Chapter 2

Strategy: Core Concepts and Analytical Approaches
Arthur A. Thompson, The University of Alabama 7th Edition, 2022-2023

An e-book marketed by McGraw Hill Education
Chapter 2
Charting a Company’s Long-Term
Direction: Vision, Mission,
Objectives, and Strategy
If you don’t know where you are going, any road will take you there.
—Cheshire Cat to Alice
Lewis Carroll, Alice in Wonderland
Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly
drive it to completion.
—Jack Welch, former CEO of General Electric
Purpose must be conceived and chosen, and then pursued.

—Clayton M. Christensen, professor and consultant
It is hard to get better at something if you don’t measure progress.

—Balanced Scorecard Institute (www.balancedscorecard.org)
A good goal is like a strenuous exercise—it makes you stretch.

—Mary Kay Ash, Founder of Mary Kay Cosmetics
I
f one is even halfway convinced that crafting and executing strategy are critically important managerial
tasks, then understanding exactly what is involved in developing a strategy and executing it proficiently
becomes essential. What goes into charting a company’s strategic course and long-term direction? Is any
analysis required? Does a company need a strategic plan? What are the various components of the strategy-
making, strategy-executing process? Aside from top executives, to what extent are other senior and mid-
level managers involved in the process?
This chapter presents an overview of the managerial ins and outs of crafting and executing company
strategies. The focus is on management’s direction-setting responsibilities—developing a strategic vision
that sets forth where the company is headed and what its mission will be, setting performance targets, and
choosing a strategy capable of producing the desired outcomes. There is coverage of why strategy making
is a task for a company’s entire management team and which kinds of strategic decisions are made at
which levels of management. There is a brief discussion of the principal managerial tasks associated with
13
Copyright © 2022 by Arthur A. Thompson. All rights reserved.
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Chapter 2 • Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 14
implementing and executing strategy and why a company’s whole managerial team and most company
personnel are involved in the strategy execution process. The chapter concludes with a look at the roles and
responsibilities of the company’s board of directors in the strategy-making, strategy-executing process and
how good corporate governance protects shareholder interests and promotes good management.
WHAT DOES THE STRATEGY-MAKING,

STRATEGY-EXECUTING PROCESS ENTAIL?
Crafting and executing a company’s strategy is an ongoing process that consists of five interrelated
managerial tasks:
1. Developing a strategic vision that charts the company’s long-term direction, a mission statement
that describes the company’s business purpose, and a set of core values to guide the pursuit of the
vision and mission.
2. Setting objectives for measuring the company’s performance and tracking its progress in moving in
the intended long-term direction and pursuing the strategic vision and mission.
3. Crafting a strategy for achieving the performance objectives and advancing the company along the
path management has charted.
4. Implementing and executing the chosen strategy efficiently and effectively.
5. Monitoring developments, evaluating performance, and initiating corrective adjustments in the

company’s long-term direction, objectives, strategy, or execution in light of actual experience, changing
conditions, newly emerging market opportunities, and fresh managerial ideas for improvements.
Figure 2.1 displays this five-task process. Let’s examine each task in some detail, thereby setting the stage
for the forthcoming chapters and giving you a bird’s-eye view of the book.
FIGURE 2.1 The Strategy-Making, Strategy-Executing Process
Task 1 Task 2 Task 3 Task 4 Task 5
Developing Crafting a Monitoring

a strategic strategy to Implementing developments,
vision, Setting achieve the and evaluating
mission, Objectives objectives and executing performance,
and core move along the the strategy and initiating
values chosen path corrective
adjustments
Revise as needed in light of the company’s

actual performance, changing conditions,
new opportunities, and fresh ideas for improvements

TASK 1: DEVELOPING A STRATEGIC VISION, MISSION

STATEMENT, AND SET OF CORE VALUES
Very early in the strategy-making process, a company’s senior executives must wrestle with the issue of
what directional path the company should take. Can the company’s prospects be improved by changing its
product offerings, the markets in which it participates, the customers it caters to, or the business activities in
which it engages? Deciding to commit the company to one path versus another pushes top-level executives
to draw some carefully reasoned conclusions about whether the company’s present strategic course offers
attractive opportunities for growth and profitability or whether major or minor changes of one kind or another
in the company’s strategy and long-term direction are needed. Some of the most important considerations in
charting a company’s future direction are shown in Table 2.1.
TABLE 2.1 What to Consider in Deciding on a Company’s Future Direction
External Considerations Internal Considerations

• Does sticking with the company’s present strategic • How well is the company faring vis-à-vis key
course present attractive opportunities for growth and competitors? Is the company gaining ground or losing
profitability? ground, and why?
• Are the winds of change—most especially those • Is the company competing in too many markets
affecting the market and competitive arenas in which or product categories where profits are skimpy or
the company competes—acting to enhance or weaken nonexistent?
the company’s prospects?
• What, if any, new customer groups and/or geographic • Does the company have attractively strong resources
markets should the company get in position to serve? and competitive capabilities to grow revenues and
profits in the years ahead?
• Which emerging market opportunities should the • What resource strengths and competitive capabilities
company pursue and which ones should not be offer good potential for creating competitive
pursued? advantage?
• Are there good reasons why the company should • Is the company at risk because of specific resource
begin to deemphasize or eventually abandon any of weaknesses or deficient competitive capabilities or
the markets or customer groups it is currently serving? threats of technological obsolescence?
Top management’s views and conclusions about the company’s long-term direction and what product-
customer-market-business mix seems optimal for the road ahead constitute a strategic vision for the company.
A strategic vision delineates management’s aspirations for the company, providing a panoramic view of
“where we are going” and a convincing rationale for why
this makes good business sense. A strategic vision thus CORE CONCEPT
points an organization in a particular direction, charts a A strategic vision describes the route a company
strategic path for it to follow in preparing for the future,
intends to take in developing and strengthening
and molds organizational identity. A forward-looking
its business. It lays out the company’s strategic
and clearly articulated strategic vision communicates
management’s aspirations to stakeholders (shareholders, course in preparing for the future.
employees, suppliers, customers, etc.) and helps steer
the energies of company personnel in a common direction. The vision of Google cofounders Larry Page and
Sergey Brin “to organize the world’s information and make it universally accessible and useful” provides a
good example. In serving as the company’s guiding light, it has captured the imagination of stakeholders and
the public at large, served as the basis for crafting the company’s strategic actions, and aided internal efforts
to mobilize and direct the company’s resources.

Clear, forward-looking visions are distinctive and

specific to a particular organization; they avoid feel- A vision statement should clearly set forth a
good statements like “We will become a global leader company’s long-term direction and say something
and the first choice of customers in every market we definitive about what top executives want the
choose to serve”—which could apply to hundreds of company’s product-market-customer-business
organizations.1 Likewise, a strategic vision proclaiming makeup to be in three to five (or more) years.
management’s quest “to be the market leader” or “to
be the most innovative” or “to be recognized as the
best company in the industry” offers scant guidance about a company’s long-term direction or the kind of
company management is striving to build.
A surprising number of vision statements found on company websites and in annual reports are vague and
unrevealing, conveying nothing meaningful about the company’s future direction. Some could apply to most
any company in any industry. Many read like a public relations statement, full of high-sounding words and
phrases that someone came up with because it is fashionable for companies to have a vision statement.2
An example is Hilton Hotel’s vision “to fill the earth with light and the warmth of hospitality,” which borders
on the incredulous and certainly bears little resemblance to a purposeful and valuable vision statement that
informs stakeholders about Hilton Hotel’s long-term direction and management’s aspirations for the future
of the company’s hotel business?
For a strategic vision statement to serve as a managerially valuable tool for instilling a strong sense of
long-term direction, it cannot be just a bunch of nice words with no specifics or forward-looking content.
Rather, it must convey something definitive about where the company needs to be headed and address what
changes in the company’s current product-market-
customer-business mix and business operations A well-communicated vision is a valuable managerial
are needed to better position the company in the tool for enlisting the commitment of company
light of technological developments, the actions of personnel to actions that will move the company
rivals, changing buyer needs and expectations, and more quickly along the directional path top
assorted other factors that affect the company’s long-
executives have charted.
term business prospects. Vision statements that use
revealing language to paint a picture of where the
company is going and the changes needed in its business make-up are particularly useful in helping gain
the commitment of company personnel to make these changes and in providing guidance to managers at all
organizational levels about the kinds of actions they should take in their areas of responsibility to assist the
company in moving expeditiously along the charted directional path. Table 2.2 provides some dos and don’ts
in composing a clear and effectively worded vision statement.
TABLE 2.2 Wording a Vision Statement—The Do’s and Don’ts
The Do’s The Don’ts

Be graphic—Paint a clear and straight-to-the-point Don’t dwell on the present—a vision is not about what a
picture of where the company is headed and the market company once did or does now; it’s about the future and
position(s) the company is striving to stake out. “where we are going.”
Be forward-looking and directional—Describe the Don’t be vague or incomplete—Never skimp on

strategic course management has charted and the kinds specifics about where the company is headed or how
of product-market-customer-business changes that will the company intends to prepare for the future.
help prepare the company for the future.
Keep it focused—Include enough specifics and details Don’t use overly broad language—Avoid all-inclusive
to provide managers with guidance in making decisions, language that gives the company license to head in
initiating needed changes, and allocating resources. most any direction, pursue most any opportunity, or
enter most any business.

