Lesson 4: Strategic Vision PDF

CORE CONCEPT: Strategic Vision A strategic vision describes “where we are going”—the course and direction management has charted, and the company’s future product–customer–market–technology focus. An effectively communicated vision is a valuable management tool for enlisting the commitment of compa...

CORE CONCEPT: Strategic Vision A strategic vision describes “where we are going”—the course and direction management has charted, and the company’s future product–customer–market–technology focus. An effectively communicated vision is a valuable management tool for enlisting the commitment of company personnel to engage in actions that move the company in the intended direction. 1 Table 2.2 Characteristics of Effectively Worded Vision Statements Type Description Graphic Paints a picture of the kind of company that management is trying to create and the market position(s) the company is striving to stake out. Directional Is forward looking; describes the strategic course that management has charted, and the kinds of product–market–customer–technology changes that will help the company prepare for the future. Focused Is specific enough to provide managers with guidance in making decisions and allocating resources. Flexible Is not so focused that it makes it difficult for management to adjust to changing circumstances in markets, customer preferences, or technology. Feasible Is within the realm of what the company can reasonably expect to achieve. Desirable Indicates why the directional path makes good business sense. Easy to Is explainable in 5–10 minutes and, ideally, can be reduced to a simple, memorable communicate “slogan” (like Henry Ford’s famous vision of “a car in every garage”). Source: Based partly on John P. Kotter, Leading Change (Harvard Business School Press, 1996). 2 Table 2.3 Common Shortcomings in Company Vision Statements Shortcoming Description Vague or Short on specifics about where the company is headed or what the company is incomplete doing to prepare for the future. Not forward Doesn’t indicate whether or how management intends to alter the company’s looking current product–market–customer–technology focus. Too broad So all-inclusive that the company could head in most any direction, pursue most any opportunity, or enter most any business. Bland or Lacks the power to motivate company personnel or inspire shareholder uninspiring confidence about the company’s direction. Not distinctive Provides no unique firm identity; could apply to firms in any of several industries (including rivals operating in the same market arena). Too reliant on Doesn’t say anything specific about the company’s strategic course beyond the superlatives pursuit of such distinctions as being a recognized leader, a global or worldwide leader, or the first choice of customers. Source: Based on information in Hugh Davidson, The Committed Enterprise (Oxford: Butterworth Heinemann, 2002), chap. 2; and Michel Robert, Strategy Pure and Simple II (New York: McGraw Hill, 1998), chaps. 2, 3, and 6. 3  Concepts and Connections 2.1 Examples of Strategic Visions—How Well Do They Measure Up? Effective Company Vision Statement Shortcomings Elements Whole Whole Foods Market is a dynamic leader in the quality food business. We are a Forward-looking Long mission-driven company that aims to set the standards of excellence for food retailers. Graphic Not memorable Foods We are building a business in which high standards permeate all aspects of our Focused company. Quality is a state of mind at Whole Foods Market. Desirable Our motto—Whole Foods, Whole People, Whole Planet—emphasizes that our vision reaches far beyond just being a food retailer. Our success in fulfilling our vision is measured by customer satisfaction, team member happiness and excellence, return on capital investment, improvement in the state of the environment and local and larger community support. Our ability to instill a clear sense of interdependence among our various stakeholders (the people who are interested and benefit from the success of our company) is contingent upon our efforts to communicate more often, more openly, and more compassionately. Better communication equals better understanding and more trust. Keurig Dr. A leading producer and distributor of hot and cold beverages to satisfy every consumer Focused Not graphic need, anytime and anywhere. Desirable Not distinctive Pepper Easy to communicate Caterpillar Our vision is a world in which all people’s basic needs—such as shelter, clean water, Graphic Too broad sanitation, food and reliable power—are fulfilled in an environmentally sustainable Desirable Too reliant on way and a company that improves the quality of the environment and the communities superlatives where we live and work. Not distinctive Nike NIKE, Inc., fosters a culture of invention. We create products, services, and experiences Forward-looking Vague for today’s athlete* while solving problems for the next generation. Flexible Not focused Too reliant on superlatives *If you have a body, you are an athlete. Source: Company documents and websites. 