Chapter 2: Leading the

Process of Crafting and

Executing Strategy

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.
Troy University
McGrawHill/Irwin

Copyright2010byTheMcGrawHillCompanies,Inc.Allrightsreserved.

Chapter Learning Objectives

1. Grasp why it is critical for company managers to think long and
hard about where a company needs to head and why.
2. Understand the importance of setting both strategic and financial
objectives.
3. Recognize that the task of crafting a company strategy draws on
the entrepreneurial talents of managers at all organizational
levels.
4. Understand why the strategic initiatives taken at various
organizational levels must be tightly coordinated to achieve
companywide performance targets.
5. Become aware of what a company must do to achieve operating
excellence and to execute its strategy proficiently.
6. Understand why the strategic management process is ongoing,
not an every-now-and-then task.
7. Learn what leadership skills management must exhibit to drive
strategy execution forward.
8. Become aware of the role and responsibility of a companys
board of directors in overseeing the strategic management
process.
2-2

Chapter Roadmap
What Does the Strategy-Making, Strategy-Executing

process Entail?
Phase 1: Developing a Strategic Vision
Phase 2: Setting Objectives
Phase 3: Crafting a Strategy
Phase 4: Implementing and Executing the Strategy
Phase 5: Evaluating Performance and Initiating
Corrective Adjustments
Leading the Strategic Management Process
Corporate Governance: The Role of the Board of
Directors in the Strategy-Making, Strategy-Executing
Process
2-3

Figure 2.1: The Strategy-Making, Strategy-Executing Process

2-4

Developing a Strategic Vision

Phase 1
Involves thinking strategically about
Future direction of company
Changes in companys
product/market/customer technology to improve

Current market position

Future prospects
A strategic vision describes the route a company
intends to take in developing and strengthening
its business. It lays out the companys strategic
course in preparing for the future.
2-5

Key Elements of a Strategic Vision

Delineates managements aspirations for the

business
Provides a panoramic view of where we are going
Charts a strategic path
Is distinctive and specific to
a particular organization
Avoids use of generic language that
is dull and boring and that could
apply to most any company

Captures the emotions of

employees and steers them

in a common direction
Is challenging and a bit beyond a
companys immediate reach
2-6

Role of a Strategic Vision

A well-conceived, well-communicated vision

functions as a valuable managerial tool to

Give the organization a sense of direction, mold
organizational identity, and create a committed
enterprise
Illuminate the companys directional path
Provide managers with a reference point to
Make strategic decisions
Translate the vision into hard-edged
objectives and strategies
Prepare the company for the future

A strategic vision exists only as words and has no

organizational impact unless and until it wins the commitment
of company personnel and energizes them to act in ways that
move the company along the intended strategic path!
2-7

Table 2.2: Characteristics of an Effectively Worded Vision Statement

2-8

Table 2.3: Common Shortcomings in Company Vision Statements

2-9

Strategic Vision vs. Mission

A strategic vision

concerns a firms future

business path - where
we are going
Markets to be pursued
Future product/market/
customer/technology focus
Kind of company
management is
trying to create

A companys mission

statement typically
focuses on its present
business purpose - who
we are and what we do
Current product and
service offerings
Customer needs and
customer groups being
served
Geographic
coverage

2-10

Characteristics of a Mission Statement

Identifies boundaries of a companys current

business and says something about

Present products and services
Types of customers served
Geographic coverage
Conveys
Who we are,
What we do, and
Why we are here
A good mission statement describes a companys business
makeup and purpose in language specific enough to give
the company its own identity and distinguish it from
other enterprises in the same or other industries!
2-11

Key Elements of a
Mission Statement
A complete mission statement should cover three

things:
Customer needs being met
What is being satisfied
Customer groups or markets being served
Who is being satisfied
What the organization does (in terms of business
approaches, technologies used, and activities
performed) to satisfy the targeted needs of the
targeted customer groups
How customer needs are satisfied
A companys mission is not to make a profit! Its true
mission is its answer to What will we do to make a profit?
Making a profit is an objective or intended outcome!
2-12

Linking the Vision

with Company Values
Companies often develop a statement of values to guide a

companys pursuit of its vision and strategy and paint the white
lines for how a companys business is to be conducted
Company values statements typically
contain four to eight beliefs, traits, and
behaviors relating to such things as
Fair treatment, integrity, ethical behavior,
innovation, teamwork, product quality, customer satisfaction,
social responsibility, community citizenship
But values statements remain a bunch of nice words until

espoused beliefs, traits, and behaviors are

Incorporated into companys operations and work
practices
Used as benchmarks for job appraisal, promotions, and
rewards
If company personnel are not held accountable
for displaying company values in doing their jobs, then the
company values statement is a bunch of empty words!
2-13

