Create a company that is based in Orangeburg, SC.. The company choosen was Organic Coffee and Beverages in Orangeburg, SC.
Using the exercise for simulation participants on page 15 as well as table 2.1 on page 22 of your textbook, create a vision, a mission and workable objectives for your company.
EXERCISE FOR SIMULATION PARTICIPANTS
Three basic questions must be answered by managers of organizations of all sizes as they begin the process of crafting strategy:
- What is our present situation?
- Where do we want to go from here?
- How are we going to get there?
After you have read the Participant’s Guide or Player’s Manual for the strategy simulation exercise that you will participate in during this academic term, you and your co-managers should come up with brief one- or two-paragraph answers to these three questions prior to entering your first set of decisions. While your answer to the first of the three questions can be developed from your reading of the manual, the page 16 second and third questions will require a collaborative discussion among the members of your company’s management team about how you intend to manage the company you have been assigned to run.
- What is our company’s current situation? A substantive answer to this question should cover the following issues:
- Is your company in a good, average, or weak competitive position vis-à-vis rival companies?
- Does your company appear to be in a sound financial condition?
- Does it appear to have a competitive advantage, and is it likely to be sustainable?
- What problems does your company have that need to be addressed?
LO 1, LO 2, LO 3
- Where do we want to take the company during the time we are in charge? A complete answer to this question should say something about each of the following:
- What goals or aspirations do you have for your company?
- What do you want the company to be known for?
- What market share would you like your company to have after the first five decision rounds?
- By what amount or percentage would you like to increase total profits of the company by the end of the final decision round?
- What kinds of performance outcomes will signal that you and your co-managers are managing the company in a successful manner?
LO 4, LO 6
- How are we going to get there? Your answer should cover these issues:
- Which one of the basic strategic and competitive approaches discussed in this chapter do you think makes the most sense to pursue?
- What kind of competitive advantage over rivals will you try to achieve?
- How would you describe the company’s business model?
- What kind of actions will support these objectives?
LO 4, LO 5
- Next, using stage 4 and 5 on page 36 and 37 as well as the Exercise for simulation participants on page 43 of your textbook to create workable objectives for your company.
STAGE 4: EXECUTING THE STRATEGY
What a company must do to achieve operating excellence and to execute its strategy proficiently.
Managing the implementation of a strategy is easily the most demanding and time-consuming part of the strategy management process. Converting strategic plans into actions and results tests a manager’s ability to direct organizational change, motivate company personnel, build and strengthen competitive capabilities, create and nurture a strategy-supportive work climate, and meet or beat performance targets. Initiatives to put the strategy in place and execute it proficiently must be launched and managed on many organizational fronts.
Management’s action agenda for executing the chosen strategy emerges from assessing what the company will have to do to achieve the targeted financial and strategic performance. Each company manager has to think through the answer to the question “What needs to be done in my area to execute my piece of the strategic plan, and what actions should I take to get the process under way?” How much internal change is needed depends on how much of the strategy is new, how far internal practices and competencies deviate from what the strategy requires, and how well the present work culture supports good strategy execution. Depending on the amount of internal change involved, full implementation and proficient execution of the company strategy (or important new pieces thereof) can take several months to several years.
In most situations, managing the strategy execution process includes the following principal aspects:
- Creating a strategy-supporting structure.
- Staffing the organization to obtain needed skills and expertise.
- Developing and strengthening strategy-supporting resources and capabilities.
- Allocating ample resources to the activities critical to strategic success.
- Ensuring that policies and procedures facilitate effective strategy execution.
- Organizing the work effort along the lines of best practice.
- Installing information and operating systems that enable company personnel to perform essential activities.
- Motivating people and tying rewards directly to the achievement of performance objectives.
- Creating a company culture conducive to successful strategy execution.
- Exerting the internal leadership needed to propel implementation forward.
Good strategy execution requires diligent pursuit of operating excellence. It is a job for a company’s whole management team. Success hinges on the skills and cooperation of operating managers who can push for needed changes in their organizational units and consistently deliver good results. Management’s handling of the strategypage 37 implementation process can be considered successful if things go smoothly enough that the company meets or beats its strategic and financial performance targets and shows good progress in achieving management’s strategic vision.
STAGE 5: EVALUATING PERFORMANCE AND INITIATING CORRECTIVE ADJUSTMENTS
The fifth component of the strategy management process—monitoring new external developments, evaluating the company’s progress, and making corrective adjustments—is the trigger point for deciding whether to continue or change the company’s vision and mission, objectives, strategy, and/or strategy execution methods.15 As long as the company’s strategy continues to pass the three tests of a winning strategy discussed in Chapter 1 (good fit, competitive advantage, strong performance), company executives may decide to stay the course. Simply fine-tuning the strategic plan and continuing with efforts to improve strategy execution are sufficient.
But whenever a company encounters disruptive changes in its environment, questions need to be raised about the appropriateness of its direction and strategy. If a company experiences a downturn in its market position or persistent shortfalls in performance, then company managers are obligated to ferret out the causes—do they relate to poor strategy, poor strategy execution, or both?—and take timely corrective action. A company’s direction, objectives, and strategy have to be revisited anytime external or internal conditions warrant.
A company’s vision, mission, objectives, strategy, and approach to strategy execution are never final; reviewing whether and when to make revisions is an ongoing process.