Have some wiggle room—Language that allows some Don’t state the vision in bland or uninspiring terms—
flexibility enables the strategic course to be fine- The best vision statements are worded in a manner
tuned as the company’s circumstances and external that motivate and inspire company personnel and
environment change—significantly modifying the vision shareholders about the company’s future and the merits
statement frequently undercuts the whole concept of or value of what it is trying to accomplish.
establishing a long-term direction for the company.
Be sure the journey is feasible—The path and direction Don’t be generic—A vision statement that could apply
should be within the realm of what the company can to companies in any of several industries (or to any of
realistically pursue; over time, a company should be several companies in the same industry) is incapable of
able to demonstrate measurable progress in achieving giving a company its own unique identity or providing
the vision. useful decision-making guidance.
Indicate why the directional path makes good Don’t rely on superlatives—Visions that claim the
business sense—The directional path should be in company’s strategic course is one of being the “best” or
the long-term interests of stakeholders (especially “the most successful” or “a global leader” usually lack
shareholders, employees, and customers). revealing specifics about the path the company intends
to take to get there.
Make it memorable—A well-stated vision is short, easily Don’t run on and on—A viision statement that is not
communicated, and memorable. Ideally, it should be concise and to the point will tend to lose its audience.
reducible to a few choice lines or a one-phrase “slogan.”
Sources: John P. Kotter, Leading Change (Boston: Harvard Business School Press, 1996), p. 72; Hugh Davidson, The
Committed Enterprise (Oxford: Butterworth Heinemann, 2002, Chapter 2; and Michel Robert, Strategy Pure and Simple II (New
York: McGraw-Hill, 1992), Chapters 2, 3, and 6.
Communicating the Strategic Vision

How effectively top executives communicate the strategic vision to all company personnel is as important as
the strategic soundness of the long-term direction they have chosen. A vision cannot provide direction for
middle or lower-level managers or inspire and energize employees unless everyone in the company is familiar
with it and can observe top executives’ commitment to the vision. It is particularly important for executives to
provide a compelling rationale for a dramatically new strategic vision and company direction. When company
personnel don’t understand or accept the need for redirecting organizational efforts, they are prone to resist
or be indifferent to the changes that management wants to make. Hence, explaining the basis for the new
direction, addressing employee concerns head-on, calming fears, lifting spirits, and providing updates and
progress reports as events unfold all become part of the task in mobilizing support for the vision and winning
commitment to needed actions.
Winning the support of organization members for the vision nearly always requires putting “where we
are going and why” in writing, distributing the statement across the organization, and having executives
personally explain the vision and its rationale to as
many people as feasible. A strategic vision can usually CORE CONCEPT
be adequately stated in less than a page (often in one
An effectively communicated vision is a valuable
to two paragraphs), and managers should be able to
tool for managers to use in enlisting the
explain it to company personnel and outsiders in five to
ten minutes. Ideally, executives should present their vision commitment of company personnel to actions
for the company in a manner that reaches out and grabs that get the company moving in the intended
people. An engaging and convincing strategic vision has direction.
enormous motivational value—for the same reason that a
stone mason is more inspired by building a great cathedral for the ages than simply laying stones to create
floors and walls. When managers articulate a vivid and compelling case for where the company is headed,
organization members begin to say, “This is interesting and has a lot of merit. I want to be involved and do
my part to help make it happen.” The more a vision evokes positive support and excitement, the greater its
impact in terms of arousing a committed organizational effort and getting company personnel to move in a
common direction.3 Thus, executive ability to paint a convincing and inspiring picture of a company’s journey
and destination is an important element of effective strategic leadership.

Expressing the Essence of the Vision in a Slogan The task of effectively conveying the vision to
company personnel is assisted when the vision of where to head is expressed in an easily remembered
phrase or catchy slogan. For instance, Nike aspires to exhibit “a passion for serving athletes by developing
the most innovative products and services to help them reach their full potential.” Disney’s overarching
vision for its five business groups—parks and resorts, movie studios, television channels, consumer products
(toys, books, and licensed Disney products), and interactive media entertainment—is to “create happiness
by providing the finest in entertainment for people of all ages, everywhere.” The Mayo Clinic’s vision is “to
inspire hope and contribute to health and well-being by providing the best care to every patient through
integrated clinical practice, education and research” while Habitat for Humanity’s aspirational vision is “A
world where everyone has a decent place to live.” Scotland Yard’s vision is vividly captured in the slogan “to
make London the safest major city in the world.” Walmart’s visionary slogan is “saving people money so they
can live better”—often shortened to the tag line “Save Money. Live Better.” Creating a phrase or short slogan
to illuminate an organization’s direction and purpose and then using it repeatedly as a reminder of “where we
are headed and why” helps rally organization members to maintain their focus and hurdle whatever obstacles
lie in the company’s path.
Why a Sound, Well-Communicated Strategic Vision Matters A well-thought-out, forcefully

communicated strategic vision pays off in several respects: (1) it crystallizes top executives’ own views about
the firm’s long-term direction; (2) it reduces the risk of rudderless decision making; (3) it is a tool for winning
the support of organizational members for changes that will help move the company along the chosen
strategic path; (4) it prompts lower-level managers to pursue actions and operating practices that promote
achievement of the vision; and (5) it provides a rational for why the whole organization should promptly take
steps to begin its journey into the future. When top executives can see evidence of progress in achieving
these five benefits, the first step in organizational direction setting has been successfully completed.
Developing a Company Mission Statement

The defining characteristic of a well-conceived strategic vision is what it says about the company’s future
strategic course—“the direction we are headed and what market position(s) we intend to stake out.” The role
of a company’s mission statement, however, is to describe
the enterprise’s present business and purpose—“who we The distinction between a strategic vision and a
are, what we do, and why we are here.” Ideally, a company mission statement is fairly clear-cut: A strategic
mission statement (1) identifies the company’s products/ vision sets forth a company’s future direction
services, (2) specifies the buyer needs that it seeks to (“where we are going”), whereas a company’s
satisfy and the customer groups or markets it serves, mission statement describes the scope and
and (3) gives the company its own identity. The mission
purpose of its present business (“who we are,
statements that one finds in company annual reports or
what we do, and why we are here”).
posted on company websites typically are quite brief;
some do a better job than others of conveying what the
enterprise’s current business operations and purpose are all about.
The following mission statements provide reasonably informative specifics about “who we are, what we do,
and why we are here:”
• Trader Joe’s (a specialty grocery chain): “The mission of Trader Joe’s is to give our customers the
best food and beverage values that they can find anywhere and to provide them with the information
required for informed buying decisions. We provide these with a dedication to the highest quality
of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual pride, and
company spirit.
• The American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by
mobilizing the power of volunteers and the generosity of donors.”
• eBay: “To provide a global trading platform where practically everyone can trade practically anything.”
• Honest Tea: “To create and promote great-tasting, healthy, organic beverages.”
• Nordstrom: “To give customers the most compelling shopping experience possible.”

