University of Massachusetts Lowell

Manning School of Business

Strategy Formulation and Implementation
MGMT.6910

Class Notes Week 2 The Process: Starting Points

Table of Content
What we did last week ........................................................................................................ 1
What we will do this week .................................................................................................. 2
Assignments for this week .................................................................................................. 2
Reading ........................................................................................................................... 2
Discussion Board ............................................................................................................ 2
Chat ................................................................................................................................. 3
Individual Assignments .................................................................................................. 3
Group Projects ................................................................................................................ 3
The Process ......................................................................................................................... 3
Strategy making and strategy execution process overall steps ........................................ 4
Vision and Mission Statements ....................................................................................... 5
Objectives/Goals ............................................................................................................. 7
Good Strategy Comes First ................................................................................................. 7
AT&T in 1980s- an example ......................................................................................... 7
Hierarchy of Strategies ................................................................................................... 8
Implementation and Performance Evaluation ..................................................................... 9
Leading the Process ............................................................................................................ 9

What we did last week

Last week we introduced the topic of strategy planning and implementation. With a few
examples of companies such as Apple, Microsoft, Xerox, Kodak, Maytag, and AT&T,
you have some appreciation of:
- strategy planning process requires a detailed understanding of the
environment
- strategy execution process is as critical as strategy planning
- these two processes must be fully integrated to be successful
We also discussed basics of the business, and what is strategy. To run a successful
business, a firm must have its 3 main components work in synch: firms environment;
firms capabilities; and, firms mission. We reviewed briefly what is strategy and what
are key factors in determining it. We will be discussing a lot more as we progress through
this class. We ended the discussion with IBM example of its vision/mission and
strategies.

What we will do this week

This week we will discuss an overall strategic making and executing process.

Chapter 2 of our text book discusses the topic quite well. It will set a stage for our in-
depth discussion on each of major components of the Process. At the end of this weeks
readings, reviews and discussions you should be able to understand an overall framework
for the strategy making (or formulating) process. Strategy making happens at different
levels of an organization: Company level (what business/industry are we in?); Business
level (how do we compete?) and at Functional organization level (how will we allocate
our resources as we integrate activities within all parts of the company?). So, strategy is a
management plan to achieve mission, goals and objectives. CEO has a strategy; Exec
VPs in charge of an SBU has a strategy; Divisional/Functional VP has a strategy; etc.
Most often, companies approach strategy making with a bureaucratic process, typically in
hands of a few people at Corporate level, with a mind set of:

To overcome this mindset, note that

A businessman is a hybrid between a dancer and a calculator.

Paul Valery

Assignments for this week

Reading
Read Class Notes 2
Read Chapter 2

Discussion Board
Question Assigned to
Review most current issues of business/management ALL
publications (e.g. Wall Street Journal, Financial Times,
BusinessWeek, Forbes, etc.) and find an article or news
report related to this weeks topics (see Class Notes) and
- Briefly summarize the article
- Offer your opinions and comments
- Discuss relevance to this weeks topics
- Include complete source (provide full web link)
Also, comment on at least one classmates post

Post question(s) for instructor and/or comments to ALL

share with all

Chat
See Blackboard Home Page for Chat Schedule(s)

Individual Assignments
Your individual assignment 1 (Unilever) is due week 5. It is available on Blackboard for
you to review and start working on. We will review it during next week chat session.

Group Projects
Your BSG Practice Round 1 is due this Saturday. Be sure to review Participants
Guide and discuss with your team members your Round 1 decisions. Feel free to
send an email to the instructor if any questions.

Class Notes begin

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The Process
At the outset, we need to understand that the strategy making and executing is a process,
a management process, and further, it is a continuous process. As shown below, typically,
all levels of management in a firm are engaged in some planning and executing activities.
However, for reasons of managing the business, this process needs to be operationalized
in terms of longer term plan (typically called strategic plans) and annual plans (or
operational plans). Based on these plans management decisions are made to establish
objectives, strategies and allocate resources. These plans (strategic and operational) are in
some sense snap shots of the business at a given point in time.
 Strategy making and executing is an on-going Process
Exec Management, Board, Staff Planners, Op Mgmt,
Consultants, etc.

Strategy Analysis, Thinking, Planning, execution

SBUs, Divisions, Functional orgns Operating

departments
Reviews Implement
Strategic Planning Decisions Operational Planning

Time
Q1 Q2 Q3 Q4

To better manage, understand and facilitate the process, top management as well as the
operating management of a firm need to ensure that the process is not about churning out
numbers; it is about understanding the environment that the firm is operating in, crafting
a proper and effective strategy to operate in this environment, allocating resources to
execute the strategy and to constantly monitor and evaluate the performance against the
strategy. A firm must understand strategy related specific actions or programs, which in
turn translate to what levels and types of resources required. More often, strategy making
process is boiled down to generating 5-year plans full of pro forma financial statements
without much understanding of what and why.

