strategy-related actions

5. Prepares firm for the future

Benefits of a Clear Strategic Benefits of a Clear Strategic VisionVision

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Strategic Inflection PointsStrategic Inflection Points

A change in vision is required when it becomes evident to management that the industry has changed in a significant way that renders its current vision obsolete

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Stage 2: Setting Objectives

Purpose of setting objectivesConverts vision into specific performance

targetsCreates yardsticks to track performance

Well-stated objectives areQuantifiableMeasurableContain a deadline for achievement

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Achieving good financial performance is not enough Current financial results are “lagging

indicators” reflecting results of past decisions and actions

Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

The Need for a Balanced ScorecardThe Need for a Balanced Scorecard

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Balanced Scorecard ObjectivesBalanced Scorecard Objectives

A Balanced Scorecard performance measurement system strikes a balance between:

Strategic ObjectivesRelated to firm’s marketing standing and competitive vitality

Financial Objectives Related to managements targets for financial performance

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Examples of Financial Examples of Financial ObjectivesObjectives

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

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Winning an X % market share Achieving a customer retention rate of X % Acquire X number of new customers Reduce product defects to X % Introduction of X number of new products in

the next three years Increase employee training to X hours/year Reduce turnover to X % per year

Examples of Strategic Examples of Strategic ObjectivesObjectives

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Examples of Company ObjectivesExamples of Company Objectives

General Motors Reduce the percentage of automobiles using

internal combustion engines through the development of hybrids, range-extended electric vehicles, and hydrogen fuel cell electric engines.

Reduce automotive structural costs to benchmark levels of 23% of revenue by 2012 from 34% in 2005.

Reduce annual U.S. labor costs by an additional $5 billion by 2011.

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Examples of Company ObjectivesExamples of Company Objectives

The Home Depot Be the number one destination for professional

contractors. Improve in-stock positions so customers can find

and buy exactly what they need. Deliver differentiated customer service and the

know-how that our customers have come to expect. Repurchase $22.5 billion of outstanding shares

during 2008. Open 55 new store locations with 5 store

relocations in 2008.

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Short-Term vs.Long-Term Objectives

Short-term objectivesTargets to be achieved soon

Milestones or stair steps for reaching long-range performance

Long-term objectivesTargets to be achieved within 3 to 5

years

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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

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Stage 3: Crafting a Strategy

A firm’s strategy is a collection of initiatives undertaken by managers at all levelsin the organizational hierarchy

Pieces of strategy should fit together like the pieces of a puzzle

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Strategy-Making Hierarchy for a Strategy-Making Hierarchy for a Single Business CompanySingle Business Company

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The Strategy Making Process

Crafting strategy is a collaborative team effortInvolves managers from various levels

of the organizationIs rarely something only high-level

executives engage in

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Corporate Strategy vs. Business Corporate Strategy vs. Business StrategyStrategy

Corporate strategy ensures consistency in strategic approach among businesses of a diversified, multi-business corporation

Business strategy is primarily concerned with strengthening the company's market position and building competitive advantage in a single business

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Stage 4: Implementing and Executing Strategy

Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner

Necessitates an ongoing analysis of the efficiency and effectiveness of internal activities to further improve business processes.

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Staffing the organization to provide needed expertise

Allocating resources to strategy-critical activities

Establishing strategy-supportive policies

What Does Strategy Implementation Involve?

Installing information, communication, and operating systems

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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

What Does Strategy Implementation Involve?

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Stage 5: Evaluating Performance Stage 5: Evaluating Performance and Making Corrective Adjustmentand Making Corrective Adjustment

Triggering a need for change as needed:

Monitoring new developmentsEvaluating the company’s progressMaking corrective adjustments

A company’s vision, objectives, strategy, and approach to strategy execution are never final

Managing strategy is an ongoing process, not an every-now-and-then task

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Leading the Strategic Management Process

The Strategic Management Processcalls for 6 managerial actions

1. Making sure the company has a good strategic plan

2. Stay on top of what is happening (MBWA)

3. Putting constructive pressure on organizational units to achieve good results

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Leading the Strategic Management Leading the Strategic Management ProcessProcess

4. Pushing corrective actions to improve both the company’s strategy and how well it is being executed

5. Leading the development of better competitive capabilities

6. Displaying ethical integrity and leading social responsibility initiatives

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Making Sure a Company Has a Good Making Sure a Company Has a Good Strategic PlanStrategic Plan

Responsibility of CEO Effectively communicate the

vision, objectives and major strategy components

Exercise due diligence in reviewing lower-level strategies for consistency with higher-level strategies

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Stay connected to the field by managing by walking around (MBWA)

Insist that top-managers spend time in the trenches to exchange information and ideas through face-to-face contact with employees

Prevents overly abstract thinking and getting disconnected with reality of what’s happening

Staying on Top of How Well Things Staying on Top of How Well Things are Goingare Going

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Pushing for Good Results and Operating Excellence

Fosters a results–oriented, high performance cultureTreat employees with dignity and respectEncourage employees to use initiative and

creativity in performing their workSet stretch objectives and clearly

communicate expectationsFocus attention on continuous improvementReward high performanceCelebrate successes

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Initiating Corrective Actions to Improve Strategy and Executionmprove Strategy and Execution

The leadership challenge of making corrective adjustments is twofold: deciding when adjustments are needed deciding what adjustments to make

Leader’s responsibility to step forward and push corrective actions.

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LLeadingeading the Development of Better the Development of Better Competitive CapabilitiesCompetitive Capabilities

Lead efforts to strengthen existing competitive capabilities

Anticipate changes in customer-market requirements

Proactively build new competencies and capabilities that hold promise for building an enduring competitive edge

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Displaying Ethical IntegrityDisplaying Ethical Integrity

The CEO and other senior executives must set an excellent example in their own ethical behavior

Top management must declare unequivocal support of the company’s ethical code

Top management must be prepared to act swiftly and decisively in punishing ethical misconduct

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Leading Social ResponsibilityLeading Social Responsibility

The strength of management commitment determines whether a company will implement and execute a full-fledged strategy of social responsibility: that protects the environment actively participates in community affairs supports charitable causessupports workforce diversity and the overall

well-being of employees

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Strategic Leadership: The Role of a Strategic Leadership: The Role of a Board of DirectorsBoard of Directors

Oversee a company’s financial accounting and reporting practices

Be inquiring critics and oversee the company’s direction, strategy, and business approaches

Evaluate the caliber of senior executives’ strategy-making and strategy-executing skills

Institute a compensation plan for top executives that rewards them for actions and results that serve shareholder interests

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Strong Boards Lead to Good Strong Boards Lead to Good Corporate GovernanceCorporate Governance

Well-informed on the company’s performance Guide and judge the CEO and other top

executives Curb management actions they believe are

inappropriate or unduly risky Certify to shareholders that the CEO is doing

what the board expects Provide insight and advice to management Debate the pros and cons of key decisions and

actions

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