Reed these three chapters. Chapter 1, 8, and 9. Wryte a 2-3 paragrafff summary on each chapter. Be sure to label each chapter summary.

play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : 1 SWOT Analysis I Looking Outside for Threats and Opportunities S TRATEGY BEGINS WITH goals, which naturally fol- ow from an entity's mission. But for practical purposes Key Topics Covered in This Chapter goals cannot stand in isolation. They are informed by an iterative sensing of the external environment and the organization's Identifying threats and opportunities in the internal capabilities. As much as some may think that everything de- volves from goals, the fact is that practical people form goals based external environment on what is feasible, given the environment in which they must oper- The world of workstyle and lifestyle trends ate their own resources and capabilities. For example, 3M Corpora- that can affect your business tion has committed itself to annual numerical goals: 10 percent earning growth or better, 27 percent return on employed capital, and so forth. Those specific goals didn't come out of a hat; they are Assessing customers a product of the insights of 3M executives and directors who under- Changes in the competitive arena stand the markets they serve and the capabilities of the company. They looked outside and inside to determine those goals. Porter's five forces framework As shown in figure 1-1, the strategic choices available to the en- terprise likewise emerge from the process of looking outside and in- side. Among strategic planners, this analysis goes by the acronym SWOT: Strengths, Weaknesses, Opportunities, and Threats. . Strengths are capabilities that enable your company or unit to perform well-capabilities that need to be leveraged Weaknesses are characteristics that prohibit your company or unit from performing well and need to be addressed. . Opportunities are trends, forces, events, and ideas that your company or unit can capitalize on. 24-25 / 193 > play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : SWOT Analysis I Strategy FIGURE 1-1 utility. Are any of these requirements unserved? There is also a set of External and Internal Analysis current competitors and still others who might enter the arena Technology is part of the competitive environment, and that External Analysis Specific Goals Internal Analysis technology is always changing. Is there something developing in the . Customers . Current performance world of technology that could alter your competitive environment, . Pricing constraints . Brand power . Cost structure perhaps making the products of today's industry leaders obsolete? . Competitors . Distribution issues . Product portfolio Substitutes represent another threat factor in the external envi- . Technology . R&D pipeline . Macroeconomy . Technical mastery ronment. For example, in the early 1980s, newly developed word- . Regulation . Employee skills . Workstyle trends any culture processing software for personal computers represented a substitute . Major uncertainties for the typewriter. The substitution rate was so rapid that typewrit- Suppliers Potential partners ers were largely displaced within ten years. The current popularity Threats and Strengths and of cell phones with digital imaging capabilities likewise has created a Opportunities Weaknesses substitute for cameras and film. What are the potential substitutes for Strategy Formulation your products? Do any of your products have substitute potential in other markets? An analysis of the external factors listed in the left-hand box of figure 1-1 helps the strategist to uncover and understand threats and . Threats are possible events or forces outside of your control opportunities, which, in turn, helps to reveal a company's strategic that your company or unit needs to plan for or decide how to options. (This list is by no means exhaustive, and the reader is en- mitigate. couraged to think of other factors that pertain to his or her industry.) Because detailed coverage of each of these is beyond the scope of Considering both external and internal factors is essential be- this Essentials book, we will address just a handful here. We will also cause they clarify the world in which the business or the unit oper- discuss Michael Porter's "five forces" approach to analyzing compe- ates, enabling it to better envision its desired future. This chapter tition in an industry, a conceptualization that has proven its value to explains the first of these challenges: external analysis. We'll take up business people for more than twenty-five years. (Note: For a more internal analysis later. complete discussion of external analysis, see texts listed in the "For Further Reading" section at the back of this book. In particular, refer to Michael Porter, Competitive Strategy; David Aaker, Developing External Analysis Business Strategies; and Jay Barney, Gaining and Sustaining Competitive Advantage.) "The essence of formulating competitive strategy," writes scholar Michael Porter, "is relating a company to its environment." Every Workstyle and Lifestyle Trends company's environment is populated with customers, competitors, suppliers, and, in most cases, regulators. And all have an impact on its No matter what industry you're in, workstyle and lifestyle trends are profit potential. There are both current and potential customers, likely to affect your future. Consider this one: According to IDC, a each with requirements for product/service quality, features, and private research firm, the number of U.S. employees working on the play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ @ : SWOT Analysis I 6 Strategy road increased to 40 percent in 2004 and may rise to 66 percent by . The Internet has made shopping, research, arranging travel, the end of 2006. Depending on your business, that raw statistic and money management faster and more convenient. Will this should provoke a number of questions: kill your current business or open new opportunities to serve . How will these millions of people travel? customers profitably? U.S. officials have declared obesity a national health epidemic, . Where and what will they eat? and EU citizens are also getting more portly. What does this . Where will they spend the night, and what special accommo- declaration portend for food companies, restaurant chains, dations would make evenings on the road more tolerable? health clinics, and weight-control specialists? . How will they keep in touch with their families, offices, and . The price of new and older homes has exploded along the east clients while traveling? and west coasts of the United States, putting home ownership out of reach for a growing number of people, and there is no . What can be done to reduce the cost of so much travel? relief in sight. What does this mean for new homebuilders, for . How can wasted travel time be turned into productive time? building materials suppliers, and mortgage finance companies? Is there an opportunity here for a new approach to building These are the kinds of questions for which executives in travel, and financing affordable housing? restaurant, hospitality, and mobile computing and telecommunica tions