4 The Importance of Communicating the Strategic Vision An engaging, inspirational vision: Provides direction and energizes employees. Makes a convincing case for “where we are going and why.” Evokes positive support and excitement. Enlists the commitment of company personnel to engage in actions that move the company in its intended direction. 5  Expressing the Essence of the Vision in a Slogan Disney To "create happiness by providing the finest in entertainment for people of all ages, everywhere." The Mayo Clinic The best care to every patient every day. Greenpeace To halt environmental abuse and promote environmental solutions. 6 Why a Sound, Well-Communicated Strategic Vision Matters It crystallizes senior executives’ own views about the firm’s long-term direction. It reduces the risk of rudderless decision making by management at all levels. It is a tool for winning the support of employees to help make the vision a reality. It provides a beacon for lower-level managers in forming departmental missions. It helps an organization prepare for the future. 7  Developing a Company Mission Statement Ideally, a company mission statement is sufficiently descriptive to: Identify the company’s products or services. Specify the buyer needs it seeks to satisfy. Specify the customer groups or markets it is endeavoring to serve. Specify its approach to pleasing customers. Give the company its own identity. 8  Strategic Vision Versus Mission Statement A firm’s strategic vision A firm’s mission statement portrays its intended describes its present future business scope business and purpose (where are we going). (who we are, what we do, Markets to be pursued. and why we are here). Future product, market, Current product and service customer, and technology offerings. focus. Customer needs being served. Company identity. 9  Strategic Vision Versus Mission Statement A firm’s strategic vision portrays its intended future business scope (where are we going). Markets to be pursued. Future product, market, customer, and technology focus. 10 Strategic Vision Versus Mission Statement A firm’s mission statement describes its present business and purpose (who we are, what we do, and why we are here). Current product and service offerings. Customer needs being served. Company identity. 11  CORE CONCEPT: Mission Statement A well-conceived mission statement conveys a company’s purpose in language specific enough to give the company its own identity. 12  Example of a Mission Statement The mission of St. Jude Children’s Research Hospital: “To advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion, or a family’s ability to pay.” 13  Strategic Mission, Vision, and Profit Occasionally, companies state that their mission is to simply earn a profit. Profit is more correctly an objective and a result of what a firm does. Profit is the obvious intent of every commercial enterprise. Profit is not “who we are and what we do.” 14  Linking the Strategic Vision and Mission with Company Values Values Fair treatment Provide guidance for desired Honor and integrity actions and behaviors of Ethical behavior employees as they conduct Innovativeness the company’s business. Teamwork At values-driven companies, A passion for excellence executives “walk the talk” and company personnel are Social responsibility held accountable for Community citizenship displaying the stated values. 15  CORE CONCEPT: Values A company’s values are the beliefs, traits, and behavioral norms that its personnel are expected to display in conducting the company’s business and pursuing its strategic vision and mission. 16  Stage 2: Setting Objectives Managerial purpose in setting objectives: To convert the strategic vision into an organizational focus to achieve specific strategic performance targets. To create yardsticks to track progress and measure performance. To motivate employees to expend greater effort and perform at a high level. Managerially valuable objectives: Are well-stated (clearly worded). Are quantifiable (measurable). Are challenging, yet achievable such that they stretch the organization to perform at its full potential. Contain a specific deadline for achievement. 17  The Imperative of Setting Stretch Objectives To promote outstanding performance, managers must set its performance targets high enough to stretch an organization to perform at its full potential. A company exhibits strategic intent when it relentlessly pursues an ambitious strategic objective. 18  CORE CONCEPT: Objectives, Stretch Objectives, and Strategic Intent Objectives are an organization’s performance targets— the results management wants to achieve. Stretch objectives set performance targets high enough to stretch an organization to perform at its full potential and deliver the best possible results. Strategic intent is embodied in the organization’s relentless pursuit of an ambitious strategic objective, concentrating the full force of its resources and competitive actions on achieving that objective. 