Communicating the Strategic Vision

Winning support for the vision involves
Putting where we are going and why in writing
Distributing the statement organization-wide
Having executives explain vision to employees
An engaging, inspirational vision
Challenges and motivates workforce
Articulates a compelling case
for where company is headed
Evokes positive support and excitement
Arouses a committed organizational
effort to move in a common direction
2-14

Recognizing Strategic Inflection Points

Sometimes an order-of-magnitude change occurs in

a companys environment that

Dramatically alters its future prospects
Mandates radical revision of its strategic course
Critical decisions have to be made about where to
go from here
A major new directional path may have to be taken
A major new strategy may be needed
Responding quickly to unfolding changes in the
marketplace lessons a companys chances of
Becoming trapped in a stagnant business or
Letting attractive new growth opportunities slip away
2-15

Overcoming Resistance to
a New Strategic Vision
Mobilizing support for a new vision entails
Reiterating basis for the new direction
Addressing employee concerns head-on
Calming fears
Lifting spirits
Providing updates and progress
reports as events unfold

2-16

Payoffs of a Clear Strategic Vision

Crystallizes an organizations long-term

direction
Reduces risk of rudderless decision-making
Creates a committed enterprise

where organizational members

enthusiastically pursue efforts 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

2-17

Setting Objectives
Phase 2
Purpose of setting objectives
Converts vision into specific performance targets
Creates yardsticks to track performance
Well-stated objectives are
Quantifiable
Measurable
Contain a deadline for achievement
Spell-out how much of what kind

of performance by when

2-18

Importance of Setting
Stretch Objectives
Objectives should be set at levels that

stretch an organization to
Perform at its full potential,
delivering the best possible results
Push firm to be more inventive
Exhibit more urgency to improve its business
position
Be intentional and focused in its actions
Theres no better way to avoid ho-hum results than
by setting stretch objectives and using compensation
incentives to motivate organization members to
achieve the stretch performance targets!
2-19

Types of Objectives Required

Financial Objectives

Strategic Objectives

Outcomes focused
on improving financial
performance

Outcomes focused on
improving competitive
strength and market
standing

$
2-20

Examples: Financial Objectives

Annual revenue growth of X%
X % increase in after-tax profits annual
Earnings per share growth of X% annually
Annual dividend increases of X%
Profit margins of X%
X% return on capital employed (ROCE)
Annual stock price increases that average X% over

time
Strong bond and credit ratings
Sufficient internal cash flows to fund 100% of new
capital investment
Stable earnings during periods of recession
2-21

Examples: Strategic Objectives

Winning an X% market share within 3 years
Achieving lower overall costs than rivals
Overtaking key competitors on product performance

or quality or customer service within 2 years

Deriving X% of revenues from sale of new products
introduced in past 5 years
Being the recognized industry leader in product
innovation and/or technological know-how
Having a wider product line than rivals
Consistently getting new or improved products to
market ahead of rivals
Having stronger national or global sales and
distribution capabilities than rivals
2-22

Good Strategic Performance Is the Key

to Better Financial Performance
Achieving good financial performance is not enough
Current financial results are lagging indicators reflecting
results of past decisions and actions good profitability now
does not translate into stronger capability for delivering even
better financial results later
However, setting well-chosen strategic

objectives and achieving them signals

Growing competitiveness
Growing strength in the marketplace
A company that is growing competitively stronger is

developing the capability for better financial performance

in the years ahead
Good strategic performance is thus a leading indicator of a
companys capability to deliver improved
future financial performance

Unless a company sets and achieves stretch strategic objectives

it is not developing the competitive muscle to deliver even
better financial results in the years ahead!
2-23

A Balanced Scorecard Approach

Setting Strategic and Financial Objectives
A balanced scorecard for measuring

company performance is optimal; it entails

Setting financial and strategic objectives
Placing balanced emphasis on achieving
both types of objectives
(However, if a companys financial performance is dismal or if its very
survival is in doubt because of poor financial results, then stressing the
achievement of the financial objectives and temporarily deemphasizing the strategic objectives may have merit)

Just tracking financial performance overlooks the

importance of measuring whether a company is

strengthening its competitiveness and market
position
The surest path to sustained future profitability year after
year is to relentlessly pursue strategic outcomes that
strengthen a companys business position and give it a
growing competitive advantage over rivals!
2-24

Both Short-Term and Long-Term

Objectives Are Needed
Short-term objectives
Targets to be achieved soon
Milestones or stair steps for reaching long-range
performance targets
Long-term objectives
Targets to be achieved within
3 to 5 years
Calls for actions now that will
permit reaching targeted
long-range performance later

2-25

Concept of Strategic Intent

A company exhibits strategic intent
when it relentlessly pursues an
ambitious strategic objective,
concentrating the full force of its
resources and competitive actions on
achieving that objective!

