Strategy A View from the Top Chapter 2

1. Erinn Adams Kunal Patel Brandon Anderson Matt Castleberry StrategyA View from the TopChapter 2

2. Good to Great: Why some companies make the leap… and Others Don’t by Jim Collins. • What Really Works: The 4+2 Formula for Sustained Business Success by Joyce, Nohria, and Roberson. • Conceptual Framework for Strategy and Performance • The Balanced Scorecard • Role of Board of Directors Strategy and Performance

3. Top Leadership • The attributes of top leadership are a significant difference between good and great companies. • Level 5 Leadership is a common characteristic of great companies. • Forms top level of a five-level hierarchy. • Display a mix of intense determination and humility. • Have a long term sense of investment in the company. • Financial gain is not as important as long term benefit of the company. From Good to Great

4. Nature of the Leadership Team • Level 5 leadership must be obtained before an overall strategy can be developed. • With the correct management in the correct places, management problems harmful to the company will disappear. • Worth the extra time and money. • Willingness to identify and assess defining facts in the company and in the larger business environment. • Have to keep pace with the changing marketplace and trends in order to succeed. From Good to Great

5. Metaphor to show the principle that simplicity can lead to greatness. • Transformation from good to great is not from doing many things well, but by doing one thing better than anyone else in the world. • Those who identify their “hedgehog concept” are rewarded with success. • To determine your hedgehog concept: • Determine what the company can and cant be best at in the world. • Determine what drives the company’s economic engine. • Determine what the company’s people are deeply passionate about. Hedgehogs http://www.jimcollins.com/media_topics/hedgehog-concept.html#audio=80

6. Organization where the managers and staff are driven by an unrelenting inner sense of determination. Individuals function as entrepreneurs and have a deep personal investment in their work and the company. Members stick to the script of the company’s “hedgehog concept”. Overarching Organizational Culture of Discipline

7. Businesses shouldn’t depend on technology to: • Increase efficiency • Reduce overhead • Maximize competitive advantage. • Good to great companies approach technology with careful attention. • Apply technology in relation to their hedgehog concepts. • Collins’ Ideal approach to technology: • “Pause-Think-Crawl-Walk-Run.” Technology

8. Advantageous business cycle (flywheel effect). • When companies make decisions that reinforce their hedgehog competencies, this initiates positive momentum. • This results in a string of positive outcomes that energized and gain the loyalty of the staff. Flywheel Effect

9. In contrast to the flywheel the doom loop can be described by: • Reactive decision making. • Extending into too many diverse areas of concentration. • Following short-lived trends. • Constant changes in leadership and personnel. • Loss of morale and disappointing results. Doom Loop

10. Companies need a set of core values to achieve long-term success. • The values can be open ended as long as the team members are dedicated to the same ones. • Netflix Values: • “Values are what we value. Real company values are the behaviors and skills that we particularly value in our fellow employees: Judgment, Communication, Impact, Curiosity, Innovation, Courage, Passion, Honesty, Selflessness.” Extract from the Netflix “Reference Guide on our Freedom & Responsibility Culture ” Core Values

11. Study conducted of 200 management practices employed over a 10 year period by 160 companies. • Companies outperforming others excelled at four primary management practices: • Strategy, execution, culture, and structure. • In addition they increased these strengths with any 2 of these four management practices: • Talent, innovation, leadership, and mergers and partnerships. 4+2 Formula

12. Results of study show: • It doesn’t matter what particular decision a company chooses to make. • What matters is how a company implements its decision. • Ex: Whatever technology a company selects, it needs to implement it flawlessly. • Winning performance depends on more than having the right strategy. • You need to excel in six dimensions of success all at once. • A misstep in any of the six dimensions can hinder a company’s performance. 4+2 Formula

13. What does it mean to excel in setting strategy, execution, shaping culture, and forging structure? • Executives have used • TQM (total quality management) • Kaizen • Six Sigma • Implemented by Motorola • The 4 primary practices, which most successful companies have demonstrated for more than 10 years. • Strategy • Execution • Culture • Structure Excelling at Four Primary Practices