Strategy making and strategy execution process overall steps

From the previous discussion, we can look at the overall steps required in crafting a
strategy and executing it. As noted above, strategic planning consists of first 3 steps in
the following chart: vision; objectives; and, strategy.
 Figure 2.1: The Strategy-Making, Strategy-Executing Process

2-6

Vision and Mission Statements

We have discussed briefly intent and need for a strong vision statement; this is an
aspiration, a dream, a desire, and a firm must have a passionate/emotional statement that
is simple but clear and motivates the organization. It is the direction of the company,
where it intends to go, what it intends to be.

Vision statement is driven from both external and internal factors. Most often, firms do
not state their vision statements, or if they do, they are very vague and unclear or they are
too long to make any sense. Text book gives a few examples of vision statements and
what to look for in these statements.

Whereas, mission statement talks about who we are, what we do, what value we bring
and often relate to the future. You will see often a firm combining both into one, which
may create more confusion than help.

You should ask these, many others, questions as you formulate your vision and mission

What business are we in now?

What business do we want to be in?
What will our customers want in future?
What are expectations of our stakeholders?
Who will be our future competitors? Suppliers? Partners?
What should our competitive scope be?
How will technology impact our industry?
Mission statements change to recognize changes in outside as well as inside worlds of a
business. Let us take a few examples of well known companies to see how their missions
have changed.

Kodak in 1990s wanted to be the Worlds best in chemicals and electronics imaging.
As the environment changed, viz. film-based (i.e. chemicals) to digital photography,
Kodak had to change its mission to properly define its current role We plan to grow
more rapidly than our competitors by providing customers with the solutions they
need to capture, store, process, output and communicate images, anywhere,
anytime. We will derive our competitive advantage by delivering differentiated,
cost-effective solutions, including consumables, hardware, software, systems and
services, quickly and with flawless quality. All this is thanks to our diverse team of
energetic, results-oriented employees with the world-class talent and skills necessary
to sustain Kodak as the world leader in imaging.

Apple Computers Mission statement in 1980s was: to offer the best possible personal
computing technology and to put that technology in the hands of as many people as
possible

According their website, their current mission statement is Apple designs Macs, the
best personal computers in the world, along with OS X, iLife, iWork and
professional software. Apple leads the digital music revolution with its iPods and
iTunes online store. Apple has reinvented the mobile phone with its revolutionary
iPhone and App Store, and is defining the future of mobile media and computing
devices with iPad. (http://investor.apple.com/faq.cfm?FaqSetID=6)

IBM struggled during early 1990s as it transitioned from hardware to solutions, software
and services. In 1993, it set its mission which is pretty much in the same as today. It notes
the importance of setting mission, and a vision that is providing a longer term direction to
the company. IBMs current mission statement At IBM, we strive to lead in the
invention, development and manufacture of the industry's most advanced information
technologies, including computer systems, software, storage systems and
microelectronics. We translate these advanced technologies into value for our customers
through our professional solutions, services and consulting businesses worldwide.
Company Values

You will often see firms describing their core values, which may also be a part of a
mission and/or vision or both. Values may center around customers, employees, some
key competency like innovation, integrity, ethical behavior, etc. Collectively vision,
mission and values provide a broad framework of a firms business to both external
stakeholders like customers, suppliers, shareholders, etc and internal stakeholders like
employees.
Back to IBM, you will find reading it interesting to read IBMs process of setting mission
and values: http://www.ibm.com/ibm/values/us/. They describe very simply: In the end,
IBMers determined that our actions will be driven by these values:
Dedication to every client's success
Innovation that matters, for our company and for the world
Trust and personal responsibility in all relationships

Objectives/Goals
Once the broad business framework is established through articulating vision/mission and
values, a firm needs to establish objectives and goals: what do we want to achieve? What
position we want to acquire? These will be both qualitative (Goals) and quantitative
(Objectives). Objectives and goals must be set based on both external and internal
drivers. These should realistic (but can be stretched to challenge the organization) and
should be positive motivators.

Good Strategy Comes First

A good strategy is a must to make a successful execution. Even though this should be a
very obvious statement to all, history is full of cases where companies have tried to
execute bad strategies and have miserably failed. In computer industry, many hardware
companies have disappeared over the past 20 years because they tried to execute bad
strategies (e.g. Honeywell, DEC, DG, Wang, etc.). For instance, these companies tried to
execute proprietary systems strategy even as trends towards open systems were very
strong. Some experienced short term successes because of inertia, sales efforts, customer
lock-ins, etc. But, long term they simply did not make it because of bad strategies.

As we discussed last week, excellent execution of a well defined strategy produces

superior results; whereas, poor execution of a unclear strategy will always yield
disastrous results. So it is imperative that the management process must produce both
good, well defined, clear strategy and a n excellent execution capability. Therefore, the
starting point is formulating a good strategy.