industries should seek answers. Those answers will reveal The populations of Europe and Japan are aging, and women of threats for some and opportunities for others. For example, IDC's childbearing age in these countries are having fewer children. This projection of increasing business travel is good news for airlines and will have huge implications for medical care systems, housing for hotels that cater to this segment of travelers. But it is also good news the elderly, and labor markets. Strains on social services and pen- for companies that provide effective travel substitutes, such as Web- sion systems are inevitable. Transitions like this contain threats for and videoconferencing products and services, and the success of some companies and tremendous opportunities for others. these latter substitutes is a direct threat to those same airlines and ho- These are just a few of the many developments that are altering tels. Why spend piles of money and eat up productive time flying our world. Each is forcing companies to reformulate their strategies. people to meetings when they could meet online or from videocon- So keep abreast of reports from think tanks, from IDC, Forrester Re- ferencing facilities near home? search, government agencies, and other investigative organizations. The growth in business travel is just one of many workstyle and Scan many papers and periodicals. Conduct your own research into lifestyle changes that are happening right under our noses. Each rep- trends that may affect your business and form the basis of a new strat- resents some combination of threat and opportunity to companies in egy. Pay particular attention to any area in which significant change is a range of industries. Consider these: under way. Be broad-ranging in your scanning; the changes that af- . More and more people are working from home offices. These fect you the most may be brewing outside your industry. people rely heavily on telecommunications, PCs, and Internet connectivity. Their office-bound managers are not sure how to Customers supervise them. How will these facts affect your business or A business, as Peter Drucker once wrote, has no higher requirement provide opportunities for new business? than that to create customers. In the absence of customers, the many play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : SWOT Analysis I 8 Strategy things that businesses do-product development, manufacturing, are much more profitable to serve than others. For instance, during shipping, and so forth-are utterly pointless. Thus, analysis of exter- the early days of the cell-phone era, research by one firm uncovered nal factors generally begins with a study of customers: several distinct customers segments: . Who are they? Infrequent users. These were people (mostly women) who . How sensitive are they to price? subscribed at the minimum level and mostly for personal safety reasons. This segment bought the lowest-price service and was How can they be reached? unprofitable to serve. Turnover in the segment was extremely How are they currently using a particular product or service? high as these customers switched service providers in response . Which of their needs are poorly served-or unserved? to special, low-priced deals offered periodically by rivals. . What level of loyalty do they have to current vendors? Occasional users. These were customers who made only a few calls each week. The cell-phone company broke even on this . Do they seek an arm's-length transaction or a long-term group. relationship? Business professionals. These people used their cell phones Since potential questions about customers are so numerous, it's regularly and subscribed to the premium services. They were useful to segment customers into groups that have common features. also loyal and relatively insensitive to prices. Most of the com- Market segmentation comes directly from the marketer's toolkit; it is a pany's profits came from this segment. technique for dividing a large heterogeneous market of customers into smaller segments with homogeneous features. Those homoge- These findings had an impact on the telecom company's future neous features many be defined in any number of ways. Here are strategy. some examples: Take a few minutes to think about the customers in your indus- try-both the ones you have and the ones you'd like to recruit. How . Age senior citizens, teenagers, college students much does your company really know about these people and their Gender-women, foreign-born men needs? Has it segmented them into homogeneous groups that reveal key facts for strategists? Are any important and potentially profitable . Geographic location-suburban families north and west of segments unserved by you or your competitors? London Type of users-heavy users of voice messaging, lead users Price Sensitivity and Elasticity of Demand Income-households with total incomes between E 30,000 and E 50,000 Among the external factors that strategists should understand is the price sensitivity of customers. Whether they intend to offer cus- . Behavior-people who shop regularly via the Internet tomers a new disk drive, a low-carbohydrate family of snack foods, Analysis of customer segments has many uses for strategists. Seg- or a new drug therapy, they must have an informed awareness of the mentation makes it easier to identify the needs (met and unmet), price relationship between price and customer demand. sensitivity, accessibility, and loyalty of identifiable customers. The A basic tenet of economics in a free market is that people will study of key segments may, for example, reveal that some customers buy more of a good or service when the price goes down, and less play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = @ : SWOT Analysis I 10 Strategy as the price rises, all other factors remaining unchanged. This is both windfall for OPEC members, they knew that sustained high prices intuitively obvious and easily substantiated. Rational consumers are would induce their customers to find substitutes for petroleum and to sensitive to price. Figure 1-2 shows the elasticity of demand for two invest seriously in alternative energy sources-hurting oil producers products. The sharp slope in the demand curve (D) for Product A in the long run. indicates a high sensitivity to a price increase; customers will make Many products and services exhibit a much more immediate and many fewer purchases as the price increases. Product B, in contrast, dramatic response to price changes, usually because the product or demonstrates much less sensitivity to a price increase; customers re- service is nonessential or because it has many available substitutes. duce their purchase only slightly in the face of rising prices; as econ- Beef is an example. Every time that the price of beef has increased omists would say, demand is relatively inelastic. sharply, demand has declined immediately and almost as dramati- Some goods and services demonstrate relatively low price sensi- cally. Shoppers look at the price and say, "I think we'll have chicken tivity-at least in the short term. Consider automobile fuel. The 30 for dinner tonight." percent rise in U.S. gasoline prices in the fall of 