The tasks of crafting and executing company strategies are the heart and soul of managing a business enterprise and winning in the marketplace. A company's strategy consists of the competitive moves and business approaches that management is using to grow the business, stake out a market position, attract and please customers, compete successfully, conduct operations, and achieve organizational objectives. The central thrust of a company's strategy is undertaking moves to build and strengthen the company's long-term competitive position and financial performance and, ideally, gain a competitive advantage over rivals that then becomes a company's ticket to above-average profitability. A company's strategy typically evolves and re-forms over time, emerging from a blend of (1) proactive and purposeful actions on the part of company managers and (2) as-needed reactions to unanticipated developments and fresh market conditions.
Closely related to the concept of strategy is the concept of a company's business model. 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 revenue stream and have an associated cost structure that produces attractive earnings and return on investment; in effect, a company's business model sets forth the economic logic for answering the question "How do we intend to make money in this business, given our current strategy?"
The managerial process of crafting and executing a company's strategy consists of five interrelated and integrated phases:
Developing a strategic vision of where the company needs to head and what its future product-customer-market-technology focus should be. This managerial step provides long term direction, infuses the organization with a sense of purposeful action, and communicates to stakeholders what management's aspirations for the company are.
Setting objectives and using the targeted results and outcomes as yardsticks for measuring the company's performance and progress. Objectives need to spell out how much of what kind of performance by when, and they need to require a significant amount of organizational stretch. A balanced-scorecard approach for measuring company performance entails setting both financial objectives and strategicobjectives. Judging how well a company is doing by its financial performance is not enough, because financial outcomes are "lagging indicators" that reflect the impacts of past decisions and organizational activities. But the "lead indicators" of a company's future financial performance are its current achievement of strategic targets that indicate a company is strengthening its marketing standing, competitive vitality, and future business prospects.
Crafting a strategy to achieve the objectives and move the company along the strategic course that management has charted. Crafting strategy is concerned principally with forming responses to changes under way in the external environment, devising competitive moves and market approaches aimed at producing sustainable competitive advantage, building competitively valuable competencies and capabilities, and uniting the strategic actions initiated in various parts of the company. The more wide ranging a company's operations, the more that strategy making is a collaborative team effort involving managers (and sometimes key employees) down through the whole organizational hierarchy; the overall strategy that emerges in such companies is really a collection of strategic actions and business approaches initiated partly by senior company executives, partly by the heads of major business divisions, partly by functional-area managers, and partly by operating managers on the frontlines. The tests of a winning strategy are how well matched it is to the company's external and internal situations, whether it is producing sustainable competitive advantage, and whether it is boosting company performance.
Implementing and executing the chosen strategy efficiently and effectively. Managing the implementation and execution of strategy is an operations-oriented, make-things-happen activity aimed at shaping the performance of core business activities in a strategy-supportive manner. Converting a company's strategy into actions and results tests a manager's ability to direct organizational change, motivate people with a reward and incentive compensation system tied to good strategy execution and the achievement of target outcomes, build and strengthen company competencies and competitive capabilities, create a strategy-supportive work climate, and deliver the desired results. The quality of a company's operational excellence in executing the chosen strategy is a major driver of how well the company ultimately performs.
Evaluating performance and initiating corrective adjustments in vision, long-termdirection, objectives, strategy, or execution in light of actual experience, changing conditions, new ideas, and new opportunities. This phase of the strategy management process is the trigger point for deciding whether to continue or change the company's vision, objectives, strategy, and/or strategy execution methods. Sometimes simply fine-tuning the strategic plan and continuing with efforts to improve strategy execution suffices. At other times, major overhauls are required. Developing a strategic vision and mission, setting objectives, and crafting a strategy are the basic direction-setting tasks that together constitute a strategic plan for coping with industry and competitive conditions, the actions of rivals, and the challenges and issues that stand as obstacles to the company's success.
Boards of directors have a duty to shareholders to play a vigilant supervisory role in a company's strategy-making, strategy-executing process. They are obligated to (1) critically appraise and ultimately approve strategic action plans, (2) evaluate the strategic leadership skills of the CEO and others in line to succeed the incumbent CEO, (3) institute a compensation plan for top executives that rewards them for actions and results that serve stakeholder interests, most especially those of shareholders, and (4) ensure that the company issues accurate financial reports and has adequate financial controls. Boards of directors that are not aggressive and forceful in fulfilling these responsibilities undermine the fabric of effective corporate governance. Crafting and executing strategy are core management functions. Whether a company wins or loses in the marketplace is directly attributable to the caliber with which it performs the five tasks that constitute the strategy-making, strategy-executing process.
