CHARTING A COMPANY’S DIRECTION: VISION AND MISSION, OBJECTIVES, AND STRATEGY

1. CHARTING A COMPANY’SDIRECTION: VISION AND MISSION, OBJECTIVES, AND STRATEGY Chapter 2 MGT 4380

2. Strategic Management Process • Developing a strategic vision, mission, and values • Setting objectives • Crafting a strategy • Implementing and executing the chosen strategy • Monitoring developments, evaluating performance, and initiating corrective adjustments

3. Strategic Management Process

4. Factors Shaping Strategic Decisions • External Considerations • What are the industry’s economic characteristics? • How strong are the competitive forces at play? • What forces are driving change in the industry? • What market positions do rivals occupy and what moves are they likely to make next? • What are the key factors for future competitive success? • What are the company’s external opportunities?

5. Factors Shaping Strategic Decisions • Internal Considerations • How well is the present strategy working? • What are the company’s competitively valuable resources, capabilities, and internal weaknesses? • Are the company’s prices and costs competitive? • Is the company competitively stronger or weaker than key rivals?

6. Stage 1: Developing a Strategic Vision,a Mission, and Core Values • 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

7. Strategic Vision • It’s top management’s views about the firm’s direction and future product-market-customer-technology focus • Provides a panoramic view of “where we are going” • Is distinctive and specific to a particular organization • Avoids use of innocuous uninspiring language that could apply to most any firm • Definitively states how the company’s leaders intend to position the firm beyond where it is today

8. Strategic Vision TABLE 2.2 - Characteristics of Effectively Worded Vision Statements

9. Strategic Vision TABLE 2.3 – Common Shortcomings of Company Vision Statements

10. Example: Coca-Cola

11. The Importance of Communicating the Strategic Vision • An engaging, inspirational vision • Challenges and motivates the workforce • Articulates a compelling case for “where we are going and why” • Evokes positive support and excitement • Arouses a committed organizationaleffort to move in a common direction

12. Expressing the Essence of the Vision in a Slogan • Nike • To bring innovation and inspiration to every athlete in the world • The Mayo Clinic • The best care to every patient every day • Greenpeace • To halt environmental abuse and promote environmental solutions.

13. 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.

14. Changing Strategic Visions • Periodically, firms are required to change their strategic vision • A change in vision is required when it becomes evident to management that the industry has changed in a significant way that renders the company’s current vision obsolete

15. Mission Statements • 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.

16. Mission Statements • Mission of Nike: “To bring inspiration and innovation to every athlete in the world.” • Mission of Duke Energy: “Our purpose is to create superior value for our customers, employees, communities and investors through the production, conversion, delivery and sale of energy and energy services.”

17. Vision, Mission, & Profit • Firms sometimes state that their mission is to simply earn a profit. • Profit is the obvious intent of every commercial enterprise. • Profit is not “who we are and what we do.” • Profit is more correctly an objective and a resultof what a firm does.

18. Core Concept A firm’s values are the beliefs, traits, and behavioral norms that the firm’s personnel are expected to display in conducting the firm’s business and pursuing its strategic vision and mission.

19. Stage 2: Setting Objectives • Why set objectives? • To convert the strategic vision into specific performance targets • To create yardsticks to track progress and measure performance • Objectives should: • Be well-stated (clearly worded) • Be challenging, yet achievable in order to stretch the organization to perform at its full potential • Be quantifiable (measurable) • Contain a specific deadline for achievement Objectives are an organization’s performance targets—the results management wants to achieve.

20. Stage 2: Setting Objectives • What Kinds of Objectives to Set • Financial objectives • Communicate management’s targets for financial performance • Are lagging indicators that reflect the results of past decisions and organizational activities • Examples: revenue growth, profitability, and return on investment

21. Stage 2: Setting Objectives • What Kinds of Objectives to Set • Strategic objectives • Are related to a firm’s marketing standing and 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. • Examples: market share, new customers, geographical expansion

22. Stage 2: Setting Objectives • An approach to performance measurement that incorporates multiple types of measures, financial and non-financial, into a single “balanced” measure. • While there is no uniform method for creating a balanced scorecard, the measures that are used should incorporate the interests and contributions of all important stakeholders. • Kaplan & Norton’s Model: (1) financial, (2) customer, (3) internal business practices, and (4) learning and growth (expansion) • Triple Bottom Line (3 P’s): People (Social), Planet (Environmental), and Profits (Economic)

23. Example Objectives General Motors • Reduce the percentage of automobiles using internal combustion engines through the development of hybrids, range-extended electric vehicles, and hydrogen fuel cell electric engines. • Reduce automotive structural costs to benchmark levels of 23% of revenue by 2012 from 34% in 2005. • Reduce annual U.S. labor costs by an additional $5 billion by 2011.