Likewise, managers are obligated to assess which of the company’s operating methods and approaches to strategy execution merit continuation and which need improvement. Proficient strategy execution is always the product of much organizational learning. It is achieved unevenly—coming quickly in some areas and proving troublesome in others. Consequently, top-notch strategy execution entails vigilantly searching for ways to improve and then making corrective adjustments whenever and wherever it is useful to do so.
CORPORATE GOVERNANCE: THE ROLE OF THE BOARD OF DIRECTORS IN THE STRATEGY-CRAFTING, STRATEGY-EXECUTING PROCESS
The role and responsibility of a company’s board of directors in overseeing the strategic management process.
Although senior managers have the lead responsibility for crafting and executing a company’s strategy, it is the duty of a company’s board of directors to exercise strong oversight and see that management performs the various tasks involved in each of the five stages of the strategy-making, strategy-executing process in a manner that best serves the interests of shareholders and other stakeholders.16 A company’s board of directors has four important obligations to fulfill:
- Oversee the company’s financial accounting and financial reporting practices. While top executives, particularly the company’s CEO and CFO (chief financial officer), are primarily responsible for seeing that the company’s financial statements fairly and accurately report the results of the company’s operations,page 38 board members have a legal obligation to warrant the accuracy of the company’s financial reports and protect shareholders. It is their job to ensure that generally accepted accounting principles (GAAP) are used properly in preparing the company’s financial statements and that proper financial controls are in place to prevent fraud and misuse of funds. Virtually all boards of directors have an audit committee, always composed entirely of outside directors (inside directors hold management positions in the company and either directly or indirectly report to the CEO). The members of the audit committee have the lead responsibility for overseeing the decisions of the company’s financial officers and consulting with both internal and external auditors to ensure accurate financial reporting and adequate financial controls.
- Critically appraise the company’s direction, strategy, and business approaches. Board members are also expected to guide management in choosing a strategic direction and to make independent judgments about the validity and wisdom of management’s proposed strategic actions. This aspect of their duties takes on heightened importance when the company’s strategy is failing or is plagued with faulty execution, and certainly when there is a precipitous collapse in profitability. But under more normal circumstances, many boards have found that meeting agendas become consumed by compliance matters with little time left to discuss matters of strategic importance. The board of directors and management at Philips Electronics hold annual two- to three-day retreats devoted exclusively to evaluating the company’s long-term direction and various strategic proposals. The company’s exit from the semiconductor business and its increased focus on medical technology and home health care resulted from management-board discussions during such retreats.17
- Evaluate the caliber of senior executives’ strategic leadership skills. The board is always responsible for determining whether the current CEO is doing a good job of strategic leadership (as a basis for awarding salary increases and bonuses and deciding on retention or removal).18 Boards must also exercise due diligence in evaluating the strategic leadership skills of other senior executives in line to succeed the CEO. When the incumbent CEO steps down or leaves for a position elsewhere, the board must elect a successor, either going with an insider or deciding that an outsider is needed to perhaps radically change the company’s strategic course. Often, the outside directors on a board visit company facilities and talk with company personnel personally to evaluate whether the strategy is on track, how well the strategy is being executed, and how well issues and problems are being addressed by various managers. For example, independent board members at GE visit operating executives at each major business unit once a year to assess the company’s talent pool and stay abreast of emerging strategic and operating issues affecting the company’s divisions. Home Depot board members visit a store once per quarter to determine the health of the company’s operations.19
- Institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, and most especially those of shareholders. A basic principle of corporate governance is that the owners of a corporation (the shareholders) delegate operating authority and managerial control to top management in return for compensation. In their role as agents of shareholders, top executives have a clear and unequivocal duty to make decisions and operate the company in accord with shareholder interests. (This does not mean disregardingpage 39 the interests of other stakeholders—employees, suppliers, the communities in which the company operates, and society at large.) Most boards of directors have a compensation committee, composed entirely of directors from outside the company, to develop a salary and incentive compensation plan that rewards senior executives for boosting the company’s long-term performance on behalf of shareholders. The compensation committee’s recommendations are presented to the full board for approval. But during the past 10 to 15 years, many boards of directors have done a poor job of ensuring that executive salary increases, bonuses, and stock option awards are tied tightly to performance measures that are truly in the long-term interests of shareholders. Rather, compensation packages at many companies have increasingly rewarded executives for short-term performance improvements—most notably, for achieving quarterly and annual earnings targets and boosting the stock price by specified percentages. This has had the perverse effect of causing company managers to become preoccupied with actions to improve a company’s near-term performance, often motivating them to take unwise business risks to boost short-term earnings by amounts sufficient to qualify for multimillion-dollar compensation packages (that many see as obscenely large). The focus on short-term performance has proved damaging to long-term company performance and shareholder interests—witness the huge loss of shareholder wealth that occurred at many financial institutions in 2008–2009 because of executive risk taking in subprime loans, credit default swaps, and collateralized mortgage securities. As a consequence, the need to overhaul and reform executive compensation has become a hot topic in both public circles and corporate boardrooms. Illustration Capsule 2.4 discusses how weak governance at Volkswagen contributed to the 2015 emissions cheating scandal, which cost the company billions of dollars and the trust of its stakeholders.
STAGE 4: EXECUTING THE STRATEGY