2-26

Characteristics of Strategic Intent

Indicates firms intent to making quantum

gains in competing against key rivals and to

establishing itself as a winner in the
marketplace, often against long odds
Involves establishing a grandiose
performance target out of proportion to
immediate capabilities and market position but
then devoting the firms full resources and
energies to achieving the target over time
Entails sustained, aggressive actions to take
market share away from rivals and achieve a
much stronger market position
2-27

Objectives Are Needed at All Levels

The objective-setting process is more topdown than bottom up
1. First, set organization-wide objectives
and performance targets
2. Next, set business and
product line objectives
3. Then, establish functional
and departmental objectives
4. Individual objectives are established last

2-28

Crafting a Strategy
Phase 3
Strategy-making involves astute

entrepreneurship
Actively searching for opportunities
to do new things
or
Actively searching for opportunities to do
existing things in new or better ways
Strategizing involves
Developing timely responses to happenings
in the external environment
and
Steering company activities in new directions
dictated by shifting market conditions
2-29

Crafting a Good Strategy Requires

Good Business Entrepreneurship
Developing a winning strategy involves

Diagnosing the direction and force of

the market changes underway and making
timely strategic adjustments
Spotting new or better ways
to satisfy customer needs
Figuring out how to outwit and
outmaneuver competitors
Pursuing ways to strengthen the
firms competitive capabilities
Proactively trying to out-innovate rivals

2-30

The Role of Astute Entrepreneurship in

Crafting a Companys Strategy
Masterful strategies come partly (maybe
mostly) by doing things differently from
competitors where it counts
Innovating more creatively
Being more efficient
Being more imaginative
Adapting faster
Rather than running with the herd!
Good strategy-making is therefore inseparable
from good entrepreneurshipone cannot
exist without the other!
2-31

The Hows That Define

a Firm's Strategy
How to grow the business
How to please customers
How to outcompete rivals
How to respond to changing market

conditions
How to manage each functional
piece of the business (R&D, production,
marketing, HR, finance, and so on)
How to achieve targeted levels of
performance
2-32

Who Is Involved in Strategy Making?

CEO (chief executive officer)
Has ultimate responsibility for leading
the strategy-making process
Functions as strategic visionary and
chief architect of strategy
Senior executives

Typically have influential roles in fashioning those strategy

components involving their areas of responsibility
Managers of subsidiaries, divisions, geographic
regions, plants, and other important operating units
(and, often, key employees with specialized expertise)
Some pieces of the strategy are best orchestrated by onthe-scene company personnel with detailed familiarity of
the piece of the business they are in charge of running
2-33

Why Is Strategy-Making Nearly Always

a Collaborative Process?
The job is often way too big for one person or a

small executive groupmany strategic issues are

complex or cut across multiple areas of expertise
The more a companys operations cut across
different products, industries and geographic areas,
the more that headquarters executives
must delegate strategy-making authority
to down-the-line managers in charge
of particular functions and
operating units
In todays companies every manager typically
has a strategy-making roleranging from
major to minorfor the area he or she heads!
2-34

Figure 2.2: A Companys Strategy-Making Hierarchy

2-35

Uniting the Companys

Strategy-Making Effort
A firms 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
Key approaches used to unify
all strategic initiatives into a
cohesive, company-wide action plan
Effectively communicate companys vision,
objectives, and major strategies to all personnel
Diligently review lower-level strategies for
consistency and support of higher-level
strategiesrevise as needed
2-36

What Is a Strategic Plan?

