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Chapter 1
Chapter Roadmap
What Do We Mean by Strategy? Strategy and the Quest for Competitive Advantage Identifying a Companys Strategy Why a Companys Strategy Evolves Over Time A Companys Strategy Is Partly Proactive and Partly Reactive The Relationship Between a Companys Strategy and Its Business Model What Makes a Strategy a Winner? Why Are Crafting and Executing Strategy Important?
Conduct operations
Achieve the targeted levels of organizational performance
How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) How to respond to changing market conditions
How to achieve targeted levels of performance
A creative, distinctive strategy that sets a company apart from rivals and yields a competitive advantage is a companys most reliable ticket to above average profitability
Operating with a competitive advantage is more profitable than operating without one Operating with a competitive disadvantage nearly always results in belowaverage profitability
Develop expertise and resource strengths not easily imitated or matched by rivals
Achieve a capabilities-based competitive
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Figure 1.2: A Companys Strategy Is a Blend of Proactive Initiatives and Reactive Adjustments
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Staging
Staging
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Chapter Roadmap
What Does the Strategy-Making, Strategy-Executing process Entail? Phase 1: Developing a Strategic Vision Phase 2: Setting Objectives Phase 3: Crafting a Strategy Phase 4: Implementing and Executing the Strategy Phase 5: Evaluating Performance and Initiating Corrective Adjustments Leading the Strategic Management Process Corporate Governance: The Role of the Board of Directors in the Strategy-Making, Strategy-Executing Process
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A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the companys strategic course in preparing for the future.
Captures the emotions of employees and steers them in a common direction Is challenging and a bit beyond a companys immediate reach
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statement typically focuses on its present business purpose - who we are and what we do
Current product and service offerings Customer needs and customer groups being served Geographic coverage
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If company personnel are not held accountable for displaying company values in doing their jobs, then the company values statement is a bunch of empty words!
Setting Objectives
Phase 2
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
Strategic Objectives
Outcomes focused on improving competitive strength and market standing
A company that is growing competitively stronger is developing the capability for better financial performance in the years ahead
Good strategic performance is thus a leading indicator of a companys capability to deliver improved future financial performance
Unless a company sets and achieves stretch strategic objectives it is not developing the competitive muscle to deliver even better financial results in the years ahead!
Just tracking financial performance overlooks the importance of measuring whether a company is strengthening its competitiveness and market position
The surest path to sustained future profitability year after year is to relentlessly pursue strategic outcomes that strengthen a companys business position and give it a growing competitive advantage over rivals!
Long-term objectives
Targets to be achieved within 3 to 5 years
Calls for actions now that will permit reaching targeted long-range performance
Crafting a Strategy
Phase 3
Strategy-making involves astute entrepreneurship Actively searching for opportunities to do new things or Actively searching for opportunities to do existing things in new or better ways Strategizing involves Developing timely responses to happenings in the external environment and Steering company activities in new directions dictated by shifting market conditions
Innovating more creatively Being more efficient Being more imaginative Adapting faster
Rather than running with the herd! Good strategy-making is therefore inseparable from good entrepreneurshipone cannot exist without the other!
How to please customers How to outcompete rivals How to respond to changing market conditions How to manage each functional piece of the business (R&D, production, marketing, HR, finance, and so on) How to achieve targeted levels of performance
Senior executives
Typically have influential roles in fashioning those strategy components involving their areas of responsibility
Managers of subsidiaries, divisions, geographic regions, plants, and other important operating units (and, often, key employees with specialized expertise)
Some pieces of the strategy are best orchestrated by on-the-scene company personnel with detailed familiarity of the piece of the business they are in charge of running
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Corporate Level Composed principally of Board of Directors, CEO and Administrative officers Responsible for firms Financial Performance and Non Financial Goals To large extent, attitudes at the corporate level reflect the concerns of stock holders and society at large In multi business firms: Determine what business to be involved What markets to enter How to grow the business: - Vertical Integration - Horizontal integration - Diversification - Develop synergies between the various units ( economies of scope) Set objectives for various business units Determine investment priorities using portfolio models for various units
Single-business Firms
POM/R&D strategies
Marketing strategies
Business 1
Business 2
Business 3
POM/R&D strategies
Marketing strategies
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Functional Level
Business Level
Corporate strategies
All these trigger a need for corrective actions and adjustments on an as-needed basis
Leading the strategic management process can involve various styles and approaches
Being a hard-nosed authoritarian Being a perceptive listener Being a compromising decision maker Delegating authority to people closest to the action Being a coach Assuming a highly visible role in guiding the process Making brief ceremonial appearances
Monitor operating results regularly Get feedback from customers Watch competitive reactions of rivals
Exercise due diligence in reviewing lower-level strategies for consistency and support of higher-level strategies
Effective leadership minimizes potential for conflict between different levels in the strategy hierarchy
Requires deciding
Involves
Adjusting long-term direction, objectives, and strategy on an as-needed basis in response to unfolding events and changing circumstances Promoting fresh initiatives to bring internal activities and behavior into better alignment with strategy Making changes to pick up the pace when results fall short of performance targets