2004, when crude oil Economists use the term price elasticity of demand to quantify the skyrocketed to $54 per barrel, caused only a 2 to 3 percent drop in impact of price changes on customer demands. If you've taken micro- U.S. gasoline consumption. Why? People were so locked into vaca- economics, you are probably familiar with this concept. Price elas- tion plans and commuting routines that the increase caused little ticity of demand is calculated as follows: more than a ripple in demand. If that level of pricing (or rising prices) were to persist for a long time, however, consumption would drop Percentage increase in price/Percentage decrease in quantity substantially as people stopped buying gas-guzzling SUVs, opted to = Price elasticity of demand use public transportation, began carpooling to work, and so forth. As Thus, if a company raised the price of a product price from $100 if to confirm this long-term effect, OPEC, the cartel of oil-producing to $120, price would increase by 20 percent. If that increase caused countries, intimated that it wanted to see crude prices to return to the the quantity sold to drop from 600 units to 550 units, the percentage $22- to $25-per-barrel range. Though the spurt in prices was a huge decrease would be 8.3 percent. Following our formula, the price elasticity of demand would be FIGURE 1-2 20/8.3 = 2.4 Sensitivity to Price Changes The higher the final number, the more sensitive customers are to price changes. Knowing how customers will respond to a price change can often be determined by means of focus groups, questionnaires, and direct experiments in local markets. For example, the producer of a Quantity Quantit breakfast cereal sold throughout the EU might raise its price in Brus- sels and observe the impact on unit sales. To complete this analysis, however, the strategist should calcu- Price Price late the anticipated impact of a price change on total revenue. People Product A Product B may be buying fewer items at a higher price. For the example just given, the company had been selling 600 units at $100 each, earning revenues of $60,000. Under its new scenario, it expects to sell 550 play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : SWOT Analysis I 12 Strategy units at $120, resulting in total revenue of $66,000. Further analysis through VHS, DVD, cable, and pay-per-view outlets. Because many would be needed to determine if that higher revenue figure trans- of these entertainment services are vulnerable to substitution by oth- lated into higher or lower gross profits. ers, vendors are scratching their head and asking, "What strategy will Formal studies of price elasticity of demand are normally re- help us carve out a profitable niche in this dynamic marketplace? served for tactical moves. Nevertheless, understanding the relation- And what's coming next?" ship between price levels and customer buying behavior is an The hallmarks of a dynamic market include: important piece of the larger puzzle that strategists must understand. How well do you understand customer price sensitivity in your Many different products/services addressing a similar need markets? How does that understanding inform your strategic choices? (e.g., land line phones, cell phones, instant messaging, e-mail) . A diversity of competitors (e.g., TV networks, cable compa- The Competitive Arena nies, video rental shops, live venues) As George Day, a professor at the Wharton School, has perceptively . Few insurmountable barriers to entry written, "One of the primary issues facing mangers in formulating . Market fragmentation competitive strategy is defining the arena of competition. Where are you competing? Who are your competitors? How attractive is the How well do you understand competition in the market you competitive arena?"? No examination of the external environment aim to serve? Few areas of research provide greater dividends for is complete without a thoughtful analysis of competitors and the strategists than this one. competitive arena. You surely know who your competitors are. Emerging Technology They are the ones your salespeople wrestle with every day in closing key sales. They are the companies that aim to steal your best cus- Technology is a major driver of the modern economy. Intel, Cisco tomers. Yes, you know who they are, but how much do you know Systems, Siemens, and Genzyme have made their way in the world about them-their strengths and weaknesses? Are you aware of by creating and harnessing new or improved technologies. eBay, emerging arenas of competition? And what about the competitors Amazon.com, Google, Cingular, and Yahoo! wouldn't even exist if who will appear in the months and years ahead? computers and Internet technologies had not been developed. Even Some arenas of competition are relatively static, particularly in your local grocery store, a very traditional business, relies on tech- mature, capital-intensive industries. The steel industry up until the nology to speed check-out lines, reduce errors, track sales by cate- 1970s could be defined as static. A handful of large competitors were gory, and manage its inventory. slugging it out, each trying to lower unit production costs and cap- Technology represents both a threat and an opportunity. It is a ture a larger slice of the market at the expense of its rivals. Other in- threat in the sense that a new technology may undermine your exist- dustries are more dynamic. The entertainment industry is a prime ing business, just as word-processing software and PCs torpedoed the example. Twenty years ago, people in the United States could watch typewriter industry, and as digital imaging is currently undermining three or four network television stations, a public station, and one the photographic film/film-processing business today. Putting the or two local stations. They could also go to a movie theater, or at- shoe on the other foot, we know that technology can provide pow- tend a live performance. Today, TV viewers can still watch network erful opportunities for companies that commercialize it in ways that channels, but can also access hundreds of cable channels. The movie provide clear benefits and value to customers. theaters are still there, but thousands of movies are now available play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = OD @ : SWOT Analysis I 13 14 Strategy Porter's Five Forces Framework . Jockeying for position among current competitors No discussion of the competitive environment would be complete . Bargaining power of customers without some discussion of Michael Porter's five forces framework. . Threat of substitute products or services First articulated in 1979 in an award-winning Harvard Business Re- view article on "How Competitive Forces Shape Strategy," Porter's "The collective strength of these forces," he writes, "determines framework remains a useful tool for getting an analytical grasp on the the ultimate profit potential of an industry." Owing to these factors, state of competition and the underlying economics within an indus- the profit potential will vary from industry to industry. Today, for ex- try. It also encourages the strategist to look outside the small circle of ample, sectors