Chapter 2 Roadmap - The Business Strategy Game

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides What a Firm’s Mission Is Not About Characteristics of a Mission Statement Has a here and now theme. Provides an overview of the firm’s present business make make--up and purpose. Ideally, a firm’s mission statement identifies: A firm’s mission is not to make a profit! Making a profit is the intent of every commercial enterprise. The firm’s present products/services The types of buyers who purchase the firm’s products The buyer needs being satisfied It is a firm’s answer to “make a profit doing what and for whom whom?” ?” that reveals the substance of its true mission and what its business is all about. But some mission statements are less informative Ideally, a mission statement uses language specific to the firm so as to set it apart from other enterprises and give the firm its own identity. Copyright 2012 by Glo-Bus Software, Inc. McDonald’s, Google, and Bank of America all aspire to McDonald’s, make a profit, but clearly their businesses are vastly different (and thus their missions are different). different). Profit is more correctly an objective and a result of what a company does. 2–22 2–23 Copyright 2012 by Glo-Bus Software, Inc. More Mission Statement Examples Example of a Mission Statement Home Depot “Helping people improve the places where they live and work.” Charles Schwab 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. Copyright 2012 by Glo-Bus Software, Inc. “To provide customers with the most useful and ethical financial services in the world.” FedEx “Satisfying worldwide demand for fast, timetime-definite, reliable distribution.” 2–24 A Firm’s Core Values Guide the Pursuit of Its Strategic Vision and Mission Core Concepts A firm’s values or core values are the beliefs beliefs,, traits, and behavioral norms that the firm’s personnel are expected to display in conducting the firm’s business and pursuing its strategic vision and mission. mission. At many firms, personnel are expected to pursue the vision and mission and to conduct the firm’s business in accordance with its selfself-established values Values relate to such traits and behaviors as fair and equitable treatment, honor and integrity, ethical standards, innovativeness, teamwork, a passion for toptop-notch quality or superior customer service, and being a good community citizen Such values, if deeplydeeply-held, become core values and part of a firm’s DNA At some firms, however, values are only window dressing and do not impact their vision and mission or the behavior of their personnel. Copyright 2012 by Glo-Bus Software, Inc. Copyright 2012 GLO-BUS Software, Inc. 2–25 Copyright 2012 by Glo-Bus Software, Inc. 2–26 In enterprises with deeplydeeply-entrenched values, senior managers are careful to craft visions, missions, strategies, and operating practices that match these values, and they hold company personnel responsible for displaying them. them. Copyright 2012 by GloGlo-Bus Software, Inc. 2–27 Page 4

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides Example: Toyota’s Core Values Example:: Yahoo’s Core Values Example Excellence– Excellence –committed to winning with integrity. Respect for and development of employees Innovation– Innovation –thrive on creativity and ingenuity. Teamwork Getting quality right the first time Learning Continuous improvement Customer Fixation Fixation– –respect our customers above all else. Teamwork– Teamwork –treat one another with respect and communicate openly. Community– Community –share an infectious sense of mission to make an impact on society. Embracing change in pursuit of lowlow-cost, cost, top top--notch manufacturing excellence in motor vehicles What Yahoo Doesn’t Value Value– – singles out 54 things it does not value: losing, bureaucracy, “good enough,” arrogance, status quo, formality, quick fixes Fun– Fun–believe humor is essential to success. 2–28 Copyright 2012 by Glo-Bus Software, Inc. Linking the Strategic Vision and Mission to the Firm’s Core Values Task 2: Setting Objectives At a firm where there’s genuine commitment to the stated values, managers connect core values to the pursuit of its strategic vision and mission by: Crafting a vision, a mission, a strategy, and a set of operating practices that matches established values. Repeatedly emphasizing how the values values--based behavioral norms contribute to the firm’s business success. Objectives represent a managerial commitment to achieving particular results and outcomes. To be wellwell-worded and properlyproperly-phrased, an objective must: Be how much of what kind of performance by when Copyright 2012 by Glo-Bus Software, Inc. 2–31 The Imperative of Setting Challenging or Stretch Objectives Core Concept Objectives are an organization’s performance targets— targets —the results and outcomes management wants to achieve. They function as yardsticks for measuring how well the organization is doing. To promote outstanding performance, managers should deliberately set performance targets high enough to challenge the firm to perform at its full potential and deliver the best possible results. There’s no better way to avoid hoho-hum results than by setting stretch objectives and using compensation incentives to motivate organization members to perform at their full potential. Stretch objectives Push the whole enterprise to be more inventive Exhibit Be Copyright 2012 GLO-BUS Software, Inc. a deadline for achievement SpellSpell-out 2–30 Copyright 2012 by GloGlo-Bus Software, Inc. quantifiable or measurable Contain Combining their strategic vision, mission, and values into a single statement circulated to all personnel (and often posting it on the firm’s Web site). Copyright 2012 by Glo-Bus Software, Inc. 2–29 Copyright 2012 by Glo-Bus Software, Inc. 2–32 more urgency to improve its business position intentional and focused in its actions Copyright 2012 by Glo-Bus Software, Inc. 2–33 Page 5