19  Stage 2: Setting Financial Objectives What Kinds of Financial Objectives to Set: Financial objectives: Communicate management’s targets for financial performance. Are lagging indicators reflecting results of past decisions and organizational activities. Relate to revenue growth, profitability, and return on investment. 20  Stage 2: Setting Strategic Objectives What Kinds of Strategic Objectives to Set: Strategic objectives: Are related to a firm’s marketing standing among market competitors and its competitive vitality. Are leading indicators of a firm’s future financial performance and business prospects. If achieved, indicate that a firm’s future financial performance will be better than its current or past performance. 21  CORE CONCEPT: Financial Objectives and Strategic Objectives Objectives are an organization’s performance targets— the results management wants to achieve. Financial objectives relate to the internal financial performance targets management has established for the organization to achieve. Strategic objectives relate to external target outcomes that indicate a company is strengthening its market standing, competitive vitality, and future business prospects. 22  CORE CONCEPT: The Balanced Scorecard The balanced scorecard is a widely used method for combining the use of both strategic and financial objectives, tracking their achievement, and giving management a more complete and balanced view of how well an organization is performing. 23  Table 2.4 The Balanced-Scorecard Approach to Performance Measurement Financial Objectives Strategic Objectives An x percent increase in annual Win an x percent market share. revenues. Achieve customer satisfaction rates of x percent. Annual increases in earnings Achieve a customer retention rate of x percent. per share of x percent. Acquire x number of new customers. An x percent return on capital Introduce x number of new products in the next employed (ROCE) or three years. shareholder investment (ROE). Reduce product development times to x months. Bond and credit ratings of x. Increase the percentage of sales coming from Internal cash flows of x to fund new products to x percent. new capital investment. Improve information systems capabilities to give managers defect information in x minutes. Improve teamwork by increasing the number of projects involving more than one business unit to x. 24  Short-Term and Long-Term Objectives Short-Term Objectives Long-Term Objectives Are targets to be Are targets to be achieved achieved soon. within three to five years. Represent milestones or Stand as a barrier to an stair steps for reaching undue focus on short-term long-range performance. results by nearsighted management 25  The Need for Objectives at All Organizational Levels Objectives are needed at all levels. To set business-level objectives. To set and establish functional-area objectives. To set operating-level objectives. Long-term objectives take precedence over short-term objectives. 26  Stage 3: Crafting a Strategy Crafting a strategy means asking: 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 firm’s performance targets? 27  Strategy Formulation Involves Managers at All Organizational Levels In most firms, crafting strategy is a collaborative team effort that includes managers in various positions and at various organizational levels. Crafting strategy is rarely something only high-level executives do. A firm’s overall strategy is a collection of strategic initiatives and actions devised by managers up and down the whole organizational hierarchy. Strategy makers must make coordinated choices about the complete strategy landscape. Long-term competitive advantage requires consideration of the external environment and internal situation, the business model, competitive positioning, key implementation approaches, and resource development and deployment. 28  A Company’s Strategy-Making Hierarchy A firm’s strategy is a collection of initiatives undertaken by managers at all levels in the organizational hierarchy. Crafting strategy is a collaborative effort. Involves managers from various levels of the organization. Should be cohesive and mutually reinforcing, fitting together like a jigsaw puzzle. Requires choosing among the various strategic alternatives. 29 CORE CONCEPT: Corporate Strategy and Business Strategy Corporate strategy establishes an overall game plan for managing a set of businesses in a diversified, multibusiness company. Business strategy is primarily concerned with strengthening the company’s market position and building competitive advantage in a single-business company or a single business unit of a diversified multibusiness corporation. 30 Figure 2.2 A Company’s Strategy-Making Hierarchy Access the text alternative for slide images. 