of the telecommunications industry are faced with current competing rivals to other actors and influences that deter- weak profit potential because so many factors conspire against exist- mine potential profitability and growth. Porter identified the fol- ing providers: Industry participants are continually fighting to grab lowing forces as governing industry competition (see figure 1-3): heir rivals' customers, often by cutting prices and extending ser- vices; customers can switch easily; and many communications op- . Threat of new entrants ions are available, including land lines, cell phones, e-mail instant . Bargaining power of suppliers messaging, and Internet phone. Meanwhile, the rapid pace of tech- nological change is forcing the existing players to spend royally to re- main on the cutting edge. Participants in other industries, in contrast, may confront a much more favorable combination of the five forces. FIGURE 1-3 The key to growth and survival, according to Porter, is to use Porter's Five Forces one's knowledge of these five forces to "stake out a position that is less vulnerable to attack from head-to-head opponents, whether es- Threat of tablished or new, and less vulnerable to erosion from the direction of New Entrants buyers, suppliers, and substitute goods." Such a position, he argues, can be gained by solidifying relationships with profitable customers, product differentiation (either through redesign or marketing), inte- grating operations, or by gaining technical leadership.' The Industry Bargaining Jockeying Bargaining A complete discussion of the five forces framework is beyond Power of for Position Power of Suppliers Among Curren Customers the scope of this chapter. Readers are encouraged to obtain the arti- Competitors cle and apply its concepts to their own industries. Threat of Looking outside for threats and opportunities is one piece of the Substitute preparation you must do before you even discuss strategic plans. Products or Services Great companies do this continually. They send their technical people to professional conferences and subscribe to key academic Source: Michael E. Porter, "How Competitive Forces Shape Strategy," Harvard Business Review, March-April 1979, 141. Reproduced with permission. journals. They are always in touch with current and potential cus- tomers via focus groups and interviews with lead users-that is, com- play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : SWOT Analysis I 15 panies and individuals whose needs are far ahead of typical users. Some even set up special "intelligence" units to scan newspapers and technical journals, keep an eye on proposed regulations, and so forth. These companies are constantly sensing the outer world for threats and opportunities that could affect them. Your company should do the same. Summing Up . Workstyle and lifestyle trends are likely to affect your future. . Market segmentation is a useful tool for dividing a large het- erogenous market of customers into smaller segments with homogeneous features. Analysis of these segments can help you understand which are more profitable to serve. Segmentation also makes it easier to identify the met and unmet needs, price sensitivity, accessibility, and loyalty of identifiable customers. . By determining the price elasticity of demand for your product or service, you can quantify the impact of price changes on customer demand. . Porter's framework for competitive analysis encourages strate- gists to examine five industry forces: the threat of new entrants; the threat of substitute products or services; the bargaining power of suppliers; the bargaining power of customers; and tactical jockeying for position among current competitors. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : 8 The People Side of Implementation Getting the Right People on Board Key Topics Covered in This Chapter T HE PREVIOUS TWO chapters could give the impres- sion that strategy implementation is a mechanical process: How to enlist the support and involvement Just develop a blueprint of action steps, tell employees of key people in a change initiative to execute those steps, and check periodically for compliance and progress. The reality is that people are the most important part of Supporting the plan with consistent implementation, and harnessing their energy and commitment to behaviors strategic change is often management's greatest challenge. People have to feel that they've had something to say about the plans they Enabling structures (i.e., training, pilot are told to implement. They must know that success is important. They must be motivated to do the right things well. And they must programs, and a reward system) see real incentives for their hard work. . Ways to celebrate milestones The record shows that implementation rarely proceeds smoothly. In some cases, external factors upset schedules or divert the attention The importance of relentless communication of management. Technical glitches hamstring progress. But people problems are more often the cause of implementation problems. People make mistakes. Key employees quit or are transferred. Dif- ferent groups forget to communicate with each other. Untrained people are assigned to jobs they cannot handle. Managers alienate the employees charged with critical action steps. This chapter ad- dresses the people side of implementation and aims to steer you clear of problems. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : The People Side of Implementation 111 1 12 Strategy Enlist the Support and Involvement . Does the team include true leaders? of Key People . Are the team members capable of forgoing their personal inter- Your implementation will go more smoothly if it has the backing ests in favor of the larger organizational goal? and involvement of key people-and not just the CEO and his or her court. It goes without saying that top-level involvement is essen- If you answered "yes" to most of these questions, the team guid- tial. But it is also necessary to enlist the support of managers and em- ing the implementation effort is strong and in a good position to ployees whom others respect: individuals with proven technical succeed. If you said "no" to any questions, it might be a good idea skills, people with access to vital resources, and the informal leaders to revisit your team choices. (For more on selecting team members, to whom people naturally turn for direction and advice when they see "Tips on Who Should Not Be on the Team.") encounter obstacles. How can you identify these people? Authors Michael Tushman and Charles O'Reilly offer this advice: Tips on Who Should Not Be on the Team To determine who these key individuals are and what their responses to the change might be, ask: Who has the power to make or break the In his book on Leading Change, John Kotter recommends that change? Who controls critical resources or expertise? Then think through you keep three types of people off your team:" how the change will likely affect each of these individuals and how each 1. People with big egos. Big egos, says Kotter, fill the room, is likely to react toward the change. Who will gain or lose something? . .. leaving little or no space for