• Amazon.com: “To build a place where people can come to find and discover anything they might
want to buy online.”
• Warby Parker: “To offer designer eyewear at a revolutionary price, while leading the way for socially
conscious businesses.”
But some companies have used vague or imprecise wording in their mission statements, effectively obscuring
the industry (or industries) in which they operate and the real substance of their business purpose. For
instance, Microsoft’s mission statement—“to help people
and businesses throughout the world realize their full To be well worded, a company mission statement
potential”—reveals nothing about its products or business must employ language specific enough to
make-up and is so non-specific it could apply to thousands distinguish its business make-up and purpose
of companies in hundreds of industries. European airline from those of other enterprises and give the
company JetBlue’s mission statement “To inspire humanity company its own identity.
in the air and on the ground” conceals everything about
its operations and business makeup. Avery Dennison’s
mission statement is “To help make every brand more inspiring, and the world more intelligent;” one would
never guess its product is stick-on labels. Similarly, one well-known company says its mission is “To be a
company that inspires and fulfills your curiosity;” a second well-known company’s mission statement is “To
refresh the world in mind, body, and spirit…To inspire moments of optimism and happiness through our
brands and actions…To create value and make a difference.” But neither of these two mission statements
would enable someone to correctly identify the first of these companies as Sony and the second (which
markets over 500 beverage brands in more than 200 countries) as Coca-Cola. The usefulness of a mission
statement that is largely a “collection of high-sounding words and phrases” and which fails to convey the
essence of a company’s business activities and purpose is unclear.
Occasionally, companies say their mission is to “make a profit” or to “maximize shareholder value.” Such
statements are likewise flawed. Making a profit on behalf of shareholders is more correctly an objective
and a result of what a company does. Moreover, earning a profit is the obvious intent of every commercial
enterprise. Such companies as BMW, Netflix, Shell Oil, Visa, Google, and McDonald’s are each striving to
earn a profit for shareholders; but plainly the fundamentals of their businesses are substantially different
when it comes to “who we are and what we do.” It is management’s answer to “make a profit doing what and
for whom?” that reveals the substance of a company’s mission and business purpose.
Linking the Strategic Vision and Mission with Company Values

Companies commonly develop a set of values to guide the actions and behavior of company personnel
in conducting the company’s business and pursuing its
strategic vision and mission. By values (or core values, CORE CONCEPT
as they are often called), we are referring to certain
A company’s values or core values are the
designated beliefs, traits, and ways of doing things—
beliefs, traits, and behavioral norms that
actions and behaviors that are widely viewed as “good”
or “desirable” or maybe even “noble” and that are company personnel are expected to display
intended to guide company personnel in the course of in conducting the company’s business and
conducting the company’s business and pursuing its pursuing its strategic vision and mission.
vision and mission. Values relate to such things as fair
treatment, honor and integrity, ethical behavior, innovativeness, teamwork, accountability, a passion for top-
notch quality or superior customer service, social responsibility, and community citizenship.
Values-conscious companies normally have four to eight core values that company personnel are expected
to display and that are supposed to be mirrored in how the company conducts its business. At American
Express, the core values are respect for people, customer commitment (building and developing relationships
that make a positive impact on the lives of our customers), integrity, teamwork (working together to fill the
needs of all customers), good citizenship, a strong will to win in the marketplace and every aspect of the
business, products and unsurpassed service that deliver premium value to our customers, and personal

accountability for delivering on commitments. At Disney, “cast members” are expected to share the values
of honesty, integrity, respect, courage, openness, diversity, and balance; these values are demonstrated
through such traits and behaviors as making guests happy, caring about fellow cast members, working as
a team, delivering quality, fostering creativity, paying attention to every detail, and having an emotional
commitment to Disney. Rackspace, a provider of server hosting and managed cloud computing services for
some 200,000 businesses in 150 countries, the core values are fanatical support in all we do, a commitment
to greatness, full disclosure and transparency, a passion for our work, treatment of fellow Rackers like
friends and family, and results first, substance over flash.4 Zappos expects its employees to practice 10
core values: deliver WOW through service; embrace and drive change; create fun and a little weirdness; be
adventurous, creative, and openminded; pursue growth and learning; build open and honest relationships
with communication; build a positive team and family spirit; do more with less; be passionate and determined;
and be humble.5
Do companies practice what they preach when it comes to their professed values? Sometimes yes,
sometimes no—it runs the gamut. At one extreme are companies whose executives are committed to
grounding company operations on sound values and principled ways of doing business. Senior executives at
these companies deliberately seek to ingrain the designated core values in the corporate culture—the core
values thus become an integral part of the company’s DNA and what makes it tick. At such values-driven
companies, executives “walk the talk” and company personnel are held accountable for displaying the stated
values. At the other extreme are companies that tolerate, maybe even condone, unethical behavior on the
part of company personnel, engage in deliberately dishonest dealings with others, have willful disregard
for employee safety, knowingly falsify their financial reports, and flagrantly disregard rules and regulations
against environmental pollution. Prime examples include:
• Volkswagen, with its deliberate efforts to falsify its compliance with vehicle emission standards.
• Wells Fargo’s scheme to dress up its operating performance by knowingly allowing bank employees
to create over 3.5 million fake customer accounts and charging 800,000 car loan customers for auto
insurance they did not need or even know about.
• Luckin Coffee, which intentionally inflated its sales revenues by over $310 million in 2019 in the
course of an unprecedented 2018–2019 campaign to open 4,500 retail locations, boost customer
traffic with 50 percent discounts, and overtake Starbucks as the leading coffee retailer in China by
early 2000.
In-between these extremes are companies with window-dressing values; their so-called values are given lip
service by top executives but have little discernible impact on either how company personnel behave or how
the company operates. Such companies have values statements because they are in vogue and help make
the company look good to unsuspecting outsiders.
At companies where the stated values are real rather than cosmetic, managers connect values to the pursuit
of the strategic vision and mission in one of two ways. In companies with longstanding values that are deeply
entrenched in the corporate culture, senior managers are careful to craft a vision, a mission, a strategy, and
a set of operating practices that match established values, and they repeatedly emphasize how the values-
based behavioral norms contribute to the company’s business success. If the company changes to a different
vision or strategy, executives make a point of explaining how and why the core values continue to be relevant.
Few companies with sincere commitment to established core values ever undertake strategic moves that
conflict with ingrained values. In new companies or those with unspecified values, top management has to
consider what values, behaviors, and business conduct should characterize the company and then draft a
values statement to circulate among managers and employees for discussion and possible modification. A
final values statement that incorporates the desired behaviors and traits and connects to the vision/mission
is then officially adopted. Some companies combine their strategic vision, mission, and values into a single
statement or document, circulate it to all organization members, and in many instances post the vision/
mission and values statement on the company’s website.

TASK 2: SETTING OBJECTIVES

The managerial purpose of setting objectives is to convert the strategic vision and mission into specific
performance targets. Objectives represent a managerial commitment to achieving particular results and
outcomes. Well-stated objectives must be specific, quantifiable or measurable, challenging, and contain
a deadline for achievement. As Bill Hewlett, cofounder
of Hewlett-Packard, shrewdly observed, “You cannot CORE CONCEPT
manage what you cannot measure. And what gets Objectives are an organization’s performance
measured gets done.”6 Concrete, measurable, and targets—the results and outcomes management
challenging objectives are managerially valuable for three
wants to achieve. They function as yardsticks for
reasons: (1) they focus organizational attention on what
measuring how well the organization is doing.
to accomplish and help align the actions and decisions
throughout the organization, (2) they serve as yardsticks
for tracking company performance, and (3) they motivate organizational members to perform at a high level
and deliver the best possible results. Indeed, the experiences of countless companies and managers teach
that precisely spelling out how much of what kind of performance by when and then pressing forward with
actions and incentives calculated to help achieve the targeted outcomes greatly improve a company’s actual
performance.
Setting Stretch Objectives Spurs the Achievement of Exceptional Performance The experiences
of countless companies teach that one of the best ways to promote outstanding company performance is for
managers to deliberately set performance targets high enough to stretch an organization to perform at its
full potential and deliver the best possible results. Challenging company personnel to go all out and deliver
“stretch” gains in performance pushes an enterprise to be
more inventive, to exhibit more urgency in improving both There’s no better way to avoid ho-hum results
its financial performance and its business position, and to than by setting stretch objectives and motivating
be more intentional and focused in its actions to achieve organization members to perform at full potential
challenging performance targets. Employing stretch and deliver the best possible results.
objectives, especially if they entail achieving inspirational
outcomes, often has the added effect of creating a more
exciting work environment where it is easier to recruit and retain talented employees who relish stimulating
work assignments and being part of a high-performing organization. But the most easily realized benefit
of setting stretch objectives is to erect a firewall against contentment with modest gains in organizational
performance. As Mitchell Leibovitz, former CEO of the auto parts and service retailer Pep Boys, once said, “If
you want to have ho-hum results, have ho-hum objectives.”
How Not to Handle the Task of Setting Objectives The following three approaches to objective-
setting should be scrupulously avoided:
• Setting unspecific targets like “maximize profits,” “reduce costs,” “become more efficient,” or
“increase revenues.” For instance, an objective to reduce costs is technically achieved if a company’s
total costs go down by $100 or if unit costs fall by a fraction of a penny—neither outcome is likely to
matter. Likewise, an objective to increase revenues is realized if total revenues climb by a trivial one
percent by the end of 2020. This is why setting stretch objectives and always specifying how much
by when are important.
• Setting targets for the upcoming year that, if achieved, would represent only “average” performance
(because the targets are slightly higher than the most recent year’s actual performance and can
be reached with only minimal or modest effort). Objectives that promote or enable organizational
coasting provide little or no managerial impetus for improved performance.
• Setting targets that carry no adverse consequences for organizational members if actual
performance falls short of targeted performance. Organizational members understandably attach
little importance to the objectives that managers announce when it has been top management
practice in times past to find excuses to justify weak performance (like blaming “outside forces
beyond our control”), not hold any company personnel accountable for subpar outcomes, and award

bonuses and compensation increases despite failure to achieve announced objectives. Objectives—
even challenging ones—are incapable of motivating company personnel to exert their best efforts
to achieve stretch performance targets if they can expect to receive bonuses, pay raises, and/or
promotions even if the performance targets are not reached.
All three ways of handling the task of setting objectives undercut the drive for superior performance.
What Kinds of Objectives to Set—A Balanced Scorecard

