Strategy: A View from the Top Chapter 2 Strategy and Performance

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Strategy A View from the Top Chapter 2
Strategy and Performance

• Team 2
• Ty Parasiliti
• Victor Hemmati
• Brent Hare
• Lance Hollister
• Vincent Ukwu
• Josh Fernino
• Chris Kerschen

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Overview

• From Good to Great About Hedgehogs and
  Flywheels
• The 42 Formula for Sustained Business Success
• Excelling at Four Primary Practices
• Embracing Two of Four Secondary Practices
• Strategy and Performance A Conceptual Framework
• Strategy, Purpose, and Leadership
• Strategy and Organizational Change
• The Balanced Scorecard
• Performance and Control
• The Role of the Board

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From Good to Great - About Hedgehogs and Flywheels

• Jim Collins conducted two cited studies of
  companies that were sustainable for superior
  performance.
• The first study published was titled, Built to
  Last. This described what makes great companies
  great and how they stayed great over time.
• The second, Good to Great Why Some Companies
  Make the Leapand Others Dont, which asked the
  question what can merely good companies do to
  become truly great?

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Cont.

• Collins defined great in terms of metrics, like
  financial statements that exceeded the market
  average and stayed that way for a period of time.
  
• Level 5 Leadership
• This is the top of the Level 5 Hierarchy that
  ranges from just competent supervision to
  strategic extreme decision making.
• Level 5 Leader A person with intense
  determination and profound humility that does not
  let ego and individual gain get in their way.
  He/She plans to be with the company for the
  long-haul as they try to climb the companys
  ranks.

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Nature of the Leadership Team

• Before creating a game plan for a company, the
  right people have to be in place.
• Willingness to Identify and Assess Defining Facts
• Company as well as the larger business
  environment must meet market trends in what
  consumers desire, is constantly changing. The
  inability to do so results in failure.
• Hedgehog Metaphor
• The way to go from good to great is not doing
  numerous things well, but instead , doing one
  thing better than anyone else in the world.
• Determine what the company can and cannot be best
  at.
• Determine what drives the companys economic
  engine.
• Determine what the companys people or deeply
  passionate about.

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• Overarching organizational culture of discipline
• Creating a organization with people that have an
  unrelenting determination.
• Great companies are not dependant on technology
• Apply few technologies to their Hedgehog Concept
• Flywheel and Doom Loop
• Flywheel when companies make decisions and take
  actions that reinforce the companys hedgehog
  competencies, which in return brings positive
  outcomes
• Doom Loop is characterized by reactive decision
  making and over involvement in too many diverse
  areas of concentration, in the end this will
  bring negative outcomes
• Collins core-values to achieve long term
  sustainable success

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42 Formula for Sustained Business Success

• Studies found management practices that help a
  company produce superior results
• Four primary management practices
• Strategy, Execution, Culture, and Structure
• Plus mastery of two or more secondary practices
  (Ex. Talent, innovation)
• Must have strength in all six (or more) areas to
  excel

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Excelling at Four Primary Practices

• Executives have tried TQM and other strategies in
  an effort to improve execution
• No single alternative will bring a company
  success
• The most consistently successful companies for
  the past 10 years have implemented these four
  strategies

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Strategy Devise and maintain a Clearly Stated,
Focused Strategy

• The chosen strategy must be clear and
  consistently communicated
• Focus on growth

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Execution Develop and Maintain Flawless
Operational Execution

• Consistently exceed customer expectations
• Increased productivity
• Realistic goals

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Culture Develop and Maintain a
Performance-Oriented Culture

• Right Culture
• The right combination of high-performance and
  ethical behavior
• Everyone responsible for success, not just
  upper-level management

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Structure Build and Maintain a Fast, Flexible,
Flat Organization

• High-performance companies try to eliminate extra
  layers of management , an abundance of rules and
  regulations, and outdated formalities
• They want their structures and processes simple
  for their employees, vendors and customers
• Findings confirm the how is more important than
  the what of organizational structure

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Embracing Two of Four Secondary Practices

• The four secondary practices are talent,
  innovation, leadership, and mergers and
  partnerships
• Winning companies had superior performance in two
  of the four practices (it did not matter which
  two)
• There was no difference if the company excelled
  in all four or just two, going beyond 42 was
  not rewarded

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Talent

• Hold on to talented employees and find more
• Best test of a companys talent base is ability
  to replace from within
• In-house talent is often cheaper, more reliable,
  and promotes loyalty

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Innovation

• Make Industry-transforming innovations
• Companies apply new technologies to their
  business processes
• Yield huge savings and sometimes have the power
  to transform an industry

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Leadership

• Find leaders who are committed to the business
  and its people
• The right CEO can raise performance significantly
• They must build relationships with people at all
  levels and inspire the rest of the management
  team
• Must spot opportunities and problems early
• Seize opportunities before their competitors do

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Mergers and Partnerships

• Seek growth through mergers and partnerships
• The second most popular avenue of growth
• Winners created value in most deals they struck
• Winning companies often drew lessons from
  experience enabling them to more consistently
  choose the right partners and integrate quickly
• Underperformers destroyed shareholder value

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Strategy And Performance A Conceptual Framework

