STAGE 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, how to respond to changing market conditions,
how to capitalize on attractive opportunities to grow the business, and how to achieve
strategic and financial objectives. Choosing among the alternatives available in a way that
coheres into a viable business model requires an understanding of the basic principles of
strategic management. Choosing well also depends on an informed understanding of such
factors as the nature of the business environment and the various resources available to the
company. We will be delving into these issues in subsequent chapters.

But as indicated earlier, not all strategy can be planned deliberately; there is frequently a
need for a more adaptive approach. This places a premium on astute entrepreneurship
searching for opportunities to do new things or to do existing things in new or better
ways.12 The faster a company’s business environment is changing, the more critical it
becomes for its managers to be good entrepreneurs in diagnosing the direction and force of
the changes underway and in responding with timely adjustments in strategy. 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 a market position in that future.
When obstacles appear unexpectedly 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.

Strategy Making Involves Managers at All Organizational Levels

A company’s senior 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 chief architect of the strategy, personally
deciding what the key elements of the company’s strategy will be, although he or she may
seek the advice of key subordinates and board members. A CEO-centered approach to
strategy development is characteristic of small owner-managed companies and some large
corporations that were founded by the present CEO or that have a CEO with strong strategic
leadership skills. Elon Musk at Tesla Motors and SpaceX, Mark Zuckerberg at Facebook, Jeff
Bezos at Amazon, Indra Nooyi at PepsiCo, Jack Ma of Alibaba, Warren Buffett at Berkshire
Hathaway, and Marillyn Hewson at Lockheed Martin 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, and other functional departments—
have influential strategy-making roles and help fashion the chief strategy components.
Normally, a company’s chief financial officer is in charge of devising and implementing an
appropriate financial strategy; the production vice president 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
managers are complemented by advice and counsel from the company’s board of directors;
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-entrepreneurs, CEOs, high-ranking executives, and board members. The
more a company’s operations cut across different products, industries, and geographic
areas, the more that headquarters executives have little option but to delegate considerable
strategy-making authority 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 on to have
more detailed command of the strategic issues for the particular operating unit under their
supervision since they have more intimate knowledge of the prevailing market and
competitive conditions, customer requirements and expectations, and all the other relevant
aspects affecting the several strategic options available. Managers with day-to-day
familiarity of, and authority over, a specific operating unit thus have a big edge over
headquarters executives in making wise strategic choices for their unit. The result is that, in
most of today’s companies, crafting and executing strategy is a collaborative team effort in
which every company manager plays a strategy-making role—ranging from minor to major
—for the area he or she heads.

(In most companies, crafting and executing strategy is a collaborative team effort in which
every manager has a role for the area he or she heads; it is rarely something that only high-
level managers do.)

Take, for example, a company like General Electric, a $126 billion global corporation with
nearly 300,000 employees, operations in some 170 countries, and businesses that include
jet engines, lighting, power generation, electric transmission and distribution equipment, oil
and gas equipment, medical imaging and diagnostic equipment, locomotives, security
devices, water treatment systems, and financial services. While top-level headquarters
executives may well be personally involved in shaping GE’s overall strategy and fashioning
important strategic moves, they simply cannot know enough about the situation in every GE
organizational unit to 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 and product 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 larger and more diverse the operations of an enterprise, the more points of strategic
initiative it has and the more levels of management that have a significant strategy-making
role)

A Company’s Strategy-Making Hierarchy

In diversified companies like GE, where multiple and sometimes strikingly different
businesses have to be managed, crafting a full-fledged strategy involves four distinct types
of strategic actions and initiatives. Each of these involves different facets of the company’s
overall strategy and calls for the participation of different types of managers, as shown in
Figure 2.2.