14. A company must be clear on what strategy to use, and consistently communicate it to customers, employees, shareholders and other stakeholders. • Successful strategies tend to focus on growth. • Usually doubling the size of the core business and building a new business every 7 years. • A clear success of an effective strategy comes from a simple, focused value proposition that is rooted in deep, certain knowledge about a company's target customers and firm’s capabilities. Strategy: Devise and Maintain a Clearly Stated, Focused Strategy

15. Having a flawless Execution is just as important as having a sound strategy. • How to execute? • Successful companies consistently exceed in customer expectations. • Also increase productivity by twice the industry’s average. • Identifying which processes are most important to meeting customer needs and focusing on the company’s energies and resources becomes paramount. • EX: Southwest Airlines Execution: Develop and Maintain Flawless Operational Execution

16. Building the right culture is key . • A business environment that entails a high level of performance and ethical behavior rather than merely just a fun environment, will be successful. • A good business culture should: • Encourage individual and team contributions • Hold employees (not just managers) responsible for success • Compare themselves beyond competitors to an even further benchmark. Culture: Develop and Maintain a Performance-Oriented Culture

17. High Performance companies try to eliminate unnecessary bureaucracy- extra layers of management, an abundance of rules and regulations, outdated formalities. • When a company focuses too much on rules , regulations, and protocols can really restrict the growth and development within the company. • Winning companies strive to make their structures and processes as simple as possible, not only for the employees, but also the customers and vendors. • EX: IDEO – A design and Innovation consulting firm. Structure: Build and Maintain a Fast, Flexible, Flat Organization

18. Winning Companies complemented their strengths in the four primary practices, with superior performance in any two of the secondary practices. • Studies show that excellence in the the 4 primary practices and any 2 out of the 4 secondary practices, can make a company very successful. • However, it makes no difference if a company excelled in all 4 secondary practices rather than just two; going beyond “4+2” was not rewarded. • 1. Talent 2. Innovation 3. Leadership 4. Mergers and Partnerships Secondary Practices

19. Companies that focus on talent building dedicate major resources, including personal attention from top executives, to building and retaining an effective workforce and management team. The best test of the quality of a company’s talent base is the ease with which any executive who leaves to join a competitor can be replaced from within. Talent: Hold on to Talented Employees and Find More

20. Companies that excel at innovation are focused on finding new product ideas or technological breakthroughs. Innovation encompasses more than developing new products and services; they also apply new technologies to their business processes, which can yield huge savings and sometimes have the power to transform an industry. EX: Netflix Innovation: Make Industry-transforming Innovations

21. Having the right leader can raise a company’s performance significantly. • Important Qualities of a CEO: • Ability to build relationships with people at all levels of the organization • Inspire managers to do the same • Spot opportunities and problems early • Effective leaders help their companies remain winners by seizing opportunities before their competitors do and tackling problems before they impair ongoing performance. Leadership: Find Leaders Who Are Committed to the Business and Its People

22. After innovation, pursuit of mergers and partnerships is the 2nd most popular avenue of growth. • Less then 25% of Mergers and partnerships are really successful. • Those who were successful, were able to do it by creating value in most deals they struck, generating returns in 3 years that exceeded the premium paid. • Also, invested substantial financial and human resources in developing an efficient, ongoing process for deal making Mergers and Partnerships: Seek Growth Through Mergers and Partnerships

23. Corporate success increasingly depends on the willingness and ability of every manager to not just meet their own functional or divisional responsibilities, but to think about how their actions influence the performance of the company as a whole. Focus should be on changing the organizational environment to encourage decision making that is aligned with the overall objectives of the company. Developing the right organizational model thus requires identifying which activities are critical to achieving a chosen strategy, and then defining the organizational attributes. STRATEGY AND PERFORMANCE: A Conceptual Framework