anybody else to participate or Are there blocs of individuals likely to mobilize against or in support of contribute. People with big egos don't always understand the change effort?! their own limitations and how those limitations can be Enlisting support entails building an effective team of change complemented by the strength of others. makers who can work in unison toward stated goals. But how can 2. Snakes. Kotter describes a "snake" as the kind of person you be sure you've picked the right people for the team? Here's a set who secretly poisons relationships between team members. of questions that will help you know if your team has the right stuff:2 "A snake is an expert at telling Sally something about Fred and Fred something about Sally that undermines Sally and . Are enough of your company's key players (people in relevant Fred's relationship." positions of power) members of the team? 3. Reluctant players. These are people who lack either the Do members of the team have the relevant expertise to do the ime or enthusiasm to provide energy to the team. Be wary job and make intelligent decisions? of including these people on your team. Keeping them off . Does the team include the needed range of perspectives and may be difficult, however, since some reluctant players may disciplines to do the job and make intelligent decisions? have the expertise and/or organizational power you need. . Does the team include people with sufficient credibility so that Implementing a new strategy is difficult enough without having employees and management will treat its decisions seriously? these people on your team. John F. Kotter, Leading Change (Boston: Harvard Business School Press, 1996), 59-61. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : The People Side of Implementation 113 114 Strategy Support the Plan with Consistent Everyone understood that this was the unit's key measure of success. Behaviors and Messages So SQA managers came up with several ways to reinforce that mes- sage. For example, every morning they posted the previous day's Once the need for change has been articulated convincingly and percentage of on-time orders at every entrance to the plant. It was broad support has been enlisted, support must be maintained through impossible to enter or leave without knowing these figures. They a set of consistent behaviors and messages. Inconsistency in either will also added the latest on-time order statistic to every internal e-mail send a damaging signal-that management is either not serious about message. "Yesterday's percentage of on-time accurately filled orders implementing the new strategy or unwilling to do its part. was 99.2 percent." The vice president of operations even adopted Consider this example: Not many years ago, one of the Ameri- the practice of randomly asking employees if they knew the previ- can Big Three automakers underwent a painful strategic restructure ous day's performance score. A correct answer was rewarded with ei- ing. Everyone was asked to sacrifice by giving up benefits today in ther a crisp $100 bill or a day off with full pay. order to achieve greater competitiveness, job security, and prosper- What messages or behaviors would be consistent with the im- ity tomorrow. Thousands of middle managers were laid off and the plementation program at your company? company's union was asked to forgo pay and benefit increases. Be- cause the company had made a convincing case for change, people got the message and tightened their belts; even the unions pitched in. Within months, however, senior management awarded itself and Develop Enabling Structures other key people substantial bonuses and pay increases. Once that inconsistent behavior became public, the bonds of trust between Enabling structures are the activities and programs that underpin management and the rank and file-and union leaders-evapo- successful implementation and are a critical part of the overall plan. rated. Collaboration turned to open hostility that simmered for Such structures include pilot programs, training, and reward systems. nearly ten years. Pilot programs give people opportunities to grapple with im- At about the same time, a company in another industry was plementation and its problems on a smaller, more manageable scale. likewise supporting a belt-tightening and restructuring program. They are test beds in which implementers can experiment with But this one did so with highly visible and consistent behaviors from and de-bug initiatives before rolling them out more broadly. These leaders. Its CEO set the pace by selling the corporation's three jets programs can be valuable proving grounds, since it's almost always and taking commercial flights on his travels-in coach class to boot. easier and less risky to change a single department than an entire And no more limos to meet him at the airport. "I don't mind taking company. a cab," he told the business press. "They can get me to where I'm Training programs can hold equal value. Motorola and General going just as fast." The company's other traveling executives fol- Electric developed formal training programs that served as key en- lowed the lead of their boss. People noticed. ablers for the quality strategies adopted by these companies. Xerox Which of these companies do you suppose was more successful did the same when it set up its companywide benchmarking pro- in building support for its change program? gram in the mid-1980s. Every Xerox employee received a copy of SQA, Herman Miller's successful low-cost office furniture unit 'the little yellow book," as they called the company's how-to man- mentioned in an earlier chapter, also used a consistent set of messages ual on benchmarking methods, and skilled trainers were placed in al- to support its strategy of on-time, accurate fulfillment of orders. most every operating unit of the company. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : The People Side of Implementation 115 116 Strategy Reward systems also play an enabling role. People generally adopt behaviors that produce rewards, and abandon those that are Tips for Celebrating Short-Term Wins not rewarded. Thus, if your action plan asks people to either work Here are just a few ideas for celebrating short-term wins and harder, work smarter, or work in new ways, your reward system keeping your team pumped up: must be aligned with those desired behaviors. The details and pitfalls of crafting incentive programs are complex and situationally deter- Treat implementers to a catered lunch-and bring in an out- mined. Thus, they need to be crafted within the context of each or- side speaker who can talk about his or her company's success ganization. Here are some questions to ask as you consider setting up in doing something similar. enabling structures: . Take the afternoon off for a softball game. . Can you find a place for pilot programs in your strategy . Recognize the work of exceptional contributors. implementation? Do something grander for major successes. For example, . What training, if any, is appropriate before you move forward when you've successful reached the midpoint of the initiative, with action plans? host a dinner with the CEO as guest and keynote