Strategy-Making and Executing Process

The Strategy-Making and Executing Process

• Crafting and executing a strategy are the heart and soul of managing a business enterprise.
• A company's strategy consists of five interrelated stages.

Five Interrelated Stages of Strategy

• Developing a strategic vision: Includes the company's long-term direction, mission, its purpose, and a set of values to guide the pursuit of the vision and mission.
• Setting objectives: Using objectives as yardsticks for measuring the company’s performance and progress
• Crafting a strategy: Advancing the company along the path management has charted and achieving its performance objectives
• Executing the chosen strategy: Executing the strategy efficiently and effectively
• Monitoring developments, evaluating performance, and initiating corrective adjustments: Includes adjustments in the company's vision, mission, objectives, strategy, or execution based on experience, changing conditions, new ideas, and opportunities.
• A strategic inflection point is when industry change requires management to consider changing the company's strategic vision.

Developing a Strategic Vision

• Developing a strategic vision delineates management’s aspirations for the firm and its stakeholders.
• It provides direction, answering "where we are going."
• A strategic vision sets out the compelling rationale or strategic soundness for the firm’s direction.
• It uses distinctive and specific language to set the firm apart from its rivals.
• It's a management tool that conveys what top executives want the business to look like.
• It provides managers at all organizational levels with a reference point for making strategic decisions and preparing for the company's future.
• A strategic vision is a detailed, actionable plan that outlines how an organization intends to achieve its vision.

Amazon's Vision

• Amazon's vision is to be earth's most customer-centric company.
• Amazon aims to build a place where people can find and discover anything they might want to buy online.

The Strategic Vision in Motion

• A strategic vision describes the course and direction management has charted, including the company’s future product, customer market, and technology focus.
• Communicating the vision is important because it ensures the strategic vision has value and is effectively communicated
• This communication should extend down the line to lower-level managers and employees.
• Communicating the strategic vision fosters employee commitment to the firm's chosen strategic direction.
• It motivates, informs, and inspires internal and external stakeholders.
• Communicating the strategic vision demonstrates top management support for the firm's future strategic direction and competitive efforts.
• Effectively conveying the vision is assisted when management captures the vision in a catchy slogan.

Importance of a Well-Communicated Strategic Vision

• Reduces the risk of rudderless decision-making.
• Crystallizes senior executives’ own views about the firm’s long-term direction.
• A tool to gain support of organization members to make the vision a reality.
• Provides a beacon for lower-level managers in setting departmental objectives and crafting departmental strategies that are in sync with the firm’s overall strategy.
• Helps an organization prepare for the future.
• Google's cofounders, Larry and Sergey Brin, had a vision to organize the world's information and make it universally accessible.

Examples of Company Visions

• IKEA's vision is to create a better everyday life for the many people.
• Microsoft's vision is to empower every person and every organization on the planet to achieve more.
• LinkedIn's vision is to create economic opportunity for every member of the global workforce.
• Google's vision is to organize the world’s information and make it universally accessible.

Vision Statement Examples

• Whole Foods Market's vision is to be a dynamic leader in the quality food business, setting standards of excellence for food retailers with high standards permeating all aspects. It emphasizes the vision stretches beyond being a food retailer.
• Features: Forward-looking, graphic, focused, and makes good business sense
• Shortcomings: Lengthy and not memorable.
• Keurig Dr. Pepper aims to be a leading producer and distributor of hot and cold beverages to satisfy every consumer need, anytime and anywhere.
• Nike fosters a culture of invention, creating products, services, and experiences for today's athlete while solving problems for the next generation.
• Features: easy to communicate, focused, forward-looking, and flexible.
• Shortcomings: Not distinctive, not forward-looking, vague, lacks detail, and not focused.
• RBC's strategic vision is to drive long-term growth and client satisfaction by leveraging innovative technology and personalized financial solutions.
• By 2025, RBC aims to lead in digital banking, provide superior wealth management services globally, and champion sustainable finance initiatives.
• RBC's goals include reducing its carbon footprint by 70%, enhancing financial literacy through community programs, and supporting diversity and inclusion across all levels.

Class Activity: Amazon and Whole Foods

• Amazon acquired Whole Foods Market for approximately $13.7 billion, completing the acquisition on August 28, 2017.
• Amazon expanded its physical retail presence and integrated Whole Foods' products and stores into its e-commerce platform.
• The acquisition aimed to leverage Whole Foods' reputation for high-quality, organic products to enhance Amazon's grocery offerings.

Mission vs Vision

• A strategic vision portrays a firm's aspirations for its future, indicating "where we are going and the shape of our business."
• A strategic vision is aspirational.
• A mission statement describes the scope and purpose of its present business and purpose, stating "who we are, what we do, and why we are here."
• It uses specific language to give the firm its own unique identity.
• Describes the firm’s current business and purpose.
• It focuses on describing the firm’s business, not on "making a profit," as earning a profit is an objective, not a mission.

Ideal Mission Statement

• Identifies the company’s product or services.
• Specifies the buyer needs it seeks to satisfy.
• Identifies the customer groups or markets it is endeavoring to serve.
• Gives the company its own identity that sets the firm apart from its rivals.
• A firm’s core values encompass the beliefs, traits, and behavioral norms that its personnel are expected to demonstrate while conducting business and striving towards the company's strategic vision and mission.