AT&T in 1980s- an example

US Telecom industry deregulation in 1984, resulting in a break up of AT&T into several

regional Baby Bells. These baby Bells initially provided local services but over the years
started moving into Long Distance, which was AT&Ts domain.

AT&T lost local phone services, and only long distance services. A T & T had to get into
Local to protect, serve customers. In mid 1990s, it had these strategic options:

- resell local services from Bell companies

- establish own local service by buying a local Bell company
- own local lines through acquisition of non Bell Cos
Cable services
Each of these options had pros and cons: reselling local services meant that AT&T was at
the mercy of a Baby Bell (in terms of price/cost, quality, etc. while it was available
immediately); establishing own local services would mean they would control their
future however, expensive and could again create legal problems; and finally, could
expand through acquisition (though expensive it could get them going immediately).

AT&T decided to go with the last option and bet $100 B in Cable market. At the end,
however, they did not succeed. Why?

- Poor strategy and/or poor execution?

- Misinformation from competitors?
- Culture - slow moving?
- New competitive environment?
- Poor leadership?

Probably all of these and some others are the reasons for AT&Ts failure in Cable
market. You will find many examples like AT&T where a strategy is decided based on a
very detailed evaluation of outside environment, and to some extent, internal capabilities
(mostly in terms of financials) and they are not successful. Or, if they are successful, it
probably is a short lived success.

Hierarchy of Strategies

Last weeks notes defined Strategy as

Strategy a determination of long-term goals and objectives of an enterprise, and

adoption of courses of action and allocation of resources, structured and
administered through organizations (Chandler, HBS 1962)

Let us discuss it further.

Strategy is use of scarce resource to achieve vision/mission and objectives. To that

end, Strategy is a Collection of actions at: Corporate (what business/industry); at
Business (how to compete); and, at Organization/function (where to allocate
resources)

Typically, a company will have a hierarchy of strategies: Corporate level strategies;

Business (SBU) level strategies; and, Functional (within a business/SBU) level strategies.

A company has multiple level of strategies: Corporate (what business/industry); Business

(how to compete) and Functional (resource allocation). At Corporate level the company
is most concerned with selecting overall market(s) and industry(ies); how the value is
created; how businesses are structured; how synergy(is) between businesses is achieved;
etc. Once a business is defined, structured and resources are allocated to that business,
business level strategies will consist of how it will compete in the market, what strategies
it will implement to create a sustainable competitive advantages, etc. In turn, functions
within a business defines their specific strategies which must be consistent with business
level strategies. So, for example, a business level strategy is to compete on a low cost
basis, all functions and activities within the company must be tuned to highest level of
productivity.

Specifically,
Corporate level strategies may include many different options:
Growth (within the same industry, in related industry and/or diversifying in a
different industry)
Stability (attend to profitability when environment maybe not so clear)
Retrenchment (of operations to bring back the financial health, also called turn
around strategy)
Portfolio (managing multiple businesses in terms of resource allocation and
management time/attention)

Business level strategy must support Corporate strategy and have these options:
Competitive strategies such as cost or differentiation
Cooperative strategies such as strategic alliances and partnering (leading to a business
ecosystem)

Function level strategies consider plans (supporting business and corporate strategies).
Key point in these functional plans is to make sure they are fully integrated with each
other.

Implementation and Performance Evaluation

Next 2 steps in the overall process are (i) translating strategies into action programs,
assigning responsibility/accountability, organizing appropriately and then executing
(operational), and (ii) to monitor and evaluate the on-going performance. These 2 steps
are very critical and success or failure of the firm will depend on first, the quality of its
strategy and second, how well it has allocated and organized resources to make it happen.
Right skill sets, clarity in actions and responsibility/accountability, well defined
goals/objectives at different operating levels and effective leadership combines with
right culture within the company are essential factors to make it happen.

Leading the Process

A proper and effective Corporate Governance is important in both crafting and executing
strategy. It consists of Board of Directors and Senior Executive team (CEO and his/her
team). A strategic analysis is the step required to assess the firms current situation and its
environment, internal and external. One of the critical factors in this is the evaluation of
corporate governance. Understanding what makes up the Board and senior management
team is key to ensuring that a good strategic plan will be developed and executed.
Relationship between the Board and the Management Team is crucial. Their roles at a
higher level are depicted in the following chart.

Corporate Governance
The relationship among the board of directors, top management, and
shareholders determining the direction and performance of the corporation

Board of Directors: (Inside, outside, Diversity, Background,

expertise)
Monitor
Evaluate and influence
Initiate and determine

Top Management: CEO, Executive Team

Strategic vision
Role model
Communication of performance standards
Demonstrates confidence in abilities of followers

Evaluation of the Board will include such factors as: what roles do they play, what value
do they bring, their background, diversity, how proactive, etc. Similarly, Management
Team evaluation needs to be concerned with such factors as time with the company,
background/experience, track records, diversity, etc.

Back to your assignments!!!