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides How Not to Handle the Task of Setting Objectives Setting objectives with targets that have no adverse consequences for underperformance Approaches to be avoided Setting targets that, if achieved, represent “average” performance Every Firm Needs Two Types of Objectives Financial Objectives Strategic Objectives Outcomes focused on improving the firm’s financial performance Outcomes focused on strengthening the firm’s market standing, competitive vitality, and future business prospects Setting objective with unspecific performance targets (e.g., “become more efficient” or “reduce costs”) 2–34 Copyright 2012 by Glo-Bus Software, Inc. Copyright 2012 by Glo-Bus Software, Inc. Examples of Financial Objectives Core Concept An x percent increase in annual revenues Annual increases in afterafter-tax profits of x percent Annual increases in earnings per share of x percent Annual dividend increases of x percent Profit margins of x percent An x percent return on capital employed (ROCE) or return on shareholders’ equity investment (ROE) Increased shareholder value— value—in the form of an upward trending stock price Bond and credit ratings of x Internal cash flows of x dollars to fund new capital investment Financial objectives relate to the financial performance targets management has established for the firm to achieve. Strategic objectives relate to targeted outcomes that indicate the firm is strengthening its market standing, competitive vitality, and future business prospects. Copyright 2012 by GloGlo-Bus Software, Inc. 2–36 Copyright 2012 by Glo-Bus Software, Inc. Winning an x percent market share Achieving lower overall costs than rivals Overtaking key competitors on product performance or quality or customer service Deriving x percent of revenues from the sale of new products introduced within the past five years Having broader or deeper technological capabilities than rivals Having a wider product line than rivals Having a betterbetter-known or more powerful brand name than rivals Having stronger national or global sales and distribution capabilities than rivals Consistently getting new or improved products to market ahead of rivals Copyright 2012 GLO-BUS Software, Inc. 2–37 Good Strategic Performance Fosters Better Financial Performance Examples of Strategic Objectives Copyright 2012 by Glo-Bus Software, Inc. 2–35 Setting and achieving financial objectives is necessary but not sufficient Current results are “lagging indicators,” reflecting past decisions and actions— actions—good profitability now does not translate into stronger capability for delivering even better financial results later But setting and achieving strategic objectives signals growing competitiveness visvis-à-vis rivals and a stronger market position Such outcomes are reliable “leading indicators” of a firm’s capability to boost its future financial performance A firm with more competitive muscle and greater market strength has improved capability to deliver better financial results in the years ahead Setting and achieving wellwell-chosen strategic objectives is thus of prime importance!!! 2–38 Copyright 2012 by Glo-Bus Software, Inc. 2–39 Page 6