Works Best
Two distinct types of performance yardsticks are required:
those relating to financial performance and those relating CORE CONCEPT
to strategic performance. Efforts to compete successfully Financial objectives relate to the financial perfor-
against rivals and achieve a sustainable competitive mance targets management have established for
advantage. the organization to achieve. Strategic objectives
Among some of the most common types of financial and relate to target outcomes that indicate whether
strategic objectives are the following: a company’s market standing with buyers and its
ability to compete successfully against rivals are
growing stronger, remaining steady, or eroding.
Financial Objectives Strategic Objectives
• An x percent increase in annual revenues • Winning an x percent market share

• Annual increases in after-tax profits of x • Achieving lower overall costs per unit sold than rivals
percent • Overtaking key competitors on product performance or
• Annual increases in earnings per share of x percent quality or customer service
• Annual dividend increases of x percent • Deriving x percent of revenues from the sale of new
• Profit margins of x percent products introduced within the past five years
• An x percent return on capital employed (ROCE) or • Having broader or deeper technological capabilities
return on shareholders’ equity investment (ROE) than rivals
• Increased shareholder value—in the form of an • Having a wider product line than rivals
upward-trending stock price • Having a better-known or more powerful brand name
• Bond and credit ratings of x than rivals
• Internal cash flows of x dollars to fund new capital • Having stronger national or global sales and distribution
investment capabilities than rivals
• Consistently getting new or improved products to
market ahead of rivals
Both Short-Term and Long-Term Objectives Are Needed A company’s set of financial and strategic
objectives should include both near-term and longer-term performance targets. Short-term (quarterly or
annual) objectives focus managerial attention on actions to deliver near-term performance improvements
and satisfy shareholder expectations for progress on a variety of fronts. Longer-term targets (three to five
years) prompt managers to consider what to do now to put the company in position to perform better later.
The seeds for achieving long-term objectives typically must be planted well in advance of the period when
the long-term targets have to be reached. For example, a company that wants to grow its revenues by 20
percent in three years cannot wait until the end of the second year to begin its revenue growth initiatives.
Indeed, active managerial pursuit of long-term performance targets is critical for sustaining a company’s
performance at attractively high levels over the long term, thus, posing a barrier to nearsighted management
and undue focus on short-term results. Managers who concentrate their energies on hitting next quarter’s
(or the current year’s) targets, while neglecting or postponing needed actions to achieve long-term targets,
frequently fail to do the very things today that it takes to grow the business and produce good performance

year after year. When trade-offs must be made between achieving long-run objectives and short-run
objectives, long-run objectives should take precedence (unless the achievement of one or more short-run
performance targets have unique importance).
Balanced Emphasis on Achieving Financial and Strategic Performance Targets Are Essential
Achieving acceptable financial results is a must. Without adequate profitability and financial strength, a
company’s ability to muster the resources needed to
keep pace with rivals, invest in improved technology, CORE CONCEPT
and make needed capital improvements are jeopardized.
Furthermore, subpar earnings and a weak balance sheet A company that pursues and achieves strategic
alarm shareholders and creditors, put the jobs of senior outcomes that boost its competitiveness and
executives at risk, and begin to raise questions about strength in the marketplace vis-à-vis rivals
the company’s ultimate survival. However, good financial is better able to improve its future financial
performance, by itself, is not enough. Of equal or greater performance.
importance is a company’s strategic performance—
outcomes that indicate whether a company’s market position and competitive strengths are deteriorating,
holding steady, or improving. Establishing and pursuing strategic objectives are important because a
stronger market standing with buyers and improved competitive strength to combat rivals—especially when
these result in a bigger competitive advantage—is what enables and empowers a company to improve its
financial performance in upcoming periods.
Moreover, a company’s financial performance measures are really lagging indicators that reflect the results
of past decisions and organizational activities.7 But a company’s past or current financial performance is not
a reliable indicator of its future prospects—poor financial performers often turn things around and do better,
whereas good financial performers can fall upon hard times. The best and most reliable leading indicators
of a company’s future financial performance and business prospects are strategic outcomes that indicate
whether the company’s competitive strength and buyer appeal for its products/services are eroding, holding
steady, or improving. For instance, if a company has set aggressive strategic objectives and is achieving
them—such that its competitive strength and market position are on the rise—then there’s reason to project
that its future financial performance will be better than its current or past performance. If a company is
losing ground to competitors and its market standing with buyers is slipping—outcomes that reflect weak
strategic performance (and, very likely, failure to achieve its strategic objectives)—then its ability to maintain
its present profitability is highly suspect. Hence, the degree to which a company’s managers set, pursue, and
achieve stretch strategic objectives tends to be a reliable leading indicator of whether its future financial
performance will improve or stall or erode.
Consequently, it is important to use a performance measurement system that strikes a balance between
the pursuit and achievement of financial objectives and strategic objectives.8 Focusing only on how well a
company is performing financially overlooks the fact that what ultimately enables and empowers a company
to deliver better financial results from its operations is the achievement of strategic objectives that improve
its ability to compete successfully against rivals and its market strength in attracting and retaining customers.
Indeed, the surest path to boosting company profitability quarter after quarter and year after year is to
relentlessly pursue strategic outcomes that strengthen the company’s market position with buyers and,
ideally, produce a growing competitive advantage over rivals.
Objective Setting Should Extend to All Organizational Levels Objective setting should not stop
with the efforts of senior management to set companywide performance targets. Company objectives need
to be broken down into target outcomes for each of the organization’s separate businesses, product lines,
functional departments, and work units. Company performance cannot reach full potential unless each
organizational unit sets and pursues performance targets that contribute directly to the desired companywide
outcomes and results. Moreover, employees within specific departments and operating units are inspired
and motivated better by specific objectives relating directly to their jobs and work units than by overall
companywide performance targets. Objective setting is thus a top-down process that must extend to the
lowest organizational levels. And it means that each organizational unit must take care to set performance
targets that support—rather than hinder—the achievement of companywide targets.

The ideal situation is a team effort in which each organizational unit strives to produce results that contribute
to the achievement of the company’s performance targets and strategic vision. Such consistency signals
that organizational units know their strategic role and are on board in helping the company move down the
chosen strategic path and produce the desired results.
Employing a Balanced Scorecard The most widely used framework for developing a linked set of strategic
and financial objectives and tracking their achievement is known as the balanced scorecard. Since its
origination in the 1990s, balanced scorecard methodology
has evolved from just a performance measurement tool
CORE CONCEPT
into a full strategic planning and management system that
transforms an organization’s vision, mission, objectives, A balanced scorecard is a widely used method for
and strategy into daily “marching orders” for company combining the use of both strategic and financial
personnel and organization units throughout the objectives, tracking their achievement, and giving
organizational hierarchy, thereby facilitating better strategy management a more complete and balanced view
execution as well as stronger performance measurement.9 of how well an organization is performing.
The balanced scorecards of many companies tend to
have a comprehensive set of performance targets that
include financial objectives, objectives relating to customers and the market, objectives relating to product
quality and worker productivity, and objectives relating to innovation, infrastructure, human capital, and
culture. According to 2GC, a consulting firm that has done annual surveys of the use of balanced scorecards
since 2008, balanced scorecard methodology has been one of the world’s top ten most used management
tools and the number one most used tool for performance management since its introduction in the 1990s.10
A growing share of the companies employing balanced scorecards in 2019 were using third-generation
scorecard designs.11 A Bain & Co. 2017 survey of 1,268 managers found about 30 percent of companies
(down from 40 percent in Bain’s 2015 survey) in the United States, Europe/Middle East/Africa, and Latin
America employed a balanced scorecard approach in measuring strategic and financial performance; many
employed balanced scorecards in several different parts of their organization.12 Organizations that have
adopted the balanced scorecard approach include IBM, Honeywell, Wells Fargo Bank, Citibank, Bank of
Tokyo, Ford Motor, Volkswagen, ExxonMobil, DuPont, Caterpillar, Pfizer, Ann Taylor Stores, General Electric,
Verizon, AT&T, Hilton Hotels, UPS, Duke University Hospital, Royal Canadian Mounted Police, UK Ministry of
Defence, the U.S. Army Medical Command, and over 30 colleges and universities.13
Strategic Intent—The Relentless Pursuit of an Ambitious Long-Term Strategic Objective On

