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The larger and more diverse the operations of an enterprise, the more points of strategic initiative it will have and the more managers at different organizational levels will have a relevant strategy-making role. Corporate strategy establishes an overall game plan for managing a set of businesses in a diversified, multi-business company. Functional-area strategies concern the actions related to particular functions or processes within a business.
Operating strategies concern the relatively narrow strategic initiatives and approaches for managing key operating units. In single-business enterprises, the corporate and business levels of strategy making merge into one level—business strategy.
Thus, a single-business enterprise has only three levels of strategy: a. Business strategy for the company as a whole. Functional-area strategies for each main area within the business. Uniting the Strategy-Making Hierarchy a. Anything less than a unified collection of strategies weakens company performance.
Developing a strategic vision, setting objectives, and crafting a strategy are basic direction-setting tasks. In companies committed to regular strategy reviews and the development of explicit strategic plans, the strategic plan may take the form of a written document that is circulated to managers and perhaps, to selected employees.
In small, privately owned companies, it is rare for strategic plans to exist in written form. Managing the implementation of a strategy is easily the most demanding and time consuming part of the strategy management process.
Staffing the organization to obtain needed skills and expertise. Institute a compensation plan for top executives that rewards them for actions and results that serve shareholder interests. Answer: The primary cause is the absence of a strong group of independent directors.
This had the effect of removing truly independent oversight. Family members, acting as Chairman of the Board, will regularly remove an independent CEO and replaced them with unqualified family members. This has the effect of removing qualified and independent senior management oversight. Every corporation should have a strong independent board of directors that: a. Guides and judges the CEO and other top executives.
Has the courage to curb management actions the board believes are inappropriate or unduly risky. Upcoming SlideShare. Like this presentation? Why not share! An annual anal Embed Size px. Start on. Show related SlideShares at end. WordPress Shortcode. Published in: Full Name Comment goes here. Are you sure you want to Yes No. Be the first to like this. No Downloads. Developing expertise and resource strengths that give the company competitively valuable capabilities that rivals can't easily match.
Chanel and Rolex luxury and prestige. Dell's build-to-order manufacturing capabilities in computer hardware have con- sistently allowed it to earn healthy profit margins while offering businesses and consumers competitive prices.
Best download in home electronics. The tight connection between competitive advantage and profitability means that the quest for sustainable competitive advantage always ranks center stage in craft- ing a strategy.
The bigger and more sustainable the competitive advantage. Walt Disney has hard-to-beat capabilities in theme park management and family entertainment. FedEx has developed a resource-based competitive advantage through its superior capabilities in next-day delivery of small packages. Porsche and BMW engineering design and performance. Whole Foods Market in natural and organic foods.
Harley-Davidson outlaw image and distinctive sound. Very often. Differentiation strategies can be powerful so long as a company is sufficiently innovative to thwart clever rivals in finding ways to copy or closely imitate the features of a successful differentiator's product offering. Clever rivals can nearly always copy the attributes of a popular or innovative product.
McAfee in virus protection software. Prominent companies that enjoy competitive success in a special- ized market niche include site in online auctions.
Starbucks in premium coffees and coffee drinks. Ritz-Carlton and Four Seasons have uniquely strong capabilities in providing their hotel and resort guests with an array of per- sonalized services.
Creating a differentiation-based advantage keyed to such features as higher qual- ity. Focusing on serving the special needs and tastes of downloaders comprising a narrow market niche. Discovering what strategy a company is employing entails researching the com- pany 's business approaches and actions in the marketplace.
To maintain the confidence of investors and Wall Street. In the case of publicly owned enterprises. Figure 1. Actions to wider product Actions to respond diversify the selection. But shaped partly by management in industries where industry and competitive conditions change frequently analysis and choice. Every company must be willing and ready to modify ongoing management efforts its strategy in response to changing market conditions.
Adapting to new conditions and constantly learning what is working well enough to conjnue and what needs to be improved are consequently normal parts of the strategy-making process and results in an evolving strategy. WY ma y Regardless of where a company's strategy comes from. But regardless of whether a company's strategy changes gradually or swiftly. Internet retailing.
In some industlies. Company execu- tives typically layout key elements of their strategies in presentations to securities analysts the accompanying PowerPoint slides are usually posted in the investor rela- tions section of the company's Web site and stories in the business media about the comp any often include aspects of the company's strategy.
II most public companies have to be fairly open about their strategies. A Company's trategy I Partly ro ctive a d Iy e i"v The evolving nature of strategy means that the typical company strategy is a blend of I proactive decisions to improve the company 's financial performance and secure a competitive edge.
