Strategy: A View From the Top Chapter 2, Strategy and Performance

1. Strategy: A View From the TopChapter 2, Strategy and Performance January 22, 2009 Group 4 Shana HartfordAustin Stewart Carly Buell April Miller Brittany Snethkamp Brian Cote Ryan Buell

2. How is strategy measured? • Strategy is used to position a company for competitive advantage • When implementing a strategy the organization strives to get results • So how is this done? • Measuring Performance

3. Strategy and Performance Good to Great: Why some companies make the leap and others don’t What Really Works: The 4+2 Formula for Sustained Business Success Strategy and Performance: A Conceptual Framework The Balanced Scorecard

4. What makes a good company great: • Quality and nature of top leadership: • Focus on long-term benefits of the company and team • Don’t let personal ego and individual financial gain influence leadership style • Nature of the leadership team: • Having the right people in the right position will dissipate management problems that plague companies • Securing high-quality, high-talent individuals with level 5 leadership abilities must be undertaken before an over arching strategy can be developed. • Willingness to identify and assess defining facts in the company and in the larger business environment

5. Hedgehog vs. Fox • “The fox knows many things, but the hedgehog knows one big thing” • To transition from good to great can be done not by doing many things well, but instead by doing one thing better than anyone else in the world • Become a hedgehog by determining what you can and cannot be best at, determining what drives the company’s economic engine, and determining what the company’s people are passionate about • Walgreens vs. Eckerd

6. Success as a Hedgehog • The key to success is through: • Disciplined people • Disciplined thought • Disciplined action

7. Flywheel vs. Doom Loop

8. Flywheel effect vs. Doom Loop

9. The 4 + 2 Formula Study aimed at identifying must-have management practices Examined more than 200 well-established practices Study showed that these companies outperformed peers without exception Formula stated that you need four primary and 2 secondary practices

10. Primary Practices • Strategy • Must be clear • Focus on growth • Focused value proposition • Execution • Exceed customer expectations • Increase productivity • Identify most important processes to customer needs

11. Primary Practices • Culture • Encourage outstanding contributions • Look outside the industry for competitors • Structure • Too great a focus on protocols and procedures can impede progress • Successful companies try to eliminate unnessecary bureaucracy

12. Embracing Two of Four Secondary Practices Winning companies from the study had superior performance in any two of these four secondary practices: • Talent • Innovation • Leadership • Mergers and Partnerships

13. 1. Talent: Hold on to Talented Employees and Find More 2. Innovation: Make Industry-transforming Innovations • the ease with which any executive who leaves can be replaced from within • growing talent in-house is often cheaper, more reliable, and promotes continuity and loyalty • dedicate major resources to building and retaining an effective workforce and management team • focus on finding new product ideas or technological breakthroughs that have the potential to transform their industries, not just marginal improvements • apply new technologies to their business processes, which can yield huge savings and have power to transform an industry

14. 3. Leadership: Find Leaders Who Are Committed to the Business and Its People • The most important qualities of a CEO are: • the ability to build relationships with people at all levels of the org. • to inspire the rest of the management team to do the same • ability to seize opportunities before their competitors and solve problems early • Some leaders rely on intuition • Others assign special groups to monitor changes in everything from politics to demographics • Others seek outside consultants to watch for changes in the marketplace

15. 4. Mergers and Partnerships: Seek Growth Through Mergers and Partnerships • This was a winning practice for only a few of the companies studied. • Companies that do relatively small deals on a consistent basis are likely to be more successful than those that do large, occasional deals. • Winners made better choices: • Created value in most of their deals, generating returns in 3 years that exceeded the premium paid • Didn’t treat acquisitions and partnerships casually or as one-off deals • Invested substantial financial and human resources in developing an efficient, ongoing process for deal making • Often they have codified principles, lessons drawn from experience, that enable them to more consistently choose the right partner and integrate them quickly • Underperformers destroyed shareholder value in most their deals

16. Strategy and Performance No single individual can do all that is required to make a company successful. Corporate success depends on the willingness and ability of every manager to think about how their actions influence the performance of the company as a whole. When strategies are not effective, the focus should be on changing the organizational environment to encourage decision making that is aligned with the overall objectives of the company.