occasion, companies decide to concentrate the full force of their resources and competitive actions on
a long-term campaign to achieve some ambitious strategic outcome—like unseating the existing industry
leader, becoming the dominant market share leader worldwide, delivering the best customer service of
any company in the industry (or the world), or turning a new technology into products capable of changing
the way people work and live. When a company launches aggressive initiatives over a sustained period to
achieve a bold strategic outcome, it is clearly signaling strategic intent to be a winner in the marketplace,
often against long odds.14
Nike’s strategic intent during the 1960s was to overtake Adidas (which connected nicely with Nike’s core
purpose “to experience the emotion of competition, winning, and crushing competitors”). Also, in the
1960’s when Canon entered the market for copying equipment, its strategic intent was to “beat Xerox.”
When Fox News Channel launched operations in 1996, its strategic intent was to overtake CNN, a feat it
accomplished five years later—Fox News has been the most-watched cable news channel every year since
2001. Most recently, Honda achieved its long-standing strategic intent of producing an ultra-light jet when its
unconventionally designed, fuel-efficient five-passenger “Civic of the Sky” mini-jet went into production in
2012—Honda first initiated the project to enter the jet aircraft market in the late 1980s.
Companies that establish exceptionally bold strategic objectives and have an unshakable—often obsessive—
commitment to achieving them typically lack the immediate capabilities and market grasp to achieve their
lofty target. But they rally the organization around efforts to make their strategic intents a reality. They go
all out to marshal the resources and capabilities to close in on their strategic target (which is often global

market leadership) as rapidly as they can. They craft potent offensive strategies calculated to throw rivals
off-balance, put them on the defensive, and force them into an ongoing game of catch-up. They deliberately
try to alter the market contest and tilt the rules for competing in their favor. As a consequence, capably
managed, up-and-coming enterprises with strategic intents exceeding their present reach and resources are
a force to be reckoned with, often proving to be more formidable competitors over time than larger cash-rich
rivals that have modest strategic objectives and market ambitions.
TASK 3: CRAFTING A STRATEGY

As indicated in Chapter 1, the task of stitching a strategy together entails addressing a series of hows:
how to attract and please customers, how to compete against rivals, how to position the company in the
marketplace vis-à-vis rivals, how best to pursue attractive opportunities to grow the business, how best to
respond to changing economic and market conditions, how to manage each functional piece of the business,
and how to achieve the company’s strategic and financial objectives. Astute entrepreneurship is called for
in choosing among the various strategic alternatives and in proactively searching for opportunities to do
new things or to do existing things in new or better ways.15 The faster a company’s business environment
is changing, the more critical it becomes for strategy makers to be good entrepreneurs in diagnosing
the direction and force of the changes under way and in responding with timely strategy adjustments.
Strategy makers have to pay attention to early warnings of future change and be willing to experiment
with dare-to-be-different ways to establish and solidify a market position in that future. When obstacles
unexpectedly appear in a company’s path, it is up to management to adapt rapidly and innovatively.
Masterful strategies come from doing things differently from competitors where it counts—out-innovating
them, being more efficient, being more imaginative, adapting faster—rather than running with the herd.
Good strategy making is therefore inseparable from good business entrepreneurship. One cannot exist
without the other.
Crafting Strategy Involves Managers at All Organizational

Levels
A company’s top executives obviously have lead strategy-making roles and responsibilities. The chief
executive officer (CEO), as captain of the ship, carries the mantles of chief direction setter, chief objective
setter, chief strategy maker, and chief strategy implementer for the total enterprise. Ultimate responsibility
for leading the strategy-making, strategy-executing process rests with the CEO. And the CEO is always
fully accountable for the results the strategy produces, whether good or bad. In some enterprises, the
CEO or owner functions as strategic visionary and chief architect of the strategy, personally deciding
what the key elements of the company’s strategy will be, although the advice of key subordinates may
be sought in fashioning an overall strategy and deciding on important strategic moves. A CEO-centered
approach to strategy development is characteristic of small owner-managed companies and sometimes
large corporations that have been founded by the present CEO or that have CEOs with strong strategic
leadership skills. Warren Buffet at Berkshire Hathaway, Mary Barra at General Motors, Reed Hastings at
Netflix, Elon Musk at Tesla and SpaceX, Jeff Bezos at Amazon, and Mark Zuckerberg at Facebook are
examples of high-profile corporate CEOs who have wielded a heavy hand in shaping their company’s
strategy.
In most corporations, however, strategy is the product of more than just the CEO’s handiwork. Typically,
other senior executives—business unit heads, the chief financial officer, and vice presidents for production,
marketing, human resources, and other functional departments have influential strategy-making roles and
help fashion the chief strategy components. Normally, the head of each individual business of a diversified
corporation has lead responsibility for the business unit they head. A company’s chief financial officer
typically is in charge of devising and implementing an appropriate financial strategy for the whole company.
In a single business corporation, the production vice president usually takes the lead in developing the
company’s production strategy; the marketing vice president orchestrates sales and marketing strategy; a
brand manager is in charge of the strategy for a particular brand in the company’s product lineup, and so

on. Moreover, the strategy-making efforts of top executives are complemented by advice and counsel from
the company’s board of directors and, normally, all major strategic decisions are submitted to the board of
directors for review, discussion, perhaps modification, and official approval.
But strategy making is by no means solely a top

management function, the exclusive province of owner-
The larger and more diverse the operations of an
entrepreneurs, CEOs, high-ranking executives, and board
enterprise, the more points of strategic initiative
members. The more a company’s operations cut across
different products, industries, and geographical areas, it has and the greater number of managers in its
the more that headquarters executives have little option various geographically-scattered organizational
but to delegate considerable strategy-making authority units that have a significant strategy-making role.
to down-the-line managers in charge of particular
subsidiaries, divisions, product lines, geographic sales offices, distribution centers, and plants. On-the-scene
managers who oversee specific operating units can be reliably counted upon to be intimately knowledgeable
about market and competitive conditions, customer requirements and expectations, and all the problems,
issues, and available strategic alternatives relating to the operating unit under their direct supervision.
Managers with day-to-day familiarity of, and authority over, a specific operating unit thus have a big edge
over headquarters executives in sizing up their operating unit’s situation and making wise strategic choices.
Take, for example, a company like General Electric, a $95 billion global corporation with 205,000 employees,
operations in about 170 countries, 284 manufacturing plants, and a revenue stream consisting of 50 percent
products and 50 percent services across six business segments:
• Additive Manufacturing—A business that uses such advanced manufacturing technologies as 3D

printing, direct metal laser melting machines, and electronic beam melting techniques to produce
orthopedic metal implants, fuel nozzles for refueling aircraft in flight, metal spare parts for aircraft
engines, an array of metal spare parts for older aircraft in service for decades for which used spare
parts are scarce, complex metal antennas, copper inductor coils, steel gear hobs, and many other
types of metal parts.
• Aviation—the manufacture of jet and turboprop engines for commercial and military aircraft,
replacement parts, engine maintenance services, component repair, and overhaul services).
• Power—the manufacture of gas and steam turbines and power generators and a provider of power
generation services and engineering services for power plants.
• Renewable Energy onshore and offshore wind turbines and turbine platforms, turbine blades and
other hardware, turbine software, products and services for the hydropower industry, and high
voltage equipment.
• Health Care—medical imaging, patient monitoring, diagnostics equipment, digital solutions, drug
discovery, biopharmaceutical manufacturing technologies, and performance enhancement solutions.
• GE Capital—leasing and financing aircraft, aircraft engines and helicopters, providing financial and
underwriting solutions, and managing GE’s run-off insurance operations.
While top-level executives at GE’s headquarters may well be personally involved in shaping GE’s overall
strategy and fashioning important strategic moves in its primary businesses, they simply cannot know
enough about the situation in every GE organizational unit across the world to decide upon every strategy
detail and direct every strategic move made in GE’s worldwide organization. Rather, it takes involvement
on the part of GE’s whole management team—top executives, business group heads, the heads of specific
business units, the managers of particular product and service categories, and key managers in plants, sales
offices, and distribution centers—to craft the thousands of strategic initiatives that end up composing the
whole of GE’s strategy.