24. Example Objectives The Home Depot • Be the number one destination for professional contractors. • Improve in-stock positions so customers can find and buy exactly what they need. • Deliver differentiated customer service and the know-how that our customers have come to expect. • Repurchase $22.5 billion of outstanding shares during 2008. • Open 55 new stores with 5 store relocations in 2008.

25. Short-Term v. Long-Term Objectives • Short-Term Objectives • Targets to be achieved soon (< 2 years) • Milestones or stair steps for reaching long-range performance • Long-Term Objectives • Targets to be achieved within 3 to 5 years • Long-term objectives outweigh 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 firm 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. Stage 3: Crafting a Strategy • 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 that: • Involves managers from various levels of the organization • Is rarely something only high-level executives engage in • Requires choosing among the various strategic alternatives

28. Stage 3: Crafting a Strategy • Corporate strategy establishes an overall game plan for managing a set of businesses in a diversified, multi-business firm • Orchestrated by the CEO and other senior executives • Establishes an overall game plan for managing a set of businesses in a diversified, multi-business company • Typically thought of in terms of overarching strategic decisions (e.g., concentration strategies, diversification strategies, vertical integration, etc.)

29. Stage 3: Crafting a Strategy • Business strategy is primarily concerned with strengthening the firm’s market position and building competitive advantage in a single business company or a single business unit of a diversified multibusinesscorporation • Orchestrated by the mid- to upper-level managers • Primarily concerned with building competitive advantage in a single business unit of a diversified company • Typically thought of in terms of low-cost v. differentiation v. focus strategies (e.g., Wal-Mart = broad low-cost; Simms = focused differentiation)

30. Stage 3: Crafting a Strategy

31. A Company’s Strategy-Making Hierarchy FIGURE 2.2

32. Stage 4: Implementing and Executing the Chosen Strategy • Managing the strategy execution process involves: • Staffing the organization to provide needed skills and expertise. • Allocating ample resources to activities critical to good strategy execution. • Ensuring that policies and procedures facilitate rather than impede effective execution. • Installing information and operating systems that enable personnel to perform essential activities.

33. Stage 4: Implementing and Executing the Chosen Strategy • Managing the strategy execution process involves (continued): • Pushing for continuous improvement in how value chain activities are performed. • Tying rewards and incentives directly to the achievement of performance objectives. • Creating a company culture and work climate conducive to successful strategy execution. • Exerting the internal leadership needed to propel implementation forward.

34. Stage 5: Evaluating Performance and Initiating Corrective Adjustments • Triggering change as needed: • Monitoring new external developments • Evaluating the firm’s progress • Making corrective adjustments • Managing strategy is an ongoing process, not an every-now-and-then task • A firm’s vision, objectives, strategy, and approach to strategy execution are never final

35. Leading the Strategic Management Process • The Strategic Management Process calls for six managerial actions: • Making sure the company has a good strategic plan • Stay on top of what is happening (MBWA) • Putting constructive pressure on organizational units to achieve good results • Pushing corrective actions to improve both the firm’s strategy and how well it is being executed • Leading the development of better competitive capabilities • Displaying ethical integrity and leading social responsibility initiatives

36. Making Sure a Firm Has a Good Strategic Plan • Responsibility of CEO • Effectively communicate the vision, objectives, and major strategy components • Exercise due diligence in reviewing lower-level strategies for consistency with higher-level strategies

37. Corporate Governance: The Role of the Board Of Directors • The Role of the Board Of Directors in the Strategy-Making, Strategy-Executing Process: • Oversee the firm’s financial accounting and reporting practices. • Diligently critique and oversee the company’s direction, strategy, and business approaches. • Evaluate the caliber of senior executives’ strategy-making and strategy-executing skills. • Institute a compensation plan for top executives that rewards them for actions and results that serve shareholder interests.

38. Strong Boards Lead to Good Corporate Governance • A Strong, Independent Board of Directors: • Is well informed about the company’s performance • Guides and judges the CEO and other top executives • Has the courage to curb management actions it believes are inappropriate or unduly risky • Certifies to shareholders that the CEO is doing what the board expects • Provides insight and advice to management • Is intensely involved in debating the pros and cons of key decisions and actions

39. Initiating Corrective Actions to Improve Strategy and Execution • The leadership challenge of making corrective adjustments is twofold: • Deciding when adjustments are needed • Deciding what adjustments to make • Leader’s responsibility is to step forward and push corrective actions

40. Leading the Development of Better Competitive Capabilities • Lead efforts to strengthen existing competitive capabilities • Anticipate changes in customer-market requirements • Proactively build new competencies and capabilities that hold promise for building an enduring competitive edge