A
Companys
Strategic Plan

Its strategic vision

and business mission
Its strategic and
financial objectives

Consists of
Its strategy
2-37

Implementing and Executing Strategy

Phase 4
Operations-oriented activity aimed at

performing core business activities in a

strategy-supportive manner
Tougher and more time-consuming
than crafting strategy
Key tasks include
Improving the efficiency with which
the strategy is being executed
Showing measurable progress in achieving
both operating excellence and targeted results
2-38

What Does Implementing and Executing

the Strategy Involve?
Building a capable organization
Allocating resources to strategy-critical activities
Establishing strategy-supportive policies
Instituting best practices and programs

for continuous improvement

Installing information, communication,
and operating systems
Motivating people to pursue the target objectives
Tying rewards to achievement of results
Creating a strategy-supportive corporate culture
Exerting the leadership necessary to drive the
process forward and keep improving
2-39

Evaluating Performance and

Making Corrective Adjustments

Phase 5
Crafting and implementing a strategy is 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

All these trigger a need for corrective actions

and adjustments on an as-needed basis

2-40

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/or
redefining the mission/vision
Raising, lowering, or changing
performance objectives
Modifying the strategy
Improving strategy execution

2-41

Leading the Strategic

Management Process
Diverse leadership challenges include
Exerting take-charge leadership
Being a spark plug for change and action
Ramrodding things through
Achieving results
Leading the strategic management

process can involve various styles

and approaches

Being a hard-nosed authoritarian

Being a perceptive listener
Being a compromising decision maker
Delegating authority to people closest to the action
Being a coach
Assuming a highly visible role in guiding the process
Making brief ceremonial appearances
2-42

Things a Chief Strategy Implementer

Must Do to Be Successful
1. Stay on top of whats happening
2. Make sure company has a
3.
4.
5.
6.

good strategic plan

Put constructive pressure on
company to achieve good results
Push corrective actions to improve overall
strategic performance
Lead development of stronger core
competencies and competitive capabilities
Display ethical integrity and lead social
responsibility initiatives
2-43

Role #1: Stay on Top

of Whats Happening
Develop a broad network of formal

and informal sources of information

Talk with many people at all levels
Be an avid practitioner of MBWA
Observe situation firsthand
Monitor operating results regularly
Get feedback from customers
Watch competitive reactions of rivals

2-44

Role #2: Make Sure Company

Has a Good Strategic Plan
Two key responsibilities of CEO and top-

level executives
Effectively communicate companys vision,
objectives, and major strategy components to
down-the-line managers and key personnel
Exercise due diligence in reviewing lower-level
strategies for consistency and support of higherlevel strategies
Effective leadership minimizes

potential for conflict between

different levels in the strategy hierarchy
2-45

Role #3: Put Constructive Pressure on

Company to Achieve Good Results
Successful leaders spend time
Mobilizing organizational energy behind

Good strategy execution and

Operating excellence
Nurturing a results-oriented work climate
Promoting enabling cultural drivers

Strong sense of involvement on part of company

personnel
Emphasis on individual initiative and creativity
Respect for contributions of individuals and
groups
Pride in doing things right
2-46

Role #4: Push Corrective Actions to Improve

Strategy-Making and Strategy-Execution
Requires deciding
When adjustments are needed
What adjustments to make
Involves
Adjusting long-term direction, objectives, and
strategy on an as-needed basis in response to
unfolding events and changing circumstances
Promoting fresh initiatives to bring internal
activities and behavior into better alignment with
strategy
Making changes to pick up the pace when
results fall short of performance targets
2-47

Role #5: Promote Stronger Core

Competencies and Capabilities
Top management intervention is

required to establish better or new

Resource strengths and competencies
Competitive capabilities
Senior managers must

lead the effort because

Competencies reside in combined
efforts of different work groups and
departments, thus requiring
cross-functional collaboration
Stronger competencies and capabilities
can lead to a competitive edge over rivals
2-48

Role #6: Display Ethics Leadership and

Lead Social Responsibility Initiatives
Our ethics
code is . . .

Set an excellent example in

Displaying ethical behaviors
Demonstrating character and
personal integrity in actions and decisions
Declare unequivocal support for high ethical

standards and expect all employees to

conduct themselves in an ethical fashion
Encourage compliance and establish tough

consequences for unethical behavior

2-49

Corporate Governance:
Strategic Role of a Board of Directors
Exercise strong oversight to ensure five

tasks of strategic management are executed

to benefit
Shareholders or
Stakeholders
Make sure executive actions are not only

proper but also aligned with interests of

stakeholders
2-50

Obligations 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
Stakeholders and
Shareholders
Oversee a companys

financial accounting
and reporting practices
2-51

Key Responsibilities of Board

Members
Be well informed about a companys performance
Guide and judge CEO and other top executives
Exhibit courage to curb inappropriate or unduly

risky management actions

Confirm that CEO is doing what
board expects
Provide insight and advice to management
Be intensely involved in debating pros and cons
of key actions and decisions
Board members have a very important oversight role in
the strategy-making, strategy-executing process!
2-52