As shown in Figure 2.2, corporate strategy is orchestrated by the CEO and other senior
executives and establishes an overall strategy for managing a set of businesses in a
diversified, multibusiness company. Corporate strategy concerns how to improve the
combined performance of the set of businesses the company has diversified into by
capturing cross-business synergies and turning them into competitive advantage. It
addresses the questions of what businesses to hold or divest, which new markets to enter,
and how to best enter new markets (by acquisition, creation of a strategic alliance, or
through internal development, for example). Corporate strategy and business diversification
are the subjects of Chapter 8, in which they are discussed in detail.

(Corporate strategy establishes an overall game plan for managing a set of businesses in a
diversified, multibusiness company. Business strategy is primarily concerned with
strengthening the company’s market position and building competitive advantage in a
single-business company or in a single business unit of a diversified multibusiness
corporation.)

Business strategy is concerned with strengthening the market position, building competitive
advantage, and improving the performance of a single line of business. Business strategy is
primarily the responsibility of business unit heads, although corporate-level executives may
well exert strong influence; in diversified companies it is not unusual for corporate officers
to insist that business-level objectives and strategy conform to corporate-level objectives
and strategy themes. The business head has at least two other strategy-related roles: (1)
seeing that lower-level strategies are well conceived, consistent, and adequately matched to
the overall business strategy; and (2) keeping corporate-level officers (and sometimes the
board of directors) informed of emerging strategic issues.

Functional-area strategies concern the approaches employed in managing particular

functions within a business—like research and development (R&D), production,
procurement of inputs, sales and marketing, distribution, customer service, and finance. A
company’s marketing strategy, for example, represents the managerial game plan for
running the sales and marketing part of the business. A company’s product development
strategy represents the game plan for keeping the company’s product lineup in tune with
what buyers are looking for.

Functional strategies flesh out the details of a company’s business strategy. Lead
responsibility for functional strategies within a business is normally delegated to the heads
of the respective functions, with the general manager of the business having final approval.
Since the different functional-level strategies must be compatible with the overall business
strategy and with one another to have beneficial impact, there are times when the general
business manager exerts strong influence on the content of the functional strategies.

Operating strategies concern the relatively narrow approaches for managing key operating
units (e.g., plants, distribution centers, purchasing centers) and specific operating activities
with strategic significance (e.g., quality control, materials purchasing, brand management,
Internet sales). 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 damage the company’s reputation for
quality products and undercut the achievement of company sales and profit objectives.
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.
(A company’s strategy is at full power only when its many pieces are united.)

In single-business companies, the uppermost level of the strategy-making hierarchy is the

business strategy, so a single-business company has three levels of strategy: business
strategy, functional-area strategies, and operating 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. The larger and more
diverse the operations of an enterprise, the more points of strategic initiative it has and the
more levels of management that have a significant strategy making role.

Uniting the Strategy-Making Hierarchy

The components of a company’s strategy up and down the strategy hierarchy 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.13 It is the responsibility of top executives to achieve this unity by clearly
communicating the company’s vision, mission, objectives, and major strategy components
to down-the-line managers and key personnel. Mid level and frontline 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, then proceed downward from the
corporate level to the business level, and then from the business level to the associated
functional and operating levels. Once strategies up and down the hierarchy have been
created, lower-level strategies must be scrutinized for consistency with 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 targets, articulate the basic business model, and outline the competitive moves
and operating approaches to be used in achieving the desired business results. Together,
these elements constitute a strategic plan for coping with industry conditions, competing
against rivals, meeting objectives, and making progress along the chosen strategic course.14
Typically, a strategic plan includes a commitment to allocate resources to carrying out the
plan and specifies a time period for achieving goals.

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.
Near-term performance targets are the part of the strategic plan most often communicated
to employees more generally and spelled out explicitly. A number of companies summarize
key elements of their strategic plans in the company’s annual report to shareholders, in
postings on their websites, or in statements provided to the business media; others,
perhaps for reasons of competitive sensitivity, make only vague, general statements about
their strategic plans.15 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 owner-executives; aspects of the plan are revealed in conversations with
company personnel about where to head, what to accomplish, and how to proceed.

(A company’s strategic plan lays out its direction, business model, competitive strategy, and
performance targets for some specified period of time.)