The key point here is this. While managers further down in a company’s managerial hierarchy obviously have
a narrower, more specific strategy-making role than managers closer to the top, the important understanding
here is that in most of today’s companies, crafting strategy
is a collaborative team effort in which every company CORE CONCEPT
manager typically has a strategy-making role—ranging In most companies, crafting and executing
from minor to major—for the area they head. Hence, any
strategy is a collaborative team effort where
notion that an organization’s strategists are at the top of
every manager has a role for the area they
the management hierarchy and that midlevel and frontline
personnel merely carry out the strategic directives of top head. It is flawed thinking to view crafting and
executives should be cast aside. A valuable strength of executing strategy as something only high-level
collaborative strategy-making is that the team of people executives do.
charged with crafting the strategy can easily include the
very people who will also be charged with implementing and executing it. Giving people an influential stake in
crafting the strategy they must later help implement and execute not only builds motivation and commitment
but also holds them accountable for putting the strategy into place and making it work—the oft-used excuse
of “It wasn’t my idea to do this” won’t fly.
A Company’s Strategy-Making Hierarchy

It thus follows that a company’s overall strategy is a collection of strategic initiatives and actions devised by
managers (and sometimes key employees) up and down the whole organizational hierarchy. The larger and
more diverse the operations of an enterprise, the more points of strategic initiative it will have and the more
managers at different organizational levels and in different organizational units will have a relevant strategy-
making role. In diversified companies, where multiple and sometimes strikingly different businesses must
be managed (at General Electric, for instance), crafting a full-fledged strategy involves four distinct types of
strategic actions and initiatives, each undertaken at different levels of the organization and partially or wholly
crafted by managers at different organizational levels, as shown in Figure 2.2.
• Corporate strategy concerns the overall strategy for managing a set of businesses in a diversified,
multi-business enterprise. It consists of strategy initiatives to establish business positions in different
industries, addresses whether to hold or divest existing businesses, includes strategic actions to
boost the combined performance of the set of businesses the company has diversified into, and
specifies how to capture cross-business synergies and turn them into a competitive advantage. The
CEO and other senior-level corporate executives have lead responsibility for devising corporate
strategy. Major strategic decisions are usually reviewed and approved by the company’s board of
directors. Corporate strategy and the strategy-related issues that must be confronted in diversified
companies are the subjects of Chapter 8.
• Business strategy consists of the actions and approaches being employed to produce successful
performance in one specific line of business. The key focus is crafting responses to changing market
circumstances and initiating actions to strengthen a business’s market position and competitive
capabilities, build or widen competitive advantage, and improve the business’s financial performance.
Most often, corporate-level executives delegate lead responsibility for developing business-
level strategy to the executive they have put in charge of the business. However, corporate-level
executives may well exert strong influence over various aspects of business-level strategy, and in
diversified companies it is not unusual for corporate officers to insist that business-level objectives
and strategy be compatible with and supportive of corporate-level objectives and strategy themes.
The executive in charge of each business unit has at least two other strategy-related roles: (1) seeing
that lower-level strategies are well conceived, consistent with each other, and appropriately suited
to the overall business strategy, and (2) keeping corporate-level officers (and sometimes the board
of directors) informed of important new developments and emerging strategic issues. Typically,
corporate executives review business-level strategy, and there may be occasions when certain major
strategic initiatives to be taken at the business-level are reviewed and approved by the company’s
board of directors.

FIGURE 2.2 A Company’s Strategy-Making Hierarchy
Corporate
Orchestrated by Strategy
the CEO and other The overall companywide
senior executives game plan for managing a In the case of a
set of businesses single-business
company, these
two levels of the
strategy-making
Two-Way Influence
pyramid merge
into one level—
Orchestrated by the
business strategy—
senior executives Business Strategy
of each line of that is orchestrated
(one for each business the
business, often with company has diversified into) by the company’s
advice and input • How to strengthen market CEO and other top
from the heads position and gain competitive executives.
of functional area advantage
activities within
each business and
other key people.
Two-Way Influence
Orchestrated by Functional Area Strategies

the heads of major within Each Business
functional activities • Add relevant detail to the hows of overall
within a particular business strategy
business, often in • Provide a game plan for managing a
collaboration with
particular activity in ways that support
other key people.
the overall business strategy
Two-Way Influence
Orchestrated by
brand managers;
the operating
managers of Operating Strategies
plants, distribution
within Each Business
centers, and
• Add detail and completeness to business
geographic units;
and the managers and functional strategy
of strategically • Provide a game plan for managing
important activities specific lower-echelon activities with
like advertising strategic significance
and website
operations, often in
collaboration with
other key people.
• Functional-area strategies concern the actions, approaches, and practices employed in managing
particular functions within a business—like production, new product development, procurement,
distribution, sales and marketing, customer service, and finance. A business’s production strategy,
for example, represents the managerial game plan for running the manufacturing and assembly
part of the business. A new product development strategy concerns the game plan for keeping a

business’s product lineup fresh and in tune with what buyers are looking for. Functional strategies
flesh out the details of the overall business strategy. Lead responsibility for functional strategies is
normally delegated to the heads of the respective functions, with the executive in charge of the
business unit having final approval. Since it is always important for functional strategies to be tightly
aligned with the overall business strategy, there are times when a business unit head intervenes to
adjust one or more aspects of certain functional strategies in order to enhance the power and impact
of the business unit’s overall strategy.
• Operating strategies concern the relatively narrow strategic initiatives and approaches for managing
key operating units (plants, distribution centers, geographic units) and specific operating activities
with strategic significance (quality control, advertising, brand-building efforts, supply chain activities,
and online sales and operations). A plant manager needs a strategy for accomplishing the plant’s
objectives, carrying out the plant’s part of the company’s overall manufacturing game plan, and
dealing with any strategy-related problems that exist at the plant. A company’s advertising manager
needs a strategy for getting maximum audience exposure and sales impact from the ad budget.
Operating strategies, while of limited scope, add further detail and completeness to functional
strategies and to the overall business strategy. Lead responsibility for operating strategies is usually
delegated to frontline managers, subject to the review and approval of higher-ranking managers.
Even though operating strategy is at the bottom of the strategy-making hierarchy, its importance
should not be downplayed. A major plant that fails in its strategy to achieve production volume, unit
cost, and quality targets can undercut the achievement of company sales and profit objectives and
wreak havoc with strategic efforts to build a quality image with customers. Frontline managers are
thus an important part of an organization’s strategy-making team. One cannot reliably judge the
strategic importance of a given action simply by the strategy level or location within the managerial
hierarchy where it is initiated.
In single-business enterprises, the corporate and business levels of strategy making merge into one level—
business strategy—because the strategy for the whole company involves only one distinct line of business.
Thus, a single-business enterprise has three levels of strategy: business strategy for the entire company,
functional-area strategies for each main area within the business, and operating strategies undertaken
by lower-echelon managers to flesh out strategically significant aspects of the company’s business and
functional-area strategies. Proprietorships, partnerships, and owner-managed enterprises may have only
one or two strategy-making levels since it takes only a few key people to craft and oversee the firm’s strategy.
Uniting the Strategy-Making Effort

Ideally, the pieces of a company’s strategy up and down the strategy pyramid should be cohesive and mutually
reinforcing, fitting together like a jigsaw puzzle. Anything less than a unified collection of strategies weakens
the overall strategy and is likely to impair company
performance.16 It is top executives’ responsibility to achieve CORE CONCEPT
this unity by clearly communicating the company’s vision,
objectives, and major strategy components to down-the- A company’s strategy is at full power only when
line managers and key personnel. Midlevel and frontline its many pieces are united.
managers cannot craft unified strategic moves without
first understanding the company’s long-term direction and knowing the major components of the corporate
and/or business strategies that their strategy-making efforts are supposed to support and enhance. Thus,
as a general rule, strategy making must start at the top of the organization and proceed downward through
the pyramid from the corporate level to the business level and then from the business level to the associated
functional and operating levels.
Furthermore, once strategies up and down the hierarchy have been created, lower-level strategies must be
scrutinized for consistency and support of higher-level strategies. Any strategy conflicts must be addressed
and resolved, either by modifying the lower-level strategies with conflicting elements or by adapting the
higher-level strategy to accommodate what may be more appealing strategy ideas and initiatives bubbling
up from below.