31  The Strategy-Making Hierarchy Strategy Description Corporate Is orchestrated by the CEO and other senior executives and establishes an strategy overall game plan for managing a set of businesses in a diversified, multibusiness company. Addresses the questions of how to capture cross-business synergies, what businesses to hold or divest, which new markets to enter, and how to best enter new markets—by acquisition, creation of a strategic alliance, or through internal development. Business Is primarily concerned with building competitive advantage in a single strategy business unit of a diversified company or strengthening the market position of a nondiversified single-business company. Functional- Are concerned with actions related to particular functions or processes area within a business (marketing strategy, production strategy, finance strategies strategy, customer service strategy, product development strategy, and human resources strategy). Operating Are relatively narrow strategic initiatives and approaches for managing strategies key operating units (plants, distribution centers, geographic units) and specific operating activities such as materials purchasing or Internet sales. 32  The Strategy-Making Hierarchy Strategy Corporate Strategy (Top Level): Corporate Focus: The overall direction of the entire organization. Strategy Main Questions:What industries or markets should the company be in? Should the company grow, shrink, or maintain its current size? Key Elements:Deciding whether to expand into new markets (geographically or product-wise). Managing the company’s portfolio of businesses (diversification, mergers, and acquisitions). Example: A company like Disney develops a corporate strategy by deciding to expand into streaming services (Disney+), in addition to their existing media, parks, and product lines. 33  The Strategy-Making Hierarchy Strategy Business Business Strategy (Middle Level): Focus: The strategy of each business unit or division within the larger Strategy company. Main Questions:How will this specific business compete in its market? What unique value will it offer to customers? Key Elements:Deciding on a competitive strategy, such as cost leadership (offering lower prices) or differentiation (offering unique products). Responding to competition and market conditions within a specific industry. Example: Toyota’s business strategy might focus on offering affordable, reliable cars in one market while focusing on luxury vehicles (Lexus) in another. 34  The Strategy-Making Hierarchy Strategy Functional Strategy Functional Strategy (Lower-Middle Level): Main Questions:How can this department best support the business strategy? What actions will help the business achieve its goals? Key Elements:Developing specific plans for improving the efficiency and effectiveness of each department. Aligning departmental objectives with the overall business strategy. Example: A company’s marketing department might focus on building brand awareness through digital marketing, while the finance department could implement cost-saving measures to support the business strategy of cost leadership. 35  The Strategy-Making Hierarchy Strategy Operational Operational Strategy (Bottom Level) strategy Focus: The day-to-day operations of the company. Main Questions: How can we run our operations as efficiently as possible? What immediate tasks need to be completed to support the functional strategy? Key Elements: Streamlining processes, managing resources, and ensuring quality in everyday work. Setting short-term goals and focusing on productivity and performance improvements. Example: In a factory, the operational strategy could involve optimizing the production line to reduce waste and improve efficiency, supporting the company’s overall cost- saving goals. 36  The Strategy-Making Hierarchy Key Insights from the Strategy-Making Hierarchy: Top-Down Alignment: Each level of strategy builds on the one above it. Corporate strategy sets the broad goals, and business, functional, and operational strategies are designed to achieve these goals at different levels of the organization. Coordinated Decision-Making: Decisions at each level need to align with and support decisions made at other levels. For example, the corporate strategy may involve expanding into new markets, which will influence the business strategy for those markets and the functional strategies to support the expansion. Adaptability: Different businesses or units within the same company might have different business strategies, even though they share the same corporate strategy. This allows the company to adapt to various markets and competitive environments. 37 The Strategy-Making Hierarchy Conclusion 38 Stage 4: Implementing and Executing the Chosen Strategy Managing the strategy execution process involves: Staffing the organization to provide Pushing for continuous needed skills and expertise. improvement in how value chain Allocating ample resources to activities are performed. activities critical to good strategy Tying rewards and incentives execution. directly to the achievement of Ensuring that policies and performance objectives. procedures facilitate rather than Creating a company culture and impede effective execution. work climate conducive to Installing information and operating successful strategy execution. systems that enable company Exerting the internal leadership personnel to perform essential needed to propel implementation activities. forward. 