speaker. . Is employee behavior aligned with action plans through rewards? Whatever you do, it is very important to mark passages along the road toward complete implementation. Celebrate Milestones There is a fine line between celebrating a successful milestone Strategy implementation can be a long and frustrating road. People and making a premature declaration of victory. Crossing that line are bound to grow tired or lose interest if positive actions are not could dissipate the sense of urgency you need to keep people moti- taken to keep up their spirits and energy. You can keep people fired vated and moving on toward future hurdles. John Kotter, who lists up if you identify milestones-even small ones-and celebrate them 'declaring victory too soon" among the reasons that transformation as they are achieved. (See "Tips for Celebrating Short-Term Wins.") efforts fail, says that both change initiators and change resisters have Celebrating a series of short-term wins can: reasons for making this mistake. "In their enthusiasm over a clear sign of progress," he writes, "the initiators go overboard. They are . neutralize skepticism about the strategy and implementation then joined by [resisters], who are quick to point out any opportun efforts; nity to stop change. . . . [The resisters] point to the victory as a sign . provide evidence that peoples' sacrifices and hard work are that the war has been won and the troops should be sent home."3 paying off; Catastrophe follows if the weary troops accept this argument and go back to their usual activities. . help retain support; So instead of declaring victory, use the credibility and momen- . keep up the momentum; and tum gained from your short-term win to muster an attack on the next milestone. boost morale. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ @ : The People Side of Implementation 117 1 18 Strategy Communicate Relentlessly 3. Explain the scope of the strategy change, even if it contains bad news. Some people will be more affected than others. And that Communication is the most important implementation tool avail- leads to lots of fear-generating speculation. Fear and uncer- able to management. They must use communication to make clear: tainty can paralyze a company. You can short-circuit fear and uncertainty with the facts. But don't sugarcoat them. If people what the strategy is; will be laid off, be up-front about it. If others will need train- . why the strategy is important; ing, say so. Also explain the things that will not change. This will help anchor people. . how effective implementation will benefit the company and employees; and 4. Develop a graphic representation of the implementation action . what role each person will play in implementing the strategy. plan that people can understand and hold in their heads. It might be a flow chart of what must happen, or a graphic image These four points should form the core of the CEO's pep talk to of what the changed enterprise will look like. Whatever it is, managers and employees. And they should be the core of every man- keep it clear, simple, and memorable. ager's communication to direct reports and their subordinates. Communication is an effective tool for motivating employees, for 5. Predict the negative aspects of implementation. There are overcoming resistance, for preparing people for the pluses and mi- bound to be negatives, and people should anticipate them. nuses of change, and for giving employees a personal stake in strategy These include hard work, changes in assignments, and frustrat- implementation. Effective communication can set the tone for the ing problems. If you prepare people for these eventualities, they difficult work ahead and is critical to implementation from the very will take them in stride. start. But don't rely on a single Big Bang announcement to keep em- 6. Explain the criteria for success and how it will be measured. ployees in line with the effort. Communication must be ongoing. Define success clearly, and devise metrics for progress toward it. Here are some tips for communicating during a change effort:4 These are part of your action plan. If you fail to establish clear 1. Specify the nature of the new strategy and the results you aim measures for what you aim to accomplish, how will people for. Slogans, themes, and phrases don't define what the strategy know if they are moving forward or in the right direction? is expected to achieve. Communicate specific information Measure progress as you move forward-and then communi- about how the new strategy will affect customer satisfaction, cate that progress. quality, market share or sales, or productivity. 7. Explain how people will be rewarded for success. As stated else- 2. Explain why. Employees are often left in the dark about the where, people need incentives for the added work and disrup business reasons behind a strategy change. You may have spent tions that change requires. Be very clear about how individuals lots of time studying the problem and digging out the facts, but will be rewarded for progress toward implementation goals. your coworkers aren't privy to that information. In addition, share with employees the various options available and why 8. Repeat, repeat, and repeat the purpose of change and actions one is better than the others. planned. If the initial announcement doesn't generate ques- play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = OD @ : The People Side of Implementation 119 120 Strategy tions, do not assume that employees accept the need for Summing Up change-they may simply be surprised, puzzled, or shocked So follow up your initial announcement meeting with another . Get the right people involved in implementation. These should meeting. Follow this with communications that address indi- include individuals with proven technical skills, people with ac- vidual aspects of the change project. cess to vital resources, and the informal leaders to whom people 9. Use a diverse set of communication styles. Some people are naturally turn for direction and advice when they encounter most receptive to the printed word, or to flow charts. Others obstacles. respond best to stand-up presentations. Since every audience Keep people with big egos, too little time, and no enthusiasm, contains people with different learning styles, provide a mix of as well as troublemakers, off the implementation team. mediums-a dedicated newsletter, events, e-mails, and stand- up presentations-to keep people informed, involved, and Be consistent in your behavior and messages. Don't ask people keyed up. These communications should be honest about suc- to make sacrifices on behalf of the new strategy if you, as a cesses and failures. If people lose trust in what they are hearing, leader, are not willing to make them yourself. they will tune you out. . Successful implementation is supported by enabling structures: 10. Make communication a two-way proposition. Remember that pilot programs, training, and reward systems. strategy implementation is a shared enterprise. So spend at Celebrate as you achieve important milestones. Doing so will least as much time listening as telling. Your attention to this help maintain momentum, support, and