A Strategic Vision + Mission + Objectives + Strategy =

A Strategic Plan
Developing a strategic vision and mission, setting objectives, and crafting a strategy are basic direction-
setting tasks. They map out where a company is headed,
delineate its strategic and financial performance targets, CORE CONCEPT
and outline the competitive moves and operating
approaches to be used in achieving the desired business A company’s strategic plan lays out its future
results. Together, they constitute a strategic plan for direction, business purpose, performance
coping with economic and market conditions, competing targets, and strategy.
against rivals, and making progress along the chosen
strategic course.17 Typically a strategic plan includes a commitment to allocate resources to carrying out the
plan and contains a deadline for achieving the targeted strategic and financial performance.
In companies that do regular strategy reviews and develop explicit strategic plans, the strategic plan usually
ends up as a written document that is circulated to most managers and perhaps selected employees.
Near-term performance targets are the part of the strategic plan most often communicated to employees
and spelled out explicitly. A number of companies summarize key elements of their strategic plans in
the company’s annual report to shareholders, in their annual 10-K filing to the Securities and Exchange
Commission, in postings on their website, or in statements provided to the business media; others, perhaps
for reasons of competitive sensitivity, make only vague general statements about their strategic plans.18 In
small privately-owned companies it is rare for strategic plans to exist in written form. Small company strategic
plans tend to reside in the thinking and directives of owners/executives; aspects of the plan are revealed in
meetings and conversations with company personnel, and in the understandings and commitments among
managers and key employees about where to head, what to accomplish, and how to proceed.
TASK 4: IMPLEMENTING AND EXECUTING THE STRATEGY

Managing the implementation and execution of strategy is an operations-oriented make-things-happen
activity aimed at performing core business activities in a strategy-supportive manner. It is easily the most
demanding and time-consuming part of the strategy management process. Converting strategic plans into
actions and results tests a manager’s ability to direct organizational change, motivate company personnel,
build and strengthen company competencies and competitive capabilities, create and nurture a strategy-
supportive work climate, and meet or beat performance targets. Initiatives to put the strategy in place and
execute it proficiently must be launched and managed on many organizational fronts.
Management’s action agenda for implementing and executing the chosen strategy emerges from
assessing what the company will have to do differently or better, given its particular operating practices
and organizational circumstances, to execute the strategy competently and achieve the targeted financial
and strategic performance. Each company manager has to think through the answer to “What needs to be
done in my area to execute my piece of the strategic plan, and what actions should I take to get the process
under way?” How much internal change is needed depends on how much of the strategy is new, how far
internal practices and competencies deviate from what the strategy requires, and how well the present work
climate/culture supports good strategy execution. Depending on the amount of internal change involved,
full implementation and proficient execution of company strategy (or important new pieces thereof) can take
several months to several years.
In most situations, managing the strategy execution process includes the following principal aspects:
• Staffing the organization and developing/strengthening the resources, capabilities, competencies,

and organizational structure to execute the strategy successfully.
• Allocating ample resources to those activities critical to successful strategy execution and the
achievement of financial and strategic objectives.

• Ensuring that policies and procedures facilitate rather than impede effective strategy execution.
• Using the best-known practices to perform core business activities and pushing for continuous
improvement in how well these activities are performed. Organizational units must periodically
reassess how things are being done and diligently pursue ways to do them better and cheaper.
• Installing information and operating systems that enable company personnel to better perform daily
operating activities and operate the business more proficiently.
• Motivating people and tying rewards and incentives directly to the achievement of strategic and
financial performance objectives.
• Creating a company culture and work climate conducive to successful strategy execution.
• Exerting the internal leadership needed to drive implementation forward and keep improving on
how the strategy is being executed. When stumbling blocks or weaknesses are encountered, senior
managers must see that they are addressed and rectified on a timely basis.
Good strategy execution requires diligent pursuit of operating excellence. It is a job for a company’s
whole management team. In addition, success hinges upon the skills and cooperation of operating
managers who can push for needed changes in their organization units and consistently deliver good
results. Management’s handling of the strategy implementation and execution process can be considered
successful if things go smoothly enough that the company meets or beats its strategic and financial
performance targets, demonstrates good progress in achieving operating excellence, and moves
expeditiously along the directional path management has chosen.
TASK 5: EVALUATING PERFORMANCE AND

INITIATING CORRECTIVE ADJUSTMENTS
The fifth component of the strategy management process—monitoring new external developments,
evaluating the company’s progress, and making corrective adjustments—is the trigger point for deciding
whether to continue or change the company’s vision and mission, objectives, strategy, and/or strategy
execution methods.19 As long as the company’s direction and strategy continues to pass the three tests of
a winning strategy discussed in Chapter 1, company executives may decide to stay the course. Simply fine-
tuning the strategic plan and continuing with efforts to improve strategy execution are sufficient.
But whenever a company encounters disruptive changes in its environment, questions need to be raised
about the appropriateness of its direction and strategy
and whether the time has arrived to retool the strategic CORE CONCEPT
vision, objectives, and strategy and come up with a
new “going forward” strategic plan. Similarly, when a A company’s vision, objectives, strategy, and
company experiences a disturbing downturn in its market approach to strategy execution are never final.
position or persistent shortfalls in financial performance, Reviewing whether and when to make revisions
its managers are obligated to ferret out the causes—do is an ongoing process, not an every-now-and-
they relate to poor strategy, poor strategy execution, or then task.
both? —and take timely corrective action. A company’s
direction, objectives, and strategy have to be revisited
any time external or internal circumstances warrant—over time, revisions are to be expected.
Likewise, managers are obligated to assess which of the company’s operating methods and approaches
to strategy execution merit continuation and which need improvement. Proficient strategy execution
is always the product of much organizational learning. It is achieved unevenly—coming quickly in some
areas and proving troublesome in others. Consequently, top-notch strategy execution requires a company’s
management team to closely monitor each and every aspect of the strategy execution effort and proactively
institute timely and effective adjustments that will move the company closer to operating excellence.

CORPORATE GOVERNANCE: THE ROLE OF THE

BOARD OF DIRECTORS IN THE STRATEGY-MAKING,
STRATEGY-EXECUTING PROCESS
Although senior managers have lead responsibility in crafting and executing a company’s strategy, it is the
duty of a company’s board of directors to exercise strong oversight and see that top management performs
all five strategy-making, strategy-executing tasks in a manner that is in the best interest of shareholders and
other stakeholders.20 A company’s board of directors has four important obligations to fulfill:
1. Critically appraise the company’s direction, strategy, and business approaches. Board members
must ask probing questions and draw on their business acumen to make independent judgments
about whether strategy proposals have been adequately analyzed and whether proposed strategic
actions appear to have greater promise than alternatives. If executive management is bringing well-
supported and reasoned strategy proposals to the board, there’s little reason for board members to
aggressively challenge and try to pick apart everything put before them. Asking incisive questions is
usually sufficient to test whether the case for management’s proposals is compelling and to exercise
vigilant oversight. However, when the company has a failing strategy or is plagued with internal
operating miscues, and certainly when there is a precipitous collapse in profitability, this obligation
of board members takes on heightened importance. In such circumstances, board members have
a duty to be proactive, expressing their concerns about the validity of the strategy and/or operating
methods, initiating debate about the company’s strategic path, having one-on-one discussions with
key executives and other board members, offering advice and guidance (sometimes quite forcefully),
and, when circumstances require, directly intervening as a group to alter the company’s executive
leadership and, ultimately, its strategy and business approaches.
2. Evaluate the caliber of senior executives’ strategy-making and strategy-executing skills. The board
is always responsible for determining whether the current CEO is doing a good job of strategic
leadership (as a basis for awarding salary increases and bonuses and deciding on retention or
removal). Boards must also exercise due diligence in evaluating the strategic leadership skills of
other senior executives in line to succeed the CEO. When the incumbent CEO steps down or leaves
for a position elsewhere, the board must elect a successor, either going with an insider or deciding
that an outsider is needed to perhaps radically change the company’s strategic course.
3. Institute a compensation plan for top executives that rewards them for actions and results that serve
stakeholder interests, and most especially those of shareholders. A basic principle of corporate
governance is that the owners of a corporation delegate operating authority and managerial control
to a team of executives who are then compensated for their efforts on behalf of the owners. In their
role as agents of shareholders, corporate managers have an unequivocal duty to make decisions
and operate the company in accord with shareholder interests (but this does not mean disregarding
the interests of other stakeholders—employees, suppliers, the communities in which they operate,
and society at large). Most boards of directors have a compensation committee, composed entirely
of directors from outside the company, to develop a salary and incentive compensation plan
that rewards senior executives for boosting the company’s long-term performance and growing
the economic value of the enterprise on behalf of shareholders; the compensation committee’s
recommendations are presented to the full board for approval. But during the past 10 to 15 years,
many boards of directors have done a poor job of ensuring that executive salary increases, bonuses,
and stock option awards are tied tightly to performance measures that are truly in the long-term
interests of shareholders. Rather, compensation packages at many companies have increasingly
rewarded executives for short-term performance improvements—most notably, for achieving
quarterly and annual earnings targets and boosting the stock price by specified percentages. This
has had the perverse effect of causing company managers to become preoccupied with actions to
improve a company’s near-term performance, often motivating them to take unprecedented and
unwise business risks to boost short-term earnings by amounts sufficient to qualify for multimillion-

