CHAPTER 2

Leadership and the

Strategic
Management
Process

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Strategy Making/Strategy
Execution Process

 Crafting and executing strategy is a

collaborative team effort
Involves managers from various levels
of the organization
Is rarely something only high-level
executives engage in

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Strategy-Making Role of
Corporate Intrapreneurs
 Encouraging lower-level
managers/employees to join in on the
strategy-making effort
– Unleashes talents and energies of employees
to develop proposals for
» New products or product lines
» New business ventures
» New strategic initiatives

 Requires that senior executives

 Create an organizational climate where free-
thinking and new ideas are welcome

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The Strategy-Making, Strategy-Executing
Process

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Key Elements of a Strategic
Vision

 Provides a panoramic view of

“where we are going”
 Is distinctive and specific to a
particular organization
Avoids use of
generic language
that is dull and
that could apply
to most any company

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Characteristics of Effectively
Worded Vision Statements

 Graphic—Paints a picture of the

kind of company that management
is trying to create
 Directional—Is forward looking
 Focused—Is specific enough to
provide guidance in decision
making
 Flexible—Is not so focused that it
makes it difficult to adjust to change
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Characteristics of Effectively
Worded Vision Statements

 Feasible—Is within the real of

what is possible
 Desirable—Indicates why the
directional path makes sense
 Easy to Communicate—Can
be explained in simple terms

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Example of a Strategic Vision

Provide a global trading platform where

practically anyone can trade practically
anything.

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Strategic Vision vs. Mission

 A strategic  The mission

vision concerns a statement of a
firm’s future firm focuses on its
business path - present business
“where purpose - “who
we are going” we are and what
 Markets to be pursued we do”
 Future  Current product and
product/market/ service offerings
customer/technology
focus  Customer needs
being served

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Example of a Mission Statement

To give our customers the best food and beverage

values that they can find anywhere and to provide
them with the information required for informed
buying decisions. We provide these with a
dedication to the highest quality of customer
satisfaction delivered with a sense of warmth,
friendliness, fun, individual pride, and company
spirit.

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Communicating the
Strategic Vision

An engaging, inspirational vision

Challenges and motivates workforce
Articulates a compelling case for
where company is headed
Evokes positive support and
excitement
Arouses a committed organizational
effort to move in a common direction

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Payoffs of a Clear Strategic
Vision

 Crystallizes an organization’s long-term

direction
 Reduces risk of rudderless decision-
making
 Creates a committed enterprise to
make the vision a reality
 Provides a beacon to keep strategy-related
actions of all managers on common path
 Helps an organization prepare for the
future
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Setting Objectives

 Purpose of setting objectives

Converts vision into specific
performance targets
Creates yardsticks to track
performance
 Well-stated objectives are
Quantifiable
Measurable
Contain a deadline for achievement
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The Need for a Balanced
Scorecard

 Achieving good financial performance

is not enough
Current financial results are “lagging
indicators” reflecting results of past
decisions and actions
Good strategic performance is thus a
“leading indicator” of a company’s
capability to deliver improved future
financial performance

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Balanced Scorecard Objectives

Financial Strategic
Objectives Objectives
Customer
Outcomes focused  Value creation
Internal Processes
on improving  Value creating processes
Financial Learning and Growth
 Aligning organizational,
Performance information, and human
capital with strategy

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Examples of Financial
Objectives

 X % increase in annual
revenues
 X % increase annually in
after-tax profits
 Profit margins of X %
 X % return on capital
employed (ROCE)
 Sufficient internal cash
flows to fund 100% of
new capital investment

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Examples of Strategic
Objectives

 Customer
 Winning an X % market share
 Achieving a customer retention rate of X %
 Acquire X number of new customers
 Internal Processes
 Reduce product defects to X %
 Introduction of X number of new products in
the next three years
 Learning and Growth
 Increase employee training to X hours/year
 Reduce turnover to X % per year
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Short-Term vs.
Long-Term Objectives

 Short-term objectives
Targets to be achieved soon
Milestones or stair steps for reaching
long-range performance

 Long-term objectives
Targets to be achieved within 3 to 5
years

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Objectives Are Needed at All
Levels

1. First, set business-level objectives

2. Next, establish functional-area

objectives

3. Then, operating-level objectives are

established last

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Crafting a Strategy

Strategy Making Hierarchy for

a Single Business Company

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Uniting the Company’s
Strategy-Making Effort

 A firm’s strategy is a collection of

initiatives undertaken by managers
at all levels
in the organizational hierarchy
 Pieces of strategy
should fit together
like the pieces
of a puzzle

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Implementing and Executing
Strategy

 Operations-oriented activity aimed

at performing core business
activities in a strategy-supportive
manner
 Key tasks include
 Improving efficiency of internal processes
 Aligning, integrating, and enhancing human
capital, information capital, and
organizational capital

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What Does Strategy
Implementation Involve?

 Staffing the organization to

provide needed expertise
 Allocating resources to
strategy-critical activities
 Establishing strategy-
supportive policies
 Installing information, communication,
and operating systems

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What Does Strategy
Implementation Involve?

 Pushing for continuous improvement

in how value-creating activities are
performed
 Tying rewards to achievement of
results
 Creating a strategy-supportive
corporate culture
 Exerting the leadership necessary to
drive the process forward and keep
improving
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Strategy Maps as Communication
Tools

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Leading the Strategy Execution
Process

Good strategy execution calls for

3 managerial actions
1. Stay on top of what
is happening (MBWA)
2. Push organizational
units to achieve good results
3. Display ethical integrity and
lead social responsibility
initiatives

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Evaluating Performance and
Making Corrective Adjustments

 Tasks of crafting and implementing

the strategy are not a one-time
exercise
 Customer needs and competitive conditions
change
 New opportunities appear
 One or more aspects of executing the
strategy may not be going well
 All these trigger a need for
corrective actions and
adjustments
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Corporate Governance: Strategic
Role of a Board of Directors

 Be inquiring critics and overseers

 Evaluate caliber of senior executives’
strategy-making and strategy-executing
skills
 Institute a compensation plan for top
executives rewarding them for results
that serve interests of shareholders
Oversee a company’s
financial accounting and
reporting practices

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