This part of management's action plan for running the company consists of its proactive strategy elements. As shown in Figure 1. But managers must always be willing to supplement or modify all the proactive strategy elements with as-needed reactions to unanticipated developments.
These adaptive strategy adjustments form the reactive strategy elements. Whether they are deemed ethical or unethical hinges on how high one sets the bar. Ethical and moral standards are not meet the standard of being governed by what is legal. Senior executives with strong ethical convictions are generally proactive in link- ing strategic action and ethics. Is it ethical for a company to turn a blind eye to the damage its operations do to the environment even though its operations are in compliance with current environmental regulations.
Is it ethical for pharmaceutical manufacturers to charge higher prices for life-saving drugs in some countries than they charge in others?
This is a fairly common practice that has recently come under scrutiny. For example. The compensation contracts of many college coaches include substantial payments from sportswear and sport equipment manufacturers. Is it ethical for the makers of athletic uniforms. Many people would say no. A strategy is ethical only if 1 it does actions that can pass moral not entail actions and behaviors that cross the line between "should do" scrutiny in the sense of not and "should not do" because such actions are unsavory.
Their commitment to conducting the company's business in an ethical manner is genuine. Companies that have been in business for a while and are making acceptable prof- its have a proven business model-because there is hard evidence that their strategies are capable of profitability.
They are turned off by unethical strategies and unbecoming conduct-rather than become victims or get burned themselves. Companies that are in a start-up mode or that are losing money have questionable business models. A company's strategy relates broadly to its competitive initiatives and action plan for running the business but it mayor may not lead to profitability.
Why is there convincing reason to believe that the strategy is capable of producing a profit? How will customers be served? How will the business generate its revenues? Will those revenues be sufficient to cover operating costs?
The concept of a company's bllsiness model is. The damage that unethical strategies and behavior can do to a company's reputation and overall business is substantial. Magazines and newspapers employ a business model based on generating suffi- cient subscription and advertising revenue to cover the costs of delivering their products to readers. Cable TV companies. The story line sets forth the key components of explains the rationale for why its the enterprise's business approach.
Absent the abil- ity to deliver good profits. Aside from just the embarrassment and black marks that accompany headline exposure of a company's misbehavior. Absent and create a profit for the company. Is the strategy resulting in better company pelformance? A good strategy boosts company performance. The busi- ness model of network TV and radio broadcasters entails providing free programming to audiences and then charging advertisers fees based on audience size. Unless a strategy exhibits tight fit competitive advantage.
Additional criteria for judging the merits of a particular strategy include I the degree of risk the strategy poses as compared to alternative strategies and 2 the degree to which it is flexible and adaptable to changing circumstances. How well does the strategy fit the company's situation? To qualify as a winner. Gillette's business model in razor blades has involved selling the razor at an attractively low price and then making money on repeat downloads of razor blades.
Two kinds of performance improvements tell the most about the caliber of a company's strategy: Illustration Capsule 1. Strategies that come up short on one or more of the above questions are plainly less appealing than strategies passing al I three test questions with flying colors. Wal-Mart has perfected the business model for big-box discount retailing-a model also used by The Home Depot.
A company evaluating which of several strategic options to employ can size up how well each option measures up against each of the three questions.
The bigger and more durable the competitive edge that a strategy helps build. Printer manufacturers like Hewlett-Packard. Three questions can be used to distinguish a winning strategy from a so-so or flawed strategy: The strategic option with the highest prospective passing scores on all three questions can be rega: These criteria are relevant and merit consideration.
At the same time. Is the strategy helping the company achieve a sustainable competitive advantage? Winning strategies enable a company to achieve a competitive advantage that is durable.
Managers can also use the same questions to pick and choose among alternative strategic actions. On the a business model based on sharply different revenue-cost. Linux's originator. Provide subscribers with PCs sold annually worldwide. Microsoft's business model-sell proprietary code Red Hat. The global community of thousands of cient to cover costs and yield a profit. Linus Torvalds. Linux in multi server. Competent execution of a mediocre strat- egy scarcely merits enthusiastic applause for management's efforts either.
Crafting and executing strategy are top-priority managerial tasks for two very big rea- sons. So there can be little argument that a company's strategy matters-and matters a lot. Among all the things managers do.