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides A Balanced Scorecard Approach– Approach– Pursuing Strategic and Financial Objectives Core Concept A balanced scorecard is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, achievement, and giving management a more complete and balanced view of how well a firm is performing. A balanced scorecard for measuring a firm’s performance is optimal; it entails: Setting financial and strategic objectives Placing balanced emphasis on achieving both types of objectives A firm’s surest path to sustained future profitability is the relentless pursuit of strategic outcomes that strengthen its market position and produce a growing competitive advantage over rivals! rivals! However,, if a firm is in distress because of poor financial However results, then stressing achievement of financial objectives and temporarily dede-emphasizing strategic objectives may have merit. merit. 2–40 Copyright 2012 by Glo-Bus Software, Inc. Both Short Short--Term and Long Long--Term Objectives Are Needed Objectives Are Needed at All Organizational Levels Short--Term Objectives Short Objective setting should not stop with top management’s establishment of companycompany-wide performance targets. Are targets to be achieved soon Serve as milestones or stair steps for reaching longlongrange performance targets Company objectives need to be broken down into performance targets for each separate business, product line, functional department, and individual work unit. LongLong-Term Objectives Are targets to be achieved within 3 to 5 years managers to consider what to do now to put the firm in position to perform better later. Require Each organizational unit needs performance targets that support the achievement of company company--wide strategic and financial objectives. 2–42 Copyright 2012 by Glo-Bus Software, Inc. 2–41 Copyright 2012 by GloGlo-Bus Software, Inc. Copyright 2012 by Glo-Bus Software, Inc. 2–43 Core Concept Why Does It Matter If a Firm Exhibits Strategic Intent? A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective,, concentrating the full force of its objective resources and competitive actions on achieving that objective. A firm with an unshakable— unshakable—often obsessive obsessive— —commitment to achieving its strategic intent typically: Goes all out to marshal resources and capabilities to close in on its strategic target. Crafts potent offensive strategies to throw rivals offoff-balance, put them on the defensive, and force them into a game of catch catch--up. Tries to alter the market contest and tilt the rules for competing in its favor. Rallies its personnel in efforts to make its strategic intent a reality. Firms with strategic intent are thus a force to be reckoned with and often are more formidable competitors than rivals having modest strategic objectives and market ambitions. Copyright 2012 by GloGlo-Bus Software, Inc. Copyright 2012 GLO-BUS Software, Inc. 2–44 Copyright 2012 by Glo-Bus Software, Inc. 2–45 Page 7

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides Questions for Simulation Company Co Co--Managers Task 3: Crafting a Strategy Crafting a strategy entails stitching together management’s answers to a series of “hows”: Has your company’s management team considered the merits of crafting a strategic vision for your company? Has your company established both longlong-run and short short-run stretch objectives? How to attract and please customers How to compete against rivals How to position the company in the marketplace and capitalize on attractive opportunities to grow the business How best to respond to changing economic and market conditions How to manage each functional piece of the business How to achieve the company’s performance targets. Do you deliberately strive to craft a strategy and make decision entries calculated to achieve these stretch performance targets? Or do you just enter decisions until you arrive at projected outcomes that “look pretty good”— good”—without any real managerial commitment to achieving stretch performance targets? Has your company’s management team established a strategic intent and begun taking actions to achieve it? If not not,, is there a good reason why you haven’t? Copyright 2012 by Glo-Bus Software, Inc. And this stitching together must result in a coherent and coordinated game plan for running the firm successfully. 2–46 Strategy--Making and Good Entrepreneurship Strategy Good strategystrategy-making always entails astute entrepreneurship: Core Concept In most firms, firms, crafting and executing strategy is a collaborative team effort where every manager has a role for the area he or she heads heads. Proactively searching for opportunities to do new things or to do existing things in new or better ways. Diagnosing the direction and force of shifting market conditions and other early warnings of future change. It is flawed thinking to view crafting and executing strategy as something only highhigh-level managers do. Masterful strategies often involve doing things differently from competitors where it counts counts— — being more innovative, more efficient, efficient, more imaginative, and adapting faster faster— —rather than running with the herd herd. Copyright 2012 by Glo-Bus Software, Inc. 2–47 Copyright 2012 by Glo-Bus Software, Inc. 2–48 Crafting Strategy Involves Managers at All Organizational Levels Copyright 2012 by GloGlo-Bus Software, Inc. 2–49 Figure 2.2 A Company’s Strategy-Making Hierarchy Chief Executive Officer (CEO) Has ultimate responsibility for leading the strategystrategymaking process. Is accountable for results that the strategy produces. Other Senior Executives Have strategy-making roles and help fashion the strategystrategy elements for their areas of responsibility. Managers of subsidiaries, divisions, geographic regions, plants, and other operating units Copyright 2012 by Glo-Bus Software, Inc. Copyright 2012 GLO-BUS Software, Inc. 2–50 Copyright 2012 by Glo-Bus Software, Inc. 2–51 Page 8