24. Strategy and Performance Purpose Strategy Leadership Structure Systems Processes People Culture Performance/Control

25. Strategy-Structure-Systems paradigm dominated role of corporate leaders for many years • GM experimented with diversification strategies • Dominant for most of 20th century • Successfully executing complex strategy: • Create right organizational structure • Disciplined planning & control support systems Strategy, Purpose, and Leadership

26. Global competition & technology revolution reduced effectiveness • Principal strength became major weakness • Corporate leaders articulated broader, long-term strategic intent with clear sense of purpose • “chief strategist” to “chief facilitator” Continued

27. Continued Purpose • Sought ways to involve employees at all levels in strategic management process • Top executive agendas included: • Organizational momentum • Instilling core values • Developing human capital • Recognizing individual accomplishment Strategy Leadership Structure Systems Processes People Culture Performance/Control

28. Strategy and Organizational Change Purpose • Structure, systems, processes, people, & culture are key to creating effective organizational change • Interrelated • Why new strategy requires change in all variables Strategy Leadership Structure Systems Processes People Culture Performance/Control

29. Adopted flatter organizational structures • Goal: Create organizational environment that allocates resources effectively and is naturally self-correcting • No “one right form of organization” • Transparency is critical • Authority and responsibility need to be clear • 5 dominant approaches to organization: • Functional • Geographically • Decentralized • Strategic business units • Matrix structures Structure

30. Support systems • Planning systems • Orderly process, balanced internal/external focus • Budgeting & accounting systems • Provide accurate historical data, set benchmarks/targets • Information systems • Analysis, internal/external communication • Reward & incentive systems • Motivation and commitment • Process – systematic way of doing things • Formal/informal • Facilitate or obstruct change Systems and Processes

31. Expensive to replace knowledge & talent Companies focusing on attracting, rewarding, retaining talent Developing tomorrow’s skills key to strategic flexibility People

32. Culture is a shared system of values, assumptions, & beliefs among employees • Artifacts: visible or audible processes, policies, & procedures supporting important cultural belief • Shared values: explain why things should be as they are • Example: Microsoft • Supports culture of high energy, drive, intellect, & entrepreneurship • Basic assumptions: invisible reasons why group members perceive, think, and feel the way they do about operational issues • UPS believes firm’s culture so important they spend millions annually on employee training and education Culture

33. Developed by Robert Kaplan and David Norton • Is a set of measures designed to provide strategists with a quick, yet comprehensive, view of the business. • Provides answers to four basic 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 company’s shareholders? Balanced Scorecard

34. Requires managers to translate a broad customer-driven mission statement into factors that directly relate to customer concerns • Examples • Product quality • On-time delivery • Product performance • Service and cost Balance Scorecard cont.

35. They are important but must be translated into measures of what the company must do internally to the customers’ expectations • These measures must be translated into operational objectives such as • Cycle time • Product quality • Productivity • Cost Customer-Based measures

36. Encompasses four management processes • Translating a vision • Netflix’s vision- “to change the way people access and view the movies they love” • Communicating goals and Linking Rewards to performance • Improve business planning • Gathering feedback Balance Scorecard cont.

37. Vision- used to clarify and gain employee support for that vision Communication- essential to ensure that employees understand the firm’s objectives and strategies Rewards- direct means of measuring and rewarding contributions to performance Business Planning- consists of a set of long-term targets in all four areas of the scorecard Feedback- short term measurements to monitor progress in achieving the long term strategy and learn how performance can be improved Balance Scorecard cont.

38. Methods used for measuring and evaluating performance at different levels in the organization. Outcome control is principally achieved by altering the incentive structure for business units, executive teams and individual managers. Behavior Control allows the company to directly monitor the behavior of specific business units, executive teams, or individual managers ( Used to enhance performance) Performance and Control

39. To create a high performance culture the board of directors should • Define its role, agenda and information needed • Ensure that management not only performs, but performs with integrity • Set expectations about the culture of the company • Formulate corporate strategy with management • Ensure that culture, strategy, compensation and controls are consistent and aligned • Help management understand the expectations of shareholders and regulators The Role of the Board