1-1

CHAPTER 2CHAPTER 2

Leadership and the Leadership and the Strategic Strategic

Management Management ProcessProcess

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

2-22-2

The Strategy-Making, Strategy-Executing The Strategy-Making, Strategy-Executing ProcessProcess

2-32-3

Revised: Revised: SevenSeven Tasks of Tasks of Strategic managementStrategic management

Mission/Vision Goals/Objectives Internal Analysis External Analysis Craft Strategy Implement Strategy Evaluation

2-42-4

Key Elements of a Strategic Key Elements of a Strategic VisionVision

Provides a panoramic view of “where we are going”

Is distinctive and specific to a particular organizationAvoids use of

generic language that is dull and that could apply to most any company

2-52-5

Strategic Vision vs. MissionStrategic Vision vs. Mission

A strategic vision concerns a firm’s future business path - “wherewe 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

2-62-6

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

Payoffs of a Clear Strategic Payoffs of a Clear Strategic VisionVision

2-72-7

Characteristics of Effectively Characteristics of Effectively Worded Vision StatementsWorded 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

2-82-8

Characteristics of Effectively Characteristics of Effectively Worded Vision StatementsWorded 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

2-92-9

Example of a Strategic VisionExample of a Strategic Vision

Provide a global trading platform where practically anyone can trade practically anything.

2-102-10

Example of a Mission StatementExample 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.

2-112-11

Setting ObjectivesSetting Objectives

Purpose of setting objectives

Converts vision into specific performance targets

Creates yardsticks to track performance

Well-stated objectives areQuantifiableMeasurableContain a deadline for achievement

2-122-12

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

The Need for a Balanced The Need for a Balanced ScorecardScorecard

2-132-13

Balanced Scorecard ObjectivesBalanced Scorecard Objectives

Financial Objectives

Outcomes focused

on improving

Financial

Performance

Strategic Objectives

Customer Value creation

Internal Processes Value creating processes

Learning and Growth Aligning organizational, information, and human capital with strategy

2-142-14

Examples of Financial Examples of Financial ObjectivesObjectives

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

2-152-15

CustomerWinning an X % market shareAchieving a customer retention rate of X %Acquire X number of new customers

Internal ProcessesReduce 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/yearReduce turnover to X % per year

Examples of Strategic Examples of Strategic ObjectivesObjectives

2-162-16

Short-Term vs.Short-Term vs.Long-Term ObjectivesLong-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

2-172-17

Objectives Are Needed at All Objectives Are Needed at All LevelsLevels

1. First, set business-level objectives

2. Next, establish functional-area objectives

3. Then, operating-level objectives are established last

2-182-18

Crafting a StrategyCrafting a Strategy

Strategy Making Hierarchy for a Single Business Company

2-192-19

Corporate Strategy

Business Strategies

Functional Strategies

Two-Way Influence

Corporate-Level Managers

Business-Level

ManagersFunctional Managers

Levels of Strategy-MakingLevels of Strategy-Makingin a Diversified Companyin a Diversified Company

Two-Way Influence

2-202-20

Levels of Strategy-Making in Levels of Strategy-Making in a Single-Business Companya Single-Business Company

Business Strategy

Two-Way Influence

Functional Strategies

Business-Level Managers

Functional Managers

2-212-21

Uniting the Company’sUniting the Company’sStrategy-Making EffortStrategy-Making Effort

A firm’s strategy is a collection of initiatives undertaken by managers at all levelsin the organizational hierarchy

Pieces of strategy should fit together like the pieces of a puzzle