morale. point will help keep others involved and motivated. Leaders need feedback, and the hardworking implementers need op- . Don't declare victory too early. portunities to share their learning and their concerns with . Keep up a steady level of communication. Remind people leaders who listen. about the nature of the strategy, why it's important, how it will 11. Be consistent. If you're the boss, people will have their eyes on benefit employees and the company, and the roles they are ex- you. They will listen to your words, but will also look for incon- pected to play. sistencies between your words and what you communicate Be open to communication from others. through body language and behavior. Do you speak and act with genuine enthusiasm? Do your tone and manner signal confi- dence in the implementation project, or do you appear to be going through the motions? Try to see yourself as others see you. In the end, the people side of implementation should be the most important concern of managers. Without employee commitment and hard work, action plans are wasted paper. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : Strategy as Work-in-Progress Keep Looking Ahead Key Topics Covered in This Chapter YOU CREATE a winning strategy and implement it well, you might cruise along for years without problems. But no Why executives must evaluate strategy strategy is effective forever. Something in the external envi- ronment eventually changes, rendering your current strategy inef- effectiveness fective or unprofitable. It is difficult to think of an industry in which Using financial ratios, the balanced this has not happened. As Clayton Christensen reminded readers of scorecard, and market analysis to measure the Harvard Business Review several years ago: strategy effectiveness It is sobering to review yesterday's list of great corporate strategies: Ford's mass production of standard automobiles; General Motors' adop- Warning signs of strategy peril tion of vertical integration and design of cars tailored to the preferences of customers in each tier of the market; Xerox's strategy of selling copies . Leading strategic change rather than copiers; and Sears's sales of reliable, reasonably priced mer- chandise through stores located in growing suburbs. Guided by brilliant strategies, these companies rose to prominence. Yet when conditions in their competitive environments changed, each found it extraordinarily difficult to change strategic direction.' Many management teams, unfortunately, are unable (or unwill- ing) to recognize when their strategies have become less potent-if not obsolete. Either because of myopia or hubris they fail to under- stand how the external environment is changing and do not come to grips with that change through an altered strategy. Strategy re-creation, play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = DQ@ : Strategy as Work-in-Progress 123 124 Strategy then, is an ongoing requirement of good management. It is, to quote funds of creditors (liabilities) and the equity of owners. The income Michael Porter, "a process of perceiving new positions that woo cus- statement (sometimes referred to as the profit and loss statement) in- tomers from established positions or draw new customers into the dicates the cumulative results of operations over a specified period. market."2 By comparing these results from one year to the next, is possible to This chapter explains how managers can assess the effectiveness gauge the effectiveness of both strategy and its implementation of their current strategies and recognize warning signs that they are through operations-though separating the two is often difficult. losing the power to capture and satisfy customers. The temporary Consider the case of Amalgamated Hat Rack Company, whose multi- nature of successful strategy should caution every leader to continu- period income statement is represented in table 9-1. Amalgamated's ally scan the external environment for threats and new opportuni- retail sales demonstrate steady growth even as its operating expenses ties, as described earlier in this book. What they learn through that scanning should inform their thinking about whether it's time to TABLE 9-1 alter or replace the current strategy. Amalgamated Hat Rack Multiperiod Income Statement How Well Is Your Strategy Working? FOR THE PERIOD ENDING DECEMBER 31 2004 2003 2002 2001 The strategy model presented in the introduction to this book (fig- ure I-1) indicated feedback loops from the performance measure- Retail Sales $2,200,000 $2,000,000 $1,720,000 $1,500,000 ment piece of the model back to the very beginning of the strategy Corporate Sales $1,000,000 $1,000,000 $1,100,000 $1,200,000 creation process. Measurement tells leaders how well their strategy Total Sales Revenue $3,200,000 $3,000,000 $2.820,000 $2.700.000 and its implementation are working. Substandard measures should spur them to look once again to the external environment for threats Less: Cost of Goods Sold $1,600,000 $1.550,000 $1.400.000 $1,300,000 and opportunities and to the internal environment for existing capa- Gross Profit $1,600,000 $1,450,000 $1,420,000 $1,400,000 bilities. This section profiles three approaches to strategy perfor- mance measurement: financial analysis, the balanced scorecard, and Less: Operating Expenses $800,000 $810,000 $812,000 $805,000 market analysis. Depreciation Expense $42.500 $44,500 $45.500 $42.500 Earnings before $757,500 $595,500 $562,500 $552,500 Financial Analysis Interest and Taxes The proof of a strategy's power or weakness is reflected in a company's Less: Interest Expense $110,000 $110,000 $150,000 $150,000 financial statements: particularly its balance sheet and income state- Earnings before $647,500 $485,500 $412,500 $402,500 Income Tax ment. Examination of the profitability ratios based on financial state- ment figures yields further insight about the strategy's effectiveness. Less: Income Tax $300.000 $194,200 $165,000 $161,000 Net Income $347,500 $291,300 $247,500 $241,500 FINANCIAL STATEMENTS. The balance sheet describes assets owned by the business and how those assets are financed-with the Source: Harvard Business Essentials: Finance for Managers (Boston: Harvard Business School Press, 2002), 15. play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = OD@ : Strategy as Work-in-Progress 125 126 Strategy have been held in check. Something is going well here. The com- aim for an ROI of 12 percent" are common. Unfortunately, there is pany's corporate sales, however, are flagging from one year to the no standard definition of ROI, since "investment" may be construed next. If corporate sales is an important piece of Amalgamated's strat- from many perspectives. Investment might represent the assets com- egy, then something is going wrong, either with the strategy or its mitted to a particular activity, the shareholders' equity involved, or execution. This piece of quantitative information should signal invested assets minus any liabilities generated by a company's taking management to look closely at the problem. on a project. ROI might also refer to the internal rate of return, a Managers can also gain insights by examining the ratios of