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides Corporate Strategy Business Strategy Concerns actions and approaches to produce performance in a specific line of business. Is the responsibility of the manager in charge of the business and involves: Concerns the overall companywide game plan for managing a set of businesses. Is orchestrated by the CEO and other senior headquarters’ executives. Crafting responses to changing market circumstances actions to build competitive advantage and to develop strong competitive capabilities. Seeing that lowerlower-level strategies are well well--matched to the overall business strategy Getting businessbusiness-level strategic moves approved at the corporatecorporate-level Involves crafting strategic initiatives to: Diversify Initiating into different industries Boost the combined performance of the firm’s different businesses Capture cross-business synergies and turn them crossinto competitive advantage 2–52 Copyright 2012 by Glo-Bus Software, Inc. Functional--Area Strategies Functional Operating Strategies Concern actions, approaches, and practices to be employed in managing particular functions or business processes or key activities: Concern the narrow strategic initiatives and approaches for managing key operating units and strategicallystrategically-relevant operating activities Functional strategies flesh out the details of a firm’s business strategy. Add Lead further detail and completeness to functionalfunctional-area and business strategies Are responsibility for functional strategies is assigned to the head managers of functional areas. crafted by frontline managers Are subject to review and approval by higherhigher-ranking managers The general manager has final approval over the various functional strategies and may exert strong influence over the content of the functional strategies. Copyright 2012 by Glo-Bus Software, Inc. 2–53 Copyright 2012 by Glo-Bus Software, Inc. 2–54 2–55 Copyright 2012 by Glo-Bus Software, Inc. Uniting the StrategyStrategy-Making Effort What Is a Strategic Plan? A Unified Overall Strategy Elements of a Firm’s Strategic Plan Entails creating a cohesive collection of mutually reinforcing initiatives that fit together like jigsaw puzzle pieces Conflicting or inconsistent strategic elements impair a firm’s performance. Its strategic vision, business mission, and core values Requires that lowerlower-level strategies be scrutinized for conflicting elements that require modification to fit with higher--level strategies. higher Its strategic and financial objectives Should be adapted to accommodate more appealing lower lower--level strategy ideas and initiatives as they arise. Copyright 2012 by Glo-Bus Software, Inc. Copyright 2012 GLO-BUS Software, Inc. Its chosen strategy 2–56 Copyright 2012 by Glo-Bus Software, Inc. 2–57 Page 9

STRATEGY Chapter 2 Core Concepts and Analytical Approaches PowerPoint Slides Task 4: Implementing and Executing the Strategy What Does Managing the Strategy Execution Process Involve? Implementation and execution of strategy Staffing the firm with needed skills and expertise to build and strengthen strategy--supportive competencies and competitive capabilities. strategy Is an operationsoperations-oriented, makemake-things things--happen task aimed at performing core business activities in a strategystrategy-supportive manner. Allocating ample resources to activities critical to strategic success. Ensuring policies and procedures facilitate rather than impede execution. Is the most demanding and timetime-consuming part of the strategy management process. Using best practices to perform core business activities and push for continuous improvement. Converting plans into actions tests a manager’s ability to: Installing information and operating systems that enable personnel to better carry out their strategic roles. Direct organizational change to build and strengthen company competencies and competitive capabilities Create and nurture a strategystrategy-supportive work climate that motivates people to meet or beat performance targets. To put the strategy in place and execute it proficiently on many organizational fronts. Tying rewards and incentives directly to the achievement of performance objectives and good strategy execution. Creating a culture and work climate conducive to strategy execution. Exerting the internal leadership needed to drive implementation and keep improving on how the strategy is being executed. 2–58 Copyright 2012 by Glo-Bus Software, Inc. Task 5: 5: Evaluating Performance and Initiating Corrective Adjustments Successful Strategy Execution Strategy execution Is a job for the entire management team and requires diligent pursuit of operating excellence. Hinges upon the skills and cooperation of operating managers who can push needed changes in their units and consistently deliver good results. This task involves: involves: Deciding whether or not to continue or change the firm’s current vision, objectives, strategy,

44. Executing the chosen strategy efficiently and Executing the chosen strategy efficiently and effectively. 55. Monitoring strategic developments, evaluating Monitoring strategic developments, evaluating execution, and making necessary adjustments. 2-7 2-8 Figure 2.1 The Strategy-Making, Strategy-Executing Process