Class Activity: TOMS Shoes

• With every product you purchase, TOMS will help a person in need (One for One).

Setting Objectives

• Sets the vision and mission into specific, measurable, challenging, yet achievable, deadline performance targets.
• Focuses efforts and aligns actions throughout the organization.
• Serves as yardsticks for tracking a firm’s performance and progress.
• Provides motivation and inspires employees to greater levels of effort.
• Well-stated objectives are specific, quantifiable or measurable and contain a deadline for achievement.

Short and Long Term Objectives

• Short-term objectives focus attention on quarterly and annual performance improvements to satisfy near-term shareholder expectations.
• Long-term objectives force consideration of what to do now to achieve optimal long-term performance.
• Long-term objectives help to pose a barrier to overemphasizing achieving just short-term results and postponing actions needed to achieve long-term performance targets.
• When trade-offs must be made between achieving long-term objectives and achieving short-term objectives, long-term objectives should take precedence unless one or more short-term performance targets has unique importance.

Financial Objectives

• Financial objectives relate to the financial performance targets management has established for the organization to achieve.
• Examples of the financial objectives include:
  • An x percent increase in annual revenues.
  • Annual increases in after-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—in the form of an upward-trending stock price.

Strategic Objectives

• Strategic objectives relate to target outcomes that indicate a company is strengthening its market standing, competitive vitality, and future business prospects.
• Examples of common strategic objectives include:
  • 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 better-known or more powerful brand name than rivals.

Balanced Approach to Objective Setting

• Strives to place a balanced emphasis on achieving both financial and strategic objectives by tracking measures of both financial performance and the competitiveness of its market position.
• The four dimensions of a balanced scorecard:
  • Financial objectives.
  • Customer objectives relating to customers and the market.
  • Internal process objectives relating to improving productivity and quality.
  • Organizational objectives concerning human capital, culture, infrastructure, and innovation.

Crafting a Strategy

• Strategy-making addresses a series of strategic "hows" and requires choosing among strategic alternatives.
• It promotes acting differently from competitors and is a collaborative team effort.
• Strategy formulation should involve managers at all organizational levels and relies on innovative thinking.
• Crafting strategy includes managers in various positions and organizational levels.

Firm's Strategy-Making Hierarchy

• Corporate strategy focuses on how to gain synergies from managing a portfolio of businesses together rather than as separate businesses
• Business strategy focuses on how to strengthen market position and gain competitive advantage, build competitive capabilities of single businesses, and monitor and align lower-level strategies.

Strategy Making Hierarchy

• Corporate strategy is the overall game plan for managing multiple businesses within a company or the broad goals and directions that guide the company.
• Business strategy focuses on building a competitive advantage and strengthening the market position of a single business unit.
• Functional-area strategies focus on specific functions or processes within a business, like marketing, production, or R&D, ensuring that each function effectively supports the broader goals.
• Operating strategies are narrower strategies that guide the day-to-day actions of key units within the company, such as departments or locations, ensuring that smaller teams are working effectively.

Executing the Strategy

• Over seeing the implementation of the strategy is the most challenging and time-intensive aspect of the strategy management process.
• Converting strategic plans into actions requires:
  • Directing organizational action.
  • Motivating people.
  • Building and strengthening the firm’s competencies and competitive capabilities.
  • Creating and nurturing a strategy-supportive work climate.
  • Meeting or beating performance targets.

Managing Strategy Execution Process

• Creating a strategy-supporting structure.
• Staffing the firm with the needed skills and expertise.
• Developing and strengthening strategy-supporting resources and capabilities.
• Allocating ample resources to the activities critical to strategic success.
• Ensuring that policies and procedures facilitate effective strategy execution.
• Organizing work effort to achieve best practices.
• Installing information and operating systems that enable company personnel to perform essential activities.
• Motivating people by tying rewards and incentives to the achievement of performance objectives.
• Creating a company culture conducive to successful strategy execution.
• Exerting the internal leadership needed to propel implementation forward.

Evaluating Performance and Initiating Corrective Adjustments

• Judging if the enterprise is passing the three tests of a winning strategy: good fit, competitive advantage, and strong performance.
• Judging whether to continue or change the firm’s vision and mission, objectives, strategy, and strategy execution methods.
• Applying lessons based on organizational learning.

Role of Board of Directors in Corporate Governance

• Obligations of the board of directors:
  • Oversee the firm’s financial accounting and reporting practices compliance with GAAP principles.
  • Critically appraise the firm’s direction, strategy, and business approaches.
  • Evaluate the caliber of senior executives’ strategic leadership skills.
  • Institute a compensation plan that rewards top executives for actions and results that serve stakeholder interests—especially shareholders.

Effective Corporate Governance

• A strong, independent board of directors:
  • Is well informed about the firm’s performance.
  • Guides and judges the CEO and other executives.
  • Can curb management actions the board believes are inappropriate or unduly risky.
  • Can certify to shareholders that the CEO is doing what the board expects.
  • Provides insight and advice to top management.
  • Is intensely involved in debating the pros and cons of key strategic decisions and actions.

Corporate Governance Failures at Volkswagen

• Issues to consider include why the VW advisory board refused to accept responsibility for the ongoing management scandals, how a government-mandated two-tier governance structure promoted misconduct, and what changes are needed to restore stakeholder confidence.