17. Developing the Right Organizational Model • Three critical dimensions: • People • Knowledge • Incentives

18. Strategy and Performance: A Conceptual Framework Purpose Strategy Leadership Structure Systems Processes People Culture Performance/Control

19. Strategy, Purpose, and Leadership Strategy-structure-systems paradigm: the key to successfully executing a complex strategy was to create the right organizational structure and disciplined planning and control support systems. It was dominant until global competition and the technology revolution. Redefined strategic intent to involve employees at all levels in the strategic management process.

20. Structure In order to become more competitive, companies are adopting a flatter organizational structure. Old problem: How to organize and divide up tasks New problem: How to focus on issues of coordination Structure involves identifying dimensions that are crucial to organizations ability to adapt and evolve strategically Choosing the right organizational model is difficult, no ONE right form of an organization exists

21. 5 Dominant Approaches Functional: particular task requires efforts of substantial number of specialists Geographically: operating in diverse set of geographic regions Decentralized: reduce complexity in multi-business environment Strategic Business Unit: define groupings of businesses that share key strategic elements Matrix Structure: multiple channels of authority favored when coordination among different interests is key

22. Systems & Processes • Enhances organizational effectiveness and facilitates coping with change • Support systems: critical to successful strategy implementation • Planning: ensures orderly process, balanced external and internal focus • Budgeting and Accounting: accurate historical data, set benchmark targets, defining measures of performance • Information: supports internal and external communication • Reward and Incentive: creating energy through motivation and commitment

23. Process: systematic way of doing things • People: attracting, motivating, & retaining the “right” people • Culture: performance linked to strength of company’s corporate culture, system of shared values, assumptions, and beliefs among firm’s employees • Artifacts: visible or audible processes, policies, and procedures • Shared values: why things should be as they are • Basic assumptions: invisible reasons why group members perceive, think, and feel the way they do about operational issues

24. Balanced Scorecard • A set of measures designed to provide strategists with a quick, yet comprehensive, view of the business. • Developed by Robert Kaplan and David Norton • The scorecard asks managers to look at their business from four perspectives: • Customer • Company Capability • Innovation and Learning • Financial

25. Balanced Scorecard • The balanced scorecard provides answers to four basic questions: • How do customers see us? • At what must we excel? • Can we continue to improve and create value? • How do we look to our company’s shareholders?

26. Balance Scorecard The balance scorecard requires managers to translate a broad customer-driven mission statement into factors that directly relate to customer concerns such as product quality, on-time delivery, product performance, service, and cost. Creating a balanced scorecard forces companies to integrate their strategic planning and budgeting processes.

27. Performance and Control Most methods for measuring & evaluating performance at different levels in the organization are focused on: Outcome control=The attainment of specific targets in pursuit of specific goals. Achieved by altering the incentive structure for business units, executive teams, or individual managers. However, when changing an existing corporate culture is key to enhancing performance or implementing a new strategic direction, such as a merger or acquisition, use : Behavior control= The company directly monitors the behavior of specific business units, executive teams, or individual managers. EX: approval of capital expenditure requests, or specific hiring, or promotion decisions.

28. The Role of the Board Creating a culture of high performance is central to a board of directors’ fundamental mandate, which is to “direct the affairs of the company.” In “directing” a board should determine & prioritize what it is the board should focus its attention & efforts on. To create a high performance culture, a board should: 1. Define its role, agenda, and information needs. 2. Ensure that management not only performs, but performs with integrity. 3. Set expectations about the tone & culture of the company. 4. Formulate corporate strategy with management. 5. Ensure that the corporate culture, the agreed strategy, management incentive compensation, and the company’s approach to audit & accounting, internal controls, and disclosure are consistent and aligned. 6. Help management understand the expectations of shareholders and regulators.

29. Directors must have access to a broad mix of indicators to be able to judge how a corporation is performing. This requires a “push and pull” approach to information sharing with companies providing directors with regular, standardized information that is timely, comprehensive, prioritized, and available upon their request.

30. Chapter 2 Strategy and PerformanceClass Takeaways Hedgehog and Flywheels 4+2 Formula Conceptual Framework The Balanced Scorecard The Role of The Board