And only a handful of companies can boast of strategies that hi t home runs in the marketplace due to lucky breaks or the good fortune of hav- ing stumbled into the right market at the right time with the right product. A clear and reasoned strategy is management's prescription for doing business. More often than not. The chief executive officer of one successful company put it well when he said: In the main. Managers don't deserve a gold star for designing a potentially brilliant strategy but failing to put the organizational means in place to carry it out in high-caliber fashion.
Companies don't get to the top of the industry rankings or stay there with imitative strategies or with strategies built around timid resolutions to try to do better. The ratio- nale for using the twin standards of good strategy making and good strategy execution to determine whether a company is well managed is therefore compelling: The better conceived a company S strategy and the more competently it is executed.
A company that lacks clear-cut direction. There's no escaping the fact that the quality of managers' strategy making and strategy execution has a highly positive impact on revenue growth. High-achieving enter- prises are nearly always the product of astute.
This requires exploring what good strategic thinking entails.
As you tackle the following pages. The answer that emerges. Closely related to the concept of strategy is the concept of a company's busi- ness model. The central thrust of a company's strategy is undertaking moves to build and strengthen the company's long-term competitive position and financial perfor- mance and.
What must managers do. A company's business model is management's story line for how and why the company's product offerings and competitive approaches will generate a rev- enue stream and have an associated cost structure that produces attractive earnings and return on investment-in effect.
A company's strategy typically evolves over time. At the very least. A company's strategy is the game plan management is using to stake out a market position. A winning strategy fits the circumstances of a company's external situation and its internal resource strengths and competitive capabilities. Use the framework provided in Figure l. Given what you know about the specialty coffee industry. Why or why not? Does Levi Strauss's strategy to outsource its manufacturing pass the moral scru- tiny test?
Is it ethical for a company to close plants employing over After you have read the Participant 's Guide or Player's Manual for the strategy simulation exercise that you will participate in this academic term. Whether a com- pany wins or loses in the marketplace is directly attributable to the caliber of that company's strategy and the proficiency with which the strategy is executed.
Levi Strauss had produced 90 percent of its apparel in company-owned plants in the United States employing over Go to www. Crafting and executing strategy are core management functions. On December Begin- ning in Does your review of the company's recent financial pelformance suggest that its business model and strategy are changing?
Read the company's latest statement about its business model and about why it is pursuing the subscription approach as compared to Microsoft's approach of selling copies of its operating software directly to PC manufacturers and individuals. Is its revenue stream from selling training. Does the strategy seem to be keyed to a cost advan- tage. What type of competitive advan- tage does Best download seem to be pursuing? Is the company sufficiently pr.
How has Starbucks' strategy evolved or failed to evolve in recent years?
What is there about Starbucks' strategy that can lead to sustainable competitive advantage? As recently as With every plant closing. Where are we now? Is your company in a good. How are we going to get there? Which of the basic strategic and competitive approaches discussed in Chapter I makes the most sense for your company to pursue? What kind of competitive advantage over rivals do you intend to try to build?
Does your company appear to be in sound financial condition? What problems does your company have that need to be addressed? While your answer to the first of the three questions can be developed from your reading of the manual. Where do we want to go? Where would you like your company to be after the first five decision rounds?
By how much would you like to increase total profits of the company by the end of the simulation exercise?
What kinds of performance outcomes will signal that you and your co-managers are managing the company successfu lly? Part 1 Concepts and Techniques for Crafting and Executing Strategy your co-managers should come up with one. Understand the importance of setting both strategic and financial objectives. Become aware of what a company must do to achieve operating excellence and to execute its strategy proficiently.
Understand why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets. Grasp why it is critical for company managers to think long and hard about where a company needs to head and why. Become aware of the role and responsibility of a company's board of directors in overseeing the strategic management process. Understand why the strategic management process is ongoing. Learn what leadership skills management must exhibit to drive strategy execution forward.
Recognize that the task of crafting a company strategy draws on the entrepreneur- ial talents of managers at all organizational levels. We also explain why strategy making is a task for a company's entire management team and components of the strategy-making. The chapter aside from top executives-involved in the process?
But exactly what is involved in developing a strategy and executing it proficiently? What are the vanous choosing a strategy capable of producing the desired outcomes.
We give special attention to manage. To what extent are company personnel. Deciding to commjt the company to follow one Figure 2. Evaluating performance and initiating corrective adjustments in the company's long-term direction. Implementing and executing the chosen strategy effiCiently and effectively. Crajiing a strategy to achieve the objectives and move the company along the strategic course that management has charted.