dollar bonuses and stock option awards (that many see as obscenely large). Placing greater weight
on short-term performance improvements can work against the best interests of shareholders and
other stakeholders whenever ill-advised short-term risk-taking ends up badly damaging a company’s
long-term performance: witness the huge loss of shareholder wealth that occurred at many financial
institutions in 2008–2009 because of executive risk-taking in subprime loans, credit default swaps,
and collateralized mortgage securities. As a consequence, the need to overhaul and reform executive
compensation has become a hot topic in both public circles and corporate boardrooms.
4. Oversee the company’s financial accounting and financial reporting practices. While top executives,
particularly the company’s CEO and CFO (chief financial officer), are primarily responsible for seeing
that the company’s financial statements fairly and accurately report the results of the company’s
operations, it is well established that a company’s board of directors is legally obligated to exercise
diligent financial oversight and protect shareholders. This means closely monitoring the company’s
financial practices, ensuring that generally acceptable accounting principles are properly used in
preparing the company’s financial statements and that appropriate financial controls are in place to
prevent fraud and misuse of funds. Virtually all boards of directors have an audit committee, always
composed entirely of outside directors, that has lead responsibility for overseeing the accounting
practices of the company’s financial officers and consulting with both internal and external auditors
to ensure accurate financial reporting and adequate financial controls.
Every corporation should have a strong independent

board of directors that (1) is well informed about the CORE CONCEPT
company’s performance, (2) guides and judges the CEO The whole fabric of effective corporate gover-
and other top executives, (3) has the courage to curb nance is undermined when boards of directors
management actions they believe are inappropriate or shirk their responsibility to maintain ultimate
unduly risky, (4) certifies to shareholders that the CEO is
control over the company’s strategic direction,
doing what the board expects, (5) provides insight and
the major elements of its strategy, the business
advice to management, and (6) is intensely involved in
debating the pros and cons of key decisions and actions. 22 approaches management is using to implement
Boards of directors that lack the backbone to challenge and execute the strategy, executive compensation,
a strong-willed or “imperial” CEO or that rubber-stamp and the financial reporting process.
most anything the CEO recommends without probing
inquiry and debate (perhaps because the board is
stacked with the CEO’s cronies) abdicate their fiduciary duty to represent and protect shareholder interests.
KEY POINTS
The strategy-making, strategy-executing process consists of five interrelated and integrated tasks:
1. Developing a strategic vision, mission, and set of core values that provides long-term direction,
infuses the organization with a sense of purposeful action, and communicates to stakeholders
management’s aspirations for the company.
2. Setting objectives and using the targeted results as yardsticks for measuring the company’s
performance. Objectives need to spell out how much of what kind of performance by when. A
balanced scorecard that includes both financial objectives and strategic objectives is a common
and effective approach for measuring company performance. Stretch objectives spur exceptional
performance and help build a firewall against complacency and mediocre performance. A company
exhibits strategic intent when it relentlessly pursues an ambitious strategic objective, concentrating
the full force of its resources and competitive actions on achieving that objective.

3. Crafting a strategy to achieve the objectives and move the company along the strategic course
that management has charted. The total strategy that emerges is 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. A single business enterprise has three levels of strategy—business strategy for the
company as a whole, functional-area strategies for each main area within the business, and operating
strategies undertaken by lower-echelon managers. In diversified multibusiness companies, the
strategy-making task involves four distinct types or levels of strategy: corporate strategy for the
company as a whole, business strategy (one for each business the company has diversified into),
functional-area strategies within each business, and operating strategies. Typically, the strategy-
making task is more top-down than bottom-up, with higher-level strategies serving as the guide for
developing lower-level strategies.
4. 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.
Management’s handling of the strategy implementation and execution process can be considered
successful if things go smoothly enough that the company meets or beats its strategic and financial
performance targets, demonstrates good progress in achieving operating excellence, and moves
expeditiously along the directional path management has chosen.
5. Monitoring developments, evaluating performance, and initiating corrective adjustments in vision,

long-term direction, objectives, strategy, or execution in light of actual experience, changing
conditions, new ideas, and new opportunities. This is the trigger point for deciding whether to
continue or change the company’s vision, objectives, strategy, and/or strategy execution methods.
The sum of a company’s strategic vision, mission, objectives, and strategy constitute a strategic plan.
Boards of directors have a duty to shareholders to play a vigilant role in overseeing management’s
handling of a company’s strategy-making, strategy-executing process. A company’s board is obligated to
(1) critically appraise the company’s direction, strategy, and business approaches; (2) evaluate the caliber of
senior executives’ strategy-making and strategy-executing skills; (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) oversee the company’s financial accounting and financial reporting practices.


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Strategy: Core Concepts and Analytical Approaches

Arthur A. Thompson, The University of Alabama 7th Edition, 2022-2023

Purpose must be conceived and chosen, and then pursued.

It is hard to get better at something if you don’t measure progress.

A good goal is like a strenuous exercise—it makes you stretch.

WHAT DOES THE STRATEGY-MAKING,

4. Implementing and executing the chosen strategy efficiently and effectively.

5. Monitoring developments, evaluating performance, and initiating corrective adjustments in the

FIGURE 2.1 The Strategy-Making, Strategy-Executing Process

Task 1 Task 2 Task 3 Task 4 Task 5

Developing Crafting a Monitoring

Revise as needed in light of the company’s

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

TASK 1: DEVELOPING A STRATEGIC VISION, MISSION

TABLE 2.1 What to Consider in Deciding on a Company’s Future Direction

External Considerations Internal Considerations

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Clear, forward-looking visions are distinctive and

TABLE 2.2 Wording a Vision Statement—The Do’s and Don’ts

The Do’s The Don’ts

Be forward-looking and directional—Describe the Don’t be vague or incomplete—Never skimp on

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Communicating the Strategic Vision

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Why a Sound, Well-Communicated Strategic Vision Matters A well-thought-out, forcefully

Developing a Company Mission Statement

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Linking the Strategic Vision and Mission with Company Values

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

TASK 2: SETTING OBJECTIVES

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

What Kinds of Objectives to Set—A Balanced Scorecard

Financial Objectives Strategic Objectives

• An x percent increase in annual revenues • Winning an x percent market share

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Strategic Intent—The Relentless Pursuit of an Ambitious Long-Term Strategic Objective On

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

TASK 3: CRAFTING A STRATEGY

Crafting Strategy Involves Managers at All Organizational

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

But strategy making is by no means solely a top

• Additive Manufacturing—A business that uses such advanced manufacturing technologies as 3D

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

A Company’s Strategy-Making Hierarchy

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

FIGURE 2.2 A Company’s Strategy-Making Hierarchy

Orchestrated by Functional Area Strategies

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Uniting the Strategy-Making Effort

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

A Strategic Vision + Mission + Objectives + Strategy =

TASK 4: IMPLEMENTING AND EXECUTING THE STRATEGY

• Staffing the organization and developing/strengthening the resources, capabilities, competencies,

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

TASK 5: EVALUATING PERFORMANCE AND

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

CORPORATE GOVERNANCE: THE ROLE OF THE

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

Every corporation should have a strong independent

Copyright © 2022 by Arthur A. Thompson. All rights reserved.

5. Monitoring developments, evaluating performance, and initiating corrective adjustments in vision,

Copyright © 2022 by Arthur A. Thompson. All rights reserved.