1. Performance, Governance, Ethics and Implementation
Chapter
Performance, Governance, Ethics and Implementation

2. Major Causes of Poor Performance
Poor Management
High Cost Structure
Inadequate Differentiation
Overexpansion
Structural Shifts in Demand
Organizational Inertia

3. Stakeholder View of Strategy

4. Board of Directors
Governance mechanism of owners to oversee, evaluate and ratify the actions of management
Rises out of agency problem – separation of ownership and management
setting corporate strategy, direction, mission, values
hire/fire CEO/TMT
control, monitor, supervise TMT
review/approve resource allocations
protect shareholders interests

5. Board Involvement Mostly little or no involvement
Boards tend to be dominated by management
Keys to board power
CEO/Chairman duality
insiders vs. outsiders
outsiders often weak, unknowledgeable
effective board process

6. Trends in Governance Legal action against boards
Institutional investors becoming increasingly powerful
Special interests groups and social institutional owners
Internationalization of board composition
Presiding and Lead Directors – 1/3 of S&P 500 – Presiding run meetings sans CEOs, Leads are actively involved

7. Executive Compensation
Aligning the interests of shareholders and managers by rewarding them for pursuing their interests
Peter Drucker - “There are only bad and worse executive compensation packages. Most encourage the top management to milk the company”
Warren Buffett - “...mediocre CEOs are getting incredibly overpaid”
Top execs make over 200 times the average worker, up from 44 only 30 years ago.

8. Executive Compensation
Bonuses, incentives and stock ownership
difficulty in evaluating decision making
financial objectives used
lengthy feedback period
beyond managerial control
managerial manipulation
Stock Options
riding the stock market wave
strike period is too long
growth, not cost-cutting, should be rewarded
require holding the stock after exercise
expense options against profits

9. Corporate Social Performance
Friedman – “The Social Responsibility of Business Is to Increase Its Profits“
Corporations as Citizens
Corporations dependent upon its stakeholders
Corporations that are attentive to their stakeholders can gain competitive advantages
Corporations, which control resources beyond those held by individuals, have an even greater responsibility to be “good citizens”

10. Implementation and Control
Weak Executions? We can all think of a thousand of examples
Burger King
Blimpies
Strong Executions? We can think of far fewer examples
Perdue
L.L Bean vs. American Express

11. Implementing Strategy

12. Strategic Control Systems
Firm’s assumptions, premises, goals and strategies are constantly monitored, tested and evaluated – internally and externally
Implement
Strategies
Formulate
Goals
Strategic
Control

13. Strategic Control Systems
Strategic Control is an on-going process
Time lags shortened
Changes in environments detected sooner
Speed and flexibility increased

14. 3 Strategic Control Levers
Personal Control – face to face
Output Control –forecasts and outcomes
Behavioral Control – standardize the means for accomplishing goals - rules and procedures

15. Rewards
Get employees focused on high-priority tasks, motivating high levels of individual and collective performance
You get what you measure and reward
Reinforce organizational goals and values

16. Designing Effective Rewards
Performance payoff needs to be significant – at least 10%
Everyone should be eligible
Has to be fair
Control over outcomes
Short cycle
Non monetary rewards
Make sure the slackers are not rewarded

17. Culture
Shared values (what is important) and beliefs that shape a company’s people, structure and control systems to produce norms (how we do things)
Determines acceptable/expect behaviors
Federal Express vs. UPS
Home Depot
Dupont – accidents reported to CEO within 24 hours. 17 times better than industry, 68 better than manufacturing
Culture can have positive, and potentially negative, affects
Apple and Logitech

18. Sustaining an Effective Culture
Does not happen overnight – cultivated instead of built
Storytelling HP
3M sandpaper
Pepsi’s 99.5% service level
Pep Rallies - Burger Contests
Culture Committees – Institutionalize culture
“Walking the walk”

19. 8 Steps in Strategy Implementation
Build a capable organization to carry out strategy
Develop budgets and steer resources appropriately to critical activities
Establish strategy-supportive policies and procedures
Institutionalize best practices and continuous improvement

20. 8 Steps in Strategy Implementation
Install information/communication system to help employees compete
Tie rewards/incentive to execution and achievement of strategic objectives
Create a strategy supportive culture
Display strategic leadership and continually push for its effective implementation