PHASE 1: The managerial process of crafting and executing a company's strategy consists offive interrelated and integrated phases: Let's examine each phase in enough detail to set the stage for the forthcoming chapters and give you a bird's-eye view of this book. Figure 2. Developing strategy to Implementing evaluating Setting a strategic aChieve the and executing per1ormance.
Setting objectives and using them as yardsticks for measuring the company's per- formance and progress. A strategic vision delineates management's aspira- A strategic vision describes tions tor the business. Henry Ford's vision of a car in every garage had power because the future. A strategic vision proclaiming management's quest "to be the market leader" or "to be the first choice of customers" or "to be the most innovative" or "to be recognized as the best company in the industry" offer scant guidance about a company's direction and what changes and chaJlenges lie on the road ahead.
I For tegic course in preparing for instance. A clearly articulated stra- strengthening its business. A good vision always needs to be beyond a company's immediate reach so as to help unleash unified actions on the part of company personnel that move the company..
Well-conceived visions are distinctive and specific to a particular organization. For a strategic vision to function as a valuable managerial tool. A number of factors need to be considered in deciding where to head and why such a direction makes good business sense-see Table 2.
The Committed Enterprise: And some are so short on specif. Some are nice-sounding but say little. Easy to communicate Is explainable in minutes and. Based partly on John P Kotter. Chapter 2. Many read like a public relations statement. Focused Is specific enough to provide managers with guidance in making decisions and allocating resources. Desirable Indicates why the direction makes good business sense and is in the long-term interests of stakeholders especially shareowners.
Too broad So inclusive that the company could head in most any direction. Chapters 2. Leading Change Boston: Harvard Business School Press. Others read like something written by a committee hoping to win the support of different stakeholders. Feasible Is within the realm of what the company can reasonably expect to achieve in due time. Directional Is forward-looking. Based on information in Hugh Davidson.
Strategy Pure and Simple II: Too reliant on superlatives Doesn't say anything specific about the company's slrategic course beyond' the pursuit of such lolty accolades as best. Table 2. Bland or uninspiring Lacks the power to motivate company personnel or inspire shareholder confidence about the company's direction or future prospects Not distinctive Provides no unique company identity.
Illustration Capsule 2. We foster a distinctive.
We focus on wealth and asset Feasible Bland or uninspiring management. Our purpose is to help our clients make financial decisions with confidence. We use our resources to develop effective solutions and services for our clients.
Company documents and Web sites. The one. Caterpillar Be tile gl'o balleader in customer value. By growing both our client and our talent franchises. But the real purpose of a vision statement is to serve as a management tool for giving the organization a sense of direction. We share a common ambition to succeed by delivering quality in what we do.
We continually earn recognition and trust from clients. Like any tool. We provi de these with a dedication to tbe highest quality of customer satishlction delivered with a sense of warmth.
Not many company mission statements fully reveal all these facets of its business. The mission statements that one finds in company annua reports or The distinction between a posted on company Web sites typically provide a brief overview of the com- strategic vi!
Very few mission statements are forward-looking in content or emphasis. Trader Joe's mission statement does a good job of conveying "who we are. The mission of Trader Joe 's is to give our customers the best food and beveragc values that they can find anywhere and to provide them with the information requircd for informed downloading decisions.
Profit is more correctly an objective and a result of what a company does. But rarely do company mission statements say whereas a company's mission anything about where the company is headed. Some companies use the term business purpose instead of mission statement in characterizing their business activities.
The company conducted a series of values workshops in that allowed more than Toyota preaches respect for and devel. The now-defunct energy corporation Enron. Such companies have values statements because they are in vogue or because they make the company look good. By values or core values. Most companies have built their statements of values around four to eight traits that company personnel are expected to display and that are supposed to be mirrored in how the company conducts its business.
Abbott chose its fOllr core values according to research suggesting these qualities were of utmost importance to the company's key stakeholders. They relate to such things as fair treatment. The extent to which company values statements translate into actually living the values varies widely. At the other extreme are companies with values that act as window dressing.
At companies such as Abbott. A company's values are the teamwork. The company fur- ther solidified the values within the organization by asking that each business unit and employee develop annual goals that embodied each of the four values. In their view. Frontline employees can't be expected to unite behind managerial efforts to get the organization moving in the intended direction until they understand why the strategic course that management has charted is reasonable and beneficial.
When managers articulate a vivid and compelling case for where the company is headed. The chasm between the company's stated values and the actions of its managers became evident during Enron's dramatic implosion and subsequent bankruptcy.