39  Stage 5: Evaluating Performance and Initiating Corrective Adjustments Deciding if there is a need for change: Monitoring for disruptive developments. Evaluating the firm’s recent performance. Making corrective adjustments to strategy. Strategy execution is an ongoing and uneven process of organizational learning. A firm’s vision, objectives, strategy, and approach to strategy execution are never final. Successful strategy execution entails vigilantly searching for ways to improve and then making corrective adjustments whenever and wherever it is useful to do so. 40  Stage 5: Evaluating Performance and Initiating Corrective Adjustments Let’s break down the key aspects of this stage: 41  Stage 5: Evaluating Performance and Initiating Corrective Adjustments Evaluating Performance: Purpose: To assess how well the company's strategies are performing in practice. Focus: The focus is on measuring the outcomes of strategic actions to see if they are leading the company toward its objectives. Methods: Key Performance Indicators (KPIs): These are metrics that measure progress, such as sales growth, market share, profitability, or customer satisfaction. Benchmarking: Comparing the company’s performance against industry standards or competitors. Financial Analysis: Reviewing financial statements to assess revenue, costs, and profit margins. Feedback from Stakeholders: Gathering input from customers, employees, and partners to evaluate how well the strategy is working on the ground. 42  Stage 5: Evaluating Performance and Initiating Corrective Adjustments Identifying Deviations: After evaluating performance, managers look for areas where the company is falling short of its targets or expectations. Potential Deviations: Underperformance: If the company is not hitting its goals (e.g., low sales, high costs), this signals that something in the strategy or its execution needs adjustment. External Changes: Changes in the external environment, such as new competitors, shifts in customer preferences, or economic downturns, may require strategic changes. Operational Issues: Internal inefficiencies, like production delays or poor customer service, can also impact performance. 43  Stage 5: Evaluating Performance and Initiating Corrective Adjustments. Initiating Corrective Adjustments: Once issues or gaps are identified, the next step is to make corrective adjustments to the strategy or operations to get back on track. Types of Adjustments: Tactical Changes: Short-term fixes to address immediate problems, such as adjusting marketing campaigns, reducing costs, or re-allocating resources. Strategic Changes: Larger adjustments, such as changing the business model, entering new markets, or discontinuing underperforming products or services. Involvement of Management: Top-level management is typically involved in strategic adjustments, while middle managers and operational teams may handle tactical changes. Feedback Loop: Corrections should be constantly monitored, and performance is evaluated again to see if the adjustments are working. 44  Stage 5: Evaluating Performance and Initiating Corrective Adjustments 4. Continuous Improvement Culture of Adaptation: Companies that excel at this stage foster a culture of continuous improvement where employees and managers are always looking for ways to improve efficiency, innovation, and customer satisfaction. Flexibility: Companies need to remain flexible, adjusting their strategies in response to evolving market conditions, competitor actions, or technological advances. Example of Stage 5 in Action: Apple: Apple constantly evaluates its performance, particularly in terms of customer satisfaction, innovation, and market leadership. If sales for a particular product, like the iPhone, don’t meet expectations, Apple may adjust its product design, marketing strategy, or pricing. Toyota’s Just-in-Time System: Toyota uses a performance evaluation system to continuously monitor its production efficiency. If a production bottleneck occurs, Toyota makes immediate corrective adjustments to optimize the assembly line. 45  Stage 5: Evaluating Performance and Initiating Corrective Adjustments Key Challenges in Stage 5: Resistance to Change: Employees and managers may resist adjustments to strategy, especially if they’re invested in the original plan. Timing of Adjustments: Deciding when to make adjustments is crucial. Making changes too early might waste resources, while waiting too long could cause damage. Incomplete Data: Evaluating performance accurately depends on having reliable data. If the data is incomplete or misleading, the adjustments may not address the real problem. 46 THANK YOU 47