1-1 CHAPTER 2 Leadership and the Strategic Management Process McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2-2 The Strategy Making/Strategy Execution Process  Crafting and executing strategy is a collaborative team effort Involves managers from various levels of the organization Is rarely something only high-level executives engage in

2-3 Strategy-Making Role of Corporate Intrapreneurs  Encouraging lower-level managers/employees to join in on the strategy-making effort –Unleashes talents and energies of employees to develop proposals for »New products or product lines »New business ventures »New strategic initiatives  Requires that senior executives Create an organizational climate where free- thinking and new ideas are welcome

2-4 The Strategy-Making, Strategy-Executing Process

2-5 Key Elements of a Strategic Vision  Provides a panoramic view of “where we are going”  Is distinctive and specific to a particular organization Avoids use of generic language that is dull and that could apply to most any company

2-6 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

2-7 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

2-8 Example of a Strategic Vision Provide a global trading platform where practically anyone can trade practically anything.

2-9 Strategic Vision vs. Mission  A strategic vision concerns a firm’s future business path - “where we 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

2-10 Example of a 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.

2-11 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 Communicating the Strategic Vision

2-12  Crystallizes an organization’s long-term direction  Reduces risk of rudderless decision- making  Creates a committed enterprise 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 Payoffs of a Clear Strategic Vision

2-13 Setting Objectives  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

2-14  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 Scorecard

2-15 Balanced Scorecard Objectives Financial Objectives Outcomes focused on improving Financial Performance Strategic Objectives Customer  Value creation Internal Processes  Value creating processes Learning and Growth  Aligning organizational, information, and human capital with strategy

2-16 Examples of Financial Objectives   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

2-17  Customer Winning an X % market share Achieving a customer retention rate of X % Acquire X number of new customers  Internal Processes Reduce product defects to X % Introduction of X number of new products in the next three years  Learning and Growth Increase employee training to X hours/year Reduce turnover to X % per year Examples of Strategic Objectives

2-18 Short-Term vs. Long-Term Objectives  Short-term objectives Targets to be achieved soon Milestones or stair steps for reaching long-range performance  Long-term objectives Targets to be achieved within 3 to 5 years

2-19 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

2-20 Crafting a Strategy Strategy Making Hierarchy for a Single Business Company

2-21 Uniting the Company’s Strategy-Making Effort  A firm’s 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

2-22 Implementing and Executing Strategy  Operations-oriented activity aimed at performing core business activities in a strategy-supportive manner  Key tasks include Improving efficiency of internal processes Aligning, integrating, and enhancing human capital, information capital, and organizational capital

2-23  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

2-24  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?

2-25 Strategy Maps as Communication Tools

2-26 Leading the Strategy Execution Process Good strategy execution calls for 3 managerial actions Stay on top of what is happening (MBWA) Push organizational units to achieve good results Display ethical integrity and lead social responsibility initiatives

2-27 Evaluating Performance and Making Corrective Adjustments  Tasks of crafting and implementing the strategy are not a one-time exercise Customer needs and competitive conditions change New opportunities appear One or more aspects of executing the strategy may not be going well  All these trigger a need for corrective actions and adjustments

2-28 Corporate Governance: Strategic Role 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 shareholders   Oversee a company’s financial accounting and reporting practices