key very specific calculation of return. So, when someone uses the term figures drawn from the balance sheet and income statement. Ratios 'return on investment," always request a clarification. Ask, "How are help an analyst or decision maker piece together a story about where you calculating investment?" an organization has come from, its current condition, and its possi- The earnings-before-interest-and-taxes margin, more generally ble future. In most cases, the story told by these ratios is incomplete, known as the operating margin, is used by many to gauge the prof- but it's a start. itability of a company's operating activities. The operating margin ignores the interest expenses and taxes over which current manage- PROFITABILITY RATIOS. Profitability ratios associate the amount ment may have no control, thus giving a clearer indicator of man- of income earned with the resources used to generate it. Barring in- agement performance. To calculate the operating margin, use this eptness in operational implementation, the firm's strategy should formula: produce as much profit as possible from a given amount of resources. The profitability ratios to remember are return on assets (ROA); re- Operating Margin = EBIT/Net Sales turn on equity (ROE); return on investment (ROI); and operating None of these ratios is a sure indicator of the strength or weak- margin, or earnings before interest and taxes (EBIT). ness of one's strategy since each reflects both the strategy and its ex- Return on assets relates net income to the company's total asset ecution. Nevertheless, ratios that are weaker than those of peer base and is figured as follows: companies, or ratios that are growing weaker from one year to the ROA = Net Income/Total Assets next, should set off alarm bells in the executive suite and encourage senior management to investigate the causes. Is it the strategy, or is ROA relates net income to the investment in all the financial re- the strategy being poorly executed? sources at the command of management. It is a useful measure of ef- fective resource utilization without regard to how those resources From Financial Measures to a Balanced Scorecard were obtained or financed-a factor that shouldn't be considered in examining the effectiveness of strategy. Financial ratios tell the tale of business performance, and generations Return on equity relates net income to the financial resources in- of businesspeople have used them to manage their operations. But fi- vested by shareholders. It is a measure of how efficiently the share- nancial ratios aren't buttons we can push to make things happen-in- holders' stake in the business has been used. ROE is calculated as stead, they are outcomes of dozens of other activities. And they are follows: backward-looking, the products of past activities. Worse, traditional ROE = Net Income/Shareholders' Equity measures can send the wrong signals. For instance, profit measures that look very good this year may be the result of dramatic cuts in The term "return on investment" is often used in business dis- new-product development and reductions in employee training. On cussions that involve profitability. For example, expressions like "We play.google.com @ 5 + (107) Relaxing Music For Stress Relief, A... Strategy, Create and Implement the Best... finial research paper - Google Docs Homework Help - Q&A from Online Tutor... G Sign in - Google Accounts Strategy, Create and Implement the Best Strategy for Your Business [ Q A = Q @ : Strategy as Work-in-Progress 127 128 Strategy the surface, current high profitability can make the state of affairs Collectively, these perspectives give top management timely answers look rosy, but cuts in project development and training jeopardize to four key questions tomorrow's profits. Nor do financial ratios directly measure things such as customer satisfaction and organizational learning, which as- How do customers see us? (the customer perspective) sure long-term profitability. . What must we do to excel? (the internal perspective) Frustrated by the inadequacyes of traditional performance mea- Can we continue to improve and create value? (the innovation surement systems, some managers have shifted their focus to the operational activities that produce them. These managers follow and learning perspective) the motto "Make operational improvements, and the performance . How do we look to our shareholders? (the financial perspective) numbers will follow." But which improvements are the most impor tant? Which are the true drivers of long-term, bottom-line perfor- Figure 9-1 indicates the linkages between the four perspectives. mance? To answer these questions, Harvard Business School professor The advantage of the balanced scorecard over traditional measures is Robert Kaplan and his associate David Norton conducted research that three of the four perspectives (customer, innovation and learn- on a number of companies with leading-edge measures of perfor- ing, and internal) are more than results-they are levers that man- mance. From this research, they developed what they call a balanced agers can manipulate to improve future results. For example, if the scorecard, a new performance measurement system that gives top customer perspective indicator is in decline, management has a fairly managers a more comprehensive view of the business. The balanced clear idea where to intervene. Used together, the balanced scorecard scorecard includes financial measures that indicate the results of past and traditional ratio analysis can help managers understand the ef- actions. And it complements those financial measures with three sets fectiveness of their strategy and identify areas where implementation of operational measures that relate directly to customer satisfaction, needs work. internal processes, and the organization's ability to learn and im- prove-the activities that drive future financial performance. In this Market Analysis sense the scorecard assesses both the company's strategy and its oper- ational implementation. Not too many years ago, a major publisher of college textbooks Kaplan and Norton have compared the balanced scorecard to seemed pleased with its results. Revenue from sales was going up the dials and indicators in an airplane cockpit: year after year, faster than expenses. There seemed like plenty of bonus money to go around-to shareholders, company managers, For the complex task of navigating and flying an airplane, pilots need and the sales force. Only two disturbing facts intruded on this happy detailed information about many aspects of the flight. They need infor- picture. First, the company's unit sales were flat, and had been so for mation on fuel, air speed, altitude, bearing, destination, and other indi- three years in a row. Revenue growth was simply the product of the cators that summarize the current and predicted environment. Reliance company's ability to increase its prices; a tactic that surely would not on one instrument can be fatal. Similarly, the complexity of managing work forever. Second, revenues were dependent on the continued an organization today requires that managers be able to view perfor- vitality of 5 books. Although the publisher