Winning the support of organ. Some companies combine their vision and values into a single statement or document. In new companies or companies with weak or incomplete sets of values. Values and behaviors that complement and support the company's vision are then drafted by these executives and circulated among managers and employees for discussion and possible modification. An engaging and convincing strategic vision has enormous to actions that get the com.
At companies where the stated values are real rather than cosmetic. In companies with long-standing values that are deeply entrenched in the corpo- rate culture.
We seek the innova. We celebrate We thrive on creativity and ingenuity.
We yodel. We are flexible and learn from our mistakes. We are not afraid to take informed. A number of organizations have summed up their vision in a is imprinted in the minds of brief phrase: FUN We believe humor is essential to success. We encourage the best ideas to surface that direct how we service our customers. We know lead. Monday-morning quarterbacks. We foster collaboration while maintaining individ- that guide interactions with fellow Yahoos.
We appreciate the drive what we do and how we do it. We are committed to serving both the Internet ership is hard won and should never be taken for granted. We share a personal quo. Expressing the Essence of the Vision in a Slogan The task of effectively conveying the vision to company personnel is sometimes made Strategic visions become real easier when management can capture the vision in a catchy.
We aspire to flawless execution and don ' t take shortcuts on quality. Many of our values value of multiple perspectives and diverse expertise. All of them are what we strive to achieve every day. We seek the best talent and promote i. How we pursue that We treat one another with respect and communicate mission is influenced by a set of core values-the standards openly.
We anticipate market trends and move quickly to embrace them. Intel's chairman and cofounder. Each time U. As the Intel example forcefully demonstrates. Breaking Down Resistance to aNew Strategic Vision It is particularly important for executives to provide a compelling rationale for a bold new strategic vision that takes a company in a dramatically different direction.
Moore and Grove's new vision and strategic course for Intel produced spectacu- lar results.
Executives must repeat the rea- sons for the new direction often and convincingly at company gatherings and in com- pany publications. In the mids. Japanese manufacturers intent on dominating the memory chip business began setting their prices 10 percent below the prices charged by Intel and other U. More than 80 percent of the world's pes have been made with Intel microprocessors since Intel's change in vision played a major role in getting more than 1 billion computers con- nected to the Internet worldwide.
Often it is a question of how to sustain company success. A new vision was developed that involved committing Intel's full energies to becoming the preeminent supplier of microprocessors to the personal computing industry. Intel's CEO. Such changes come about only rarely.
Company personnel are prone to resist change that requires new priorities and work practices when they don't understand or accept the need for such redirection. Intel refocused on becoming the preeminent building-block supplier to the Internet economy and spurring efforts to make the Internet more useful. Gordon Moore. The technology com- pany Intel has encountered two strategic inflection points during its history: A single instance of stating the case for a new direction is not enough.
Unless and until the vision gains wide acceptance.
Responding quickly to unfolding changes in the marketplace lessens a company's chances of becoming trapped in a stagnant or declining business or letting attractive new growth opportunities slip away. As Bill Hewlett. And what gets measured gets done. I it crystallizes senior executives' own views about the firm's long-term direction.. Well-stated objectives are quantifiable.
PHASE 2: When management is able to demonstrate significant progress in achieving these five benefits. Challenging company personnel to exert their best efforts to effective tool for avoiding ho- achieve "stretch" gains in performance pushes an enterprise to be more inven.
Stretch objectives spur exceptional performance and help build a firewall against con- tentment with modest gains in organizational performance. Objectives are an organiza- able. As Mitchell Leibovitz. The best and most reliable leading indicators of a company's future financial performance and business prospects are strategic outcomes that indi- cate whether the company's competitiveness and market position are stronger or weaker.
Examples of commonly used financial objectives and strategic objectives include the following: Strategic objec. Of equal or achieve. If a company that boost its competitiveness is losing ground to competitors and its market position is slipping-outcomes and strength in the market.
For instance. Improved Strategic Perfor- ing. Increase our beauty sales and market share. Ann Taylor Stores. The surest path to boosting company projitability quarter ajier quarter and year after year is to relentlessly pursue strategic outcomes that strengthen the company s market position and produce a growing competitive advan- tage over rivals.
Duke University Hospital. Information posted on company Web sites accessed March Spain and electric vehicles. Targets to be achieved within three to five years prompt considerations of what to do now to put the. Having quarterly and annual objectives focuses attention on delivering immediate pelformance improvements. C onsequently. Hilton Hotels. Japan during and By The Hondalet was expected to obtain FAA certifi- cation in They rally the organiza- tion around efforts to make the strategic inteHt a reality.
For some years.