• Within todays complex business environments, no
  single person or small group can acquire all that
  is necessary to make a company successful.
• Corporate success depends on the ability of every
  manager to not just meet their own divisional
  responsibilities, but how they can influence the
  company as a whole.
• Organizational performance is the result of
  thousands of decisions made every day by
  individuals at all levels of organization

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Strategy And Performance A Conceptual Framework

• When strategy is not effective, focus should be
  shaping the organizational environment to
  encourage productive decision making
• First step to realigning the organizational
  environment is to understand why and where
  suboptimal decisions are made
• Success requires the right people, armed with the
  right information and motivated by the right
  incentives

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Strategy And Performance A Conceptual Framework

• In developing the right organizational model,
  Companies must focus on three critical dimensions
• People
• Knowledge
• Incentives

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Purpose
Strategy
Leadership
Structure
Systems
Processes
Culture
Performance/Control
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Strategy, Purpose, and Leadership

• Strategy-structure-systems paradigm dominated
  thinking about the role of corporate leaders for
  many years.
• This doctrine remained dominant for most of the
  twentieth century and helped companies cope with
  high growth, integrate operations, and manage
  diversified business portfolios.
• Corporate leaders began to articulate broader,
  long-term strategic intent to deal with more
  intense global competition.
• Successful strategy development require obtaining
  commitment, focus, and control at all levels of
  organization.

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Strategy and Organizational Change

• There are five organizational variables that are
  key to crating effective organizational change.
• Structure
• Systems
• Process
• People
• Culture
• They are all interrelated, so a new strategy
  often requires change in variables.

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Structure

• The issue of structure is not just one of
  deciding whether to centralize or decentralize
  decision making.
• The goal should be to create an organizational
  environment that gathers resources effectively
  and is naturally self-correcting as strategic
  changes need to be made.

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Structure (cont.)

• Corporate structures typically reflect on of five
  dominant approaches to organization
• Functional organizational structures
• Geographically based structures
• Decentralized (divisional) structures
• Strategic business units
• Matrix structures

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Systems

• Having the right systems and process enhances
  organizational effectiveness and facilitates
  coping with change.
• Support systems, such as companys planning,
  budgeting, accounting, information, and reward
  and incentive systems, can be critical to
  successful strategy implementation.

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Processes

• A process is a systematic way of doing things.
• Processes can be formal or informal.
• They define organizational roles and
  relationships, and they can facilitate or
  obstruct change.

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People

• Attracting, motivating, and retaining the right
  people have become important strategic
  objectives.
• Many companies have come to realize that
  developing tomorrows skills, individually and
  collectively, is key to strategic flexibility.

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Culture

• Performance is linked to the strength of a
  companys corporate culture.
• A companys corporate culture is a shared system
  of values, assumptions, and beliefs among a
  firms employees that provides guidance on how to
  think, perceive, and act.

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The Balanced Scorecard

• A set of measures designed to provide strategists
  with a quick, yet comprehensive, view of the
  business
• Traditionally, performance has focused on annual
  budget and operating plan this promotes
  short-term, tactical behavior
• These must be replaced by a set of measurements
  that promote performance- and strategy-focused
  behavior

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The Balanced Scorecard

• Asks managers to view the business from four
  different perspectives customer, company
  capability, innovation and learning, and
  financial
• Provides answers to 4 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 shareholders?

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Four Areas of Measurement

• Customer Concerns
• Product quality, on-time delivery, product
  performance, service, and cost
• Each factor must be measured based on customers
  perspectives and expectations
• Company Capability
• Must achieve operation objectives such as cycle
  time, product quality, productivity, and cost
• This area focuses on inter business processes
  that enable the organization to meet the
  customers needs

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Four Areas of Measurement

• Innovation and Learning
• Deals with ability to create new products,
  provide value to customers, and improve operating
  efficiencies
• These abilities allow for entering into new
  markets increasing revenue, margins, and
  shareholder value
• Financials
• Signal whether strategy is achieving objectives
  that relate to profitability, growth, and
  shareholder value
• Measures cash flow, sales growth, operating
  income, market share, ROA, ROI, ROE, and stock
  price

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Evolution Into Management System

• Balanced Scorecard encompasses four management
  processes
• Translating a vision
• Communicating goals and linking rewards to
  performance
• Improving business planning
• Gathering feedback and learning

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Performance and Control

• Most performance evaluation is focused on outcome
  control, the attainment of specific targets in
  specific goals
• Outcome control is achieved by altering incentive
  structures for managers and executives
• Sometimes outcome control is not enough when we
  need to change the existing corporate culture,
  such as MAs
• In these instances behavior control is needed,
  where the company directly monitors behavior
  rather than providing incentives

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The Role of the Board

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 and culture of
   the company.
4. Formulate corporate strategy with management
5. Ensure that the corporate culture, the agreed
   strategy, management incentive compensation, and
   the companys approach to audit and accounting,
   internal controls, and disclosure are consistent
   and aligned.
6. Help management understand the expectations of
   shareholders and regulators.

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Conclusion

• From Good to Great About Hedgehogs and
  Flywheels
• The 42 Formula for Sustained Business Success
• Excelling at Four Primary Practices
• Embracing Two of Four Secondary Practices
• Strategy and Performance A Conceptual Framework
• Strategy, Purpose, and Leadership
• Strategy and Organizational Change
• The Balanced Scorecard
• Performance and Control
• The Role of the Board