STRATEGY:

Core Concepts and

Analytical Approaches
7th Edition (2022-2023)
Arthur A. Thompson
The University of Alabama

Chapter 2
Charting a Company’s
Long-Term Direction:
Vision, Mission,
Objectives, and
Strategy

This digitally-delivered material contains proprietary intellectual content intended solely for the use of (1) Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. All rights reserved.
authorized instructors and (2) students or other participants that are duly registered for the ValuePak versions Not for distribution to non-registrants without permission. An e-book published and
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and copyrighted by Glo-Bus Software, Inc.
 If you don’t know where you are going,
any road will take you there.
–the 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

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–2

 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
([Link])

A good goal is like a strenuous exercise—

it makes you stretch.
—Mary Kay Ash, founder of Mary Kay Cosmetics

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–3

 Learning Objectives
1. Learn the five tasks that comprise the strategy-making,
strategy-executing process.
2. Grasp why it is critical for managers to think long and hard
about where a firm needs to head and why.
3. Understand the role a firm’s core values play in conducting
its business and pursuing its strategic vision and mission.
4. Understand the importance of setting objectives and why
both strategic and financial objectives are needed.
5. Become aware of why crafting a strategy is a task for a firm’s
entire management team and why its strategy is a collection
of strategic initiatives and actions taken by many of its
organizational levels.
6. Learn the role and responsibility of a firm’s board of directors
in overseeing the strategy-making, strategy-executing
process.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–4
 Chapter 2 Roadmap
What Does the Strategy-Making, Strategy-Executing
Process Entail?
Task 1: Developing a Strategic Vision, Mission, and Core Values
Task 2: Setting Objectives
Task 3: Crafting a Strategy
Task 4: Implementing and Executing the Strategy
Task 5: Monitoring Developments, Evaluating Performance and
Initiating Corrective Adjustments
Corporate Governance: The Role of the Board of Directors in
the Strategy-Making, Strategy-Executing Process

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–5

 What Does the Strategy-Making,
Strategy-Executing Process Entail?
Five ongoing and interrelated managerial tasks:
1. Developing a strategic vision that charts the company’s long-term direction,
a mission statement that describes the purpose of the company’s business,
and a set of core values to guide the pursuit of the vision and mission.

2. Setting objectives and using them as yardsticks for measuring the

company’s performance and the progress it is making in achieving the
intended strategic vision and mission.

3. Crafting a strategy to achieve the objectives and move the company along
the path to accomplishing the mission and vision.

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, fresh
managerial ideas for improving the strategy or its execution, and newly
emerging market opportunities.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–6
FIGURE 2.1 The Strategy-Making, Strategy-Executing Process

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 Task 1: Developing a Strategic Vision,
Mission Statement, and Core Values
• Developing a strategic vision entails
• Thinking strategically about the firm’s future
direction—“where we are going.”
• Considering how the firm’s competitiveness and overall
business performance could be improved by changing:
• The products it offers
• The markets in which it participates
• The customers to which it caters
• The businesses in which it engages
• Clear, forward-looking visions are distinctive and specific
to a particular organization.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–8
TABLE 2.1 What to Consider in Deciding on a Firm’s Future Direction

External Considerations Internal Considerations

Does sticking with the firm’s present strategic How well is the firm faring vis-à-vis key
course present attractive opportunities for growth competitors? Is the firm gaining or losing
and profitability? ground, and why?

Are the winds of change—most especially Is the firm competing in too many
those in the firm’s market and competitive markets or product categories where
arena—enhancing or weakening its prospects? profits are skimpy or nonexistent?

What, if any, new customer groups and/or Does the firm have strong resources and
geographic markets should the firm get in competitive capabilities to grow revenues
position to serve? and profits in the years ahead?

Which emerging market opportunities should the What resource strengths and competitive
firm pursue and which ones should not be capabilities offer good potential for
pursued? creating competitive advantage?

Should the firm begin to deemphasize or Is the firm at risk from resource
eventually abandon any of the markets or weaknesses or deficient competitive
customer groups it is currently serving? capabilities or threats of obsolescence?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–9

 Core Concept

A strategic vision describes the route a firm

intends to take in developing and strengthening its
business. It lays out the firm’s strategic course in
preparing for the future.

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 Strategic Insight

A vision statement should clearly convey a firm’s

long-term direction and say something definitive
about what top executives want (or expect) the
firm’s product-market-customer-business makeup
to be in three to five (or more) years.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–11

 An Important Point about
Vision Statements
• A vision statement remains only a bunch of words
that do not matter unless:
• It paints a clear and distinctive picture of “where we are
headed”—specifically, the market(s) and competitive
arena(s) in which top management wants the firm to
compete

• There is genuine top management commitment to pursue

this strategic course

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–12

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

The Dos The Don’ts

Be graphic in painting a clear picture Don’t dwell on the present
Be forward-looking and directional Don’t be vague or incomplete
Keep it focused and specific Don’t use overly broad language

Have some wiggle room so as to allow Don’t state the vision in bland or
finetuning over time when needed uninspiring terms

Be sure the journey is feasible Don’t be generic

Indicate why the directional path Don’t rely on or overuse

makes good business sense superlatives

Make it memorable Don’t run on and on

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 Core Concept

A well-communicated vision is a valuable

managerial tool for enlisting the commitment of the
firm’s personnel to actions that will move the firm
quickly along the directional path top executives
have charted.

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 Communicating the Strategic Vision
Winning support for the vision involves
Putting “where we are going and why” in writing
Distributing the statement organization-wide
Having executives explain the vision to employees
An engaging, inspirational vision
Challenges and motivates the workforce
Articulates a compelling case for where a firm is headed
Evokes positive support and excitement
Enlists the commitment of company personeel to actions
that get the company moving along the directional path
top executives have chosen

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–15

 Expressing the Essence of the Vision
in a Slogan
• There’s merit in capturing the vision in a catchy or
easily remembered slogan.
• Walmart’s visionary slogan is “saving people money so
they can live better”—often shortened to the tag line
“Save Money. Live Better.”

• A good slogan
• Illuminates an organization’s direction and purpose.
• Reminds personnel “where we are headed and why.”
• Rallies personnel to hurdle any obstacles that lie in the
organization’s path and helps maintains their focus.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–16
 Why a Sound, Well-Communicated
Strategic Vision Matters
• It crystallizes senior executives’ views about the firm’s
long-term direction
• It reduces the risk of rudderless decision making
• It is a tool for winning the support of organizational
members for changes that will get the company moving
along the chosen strategic path
• It provides guidance to managers at lower organizational
levels in making decisions and operating their assigned
pieces of the business
• It provides a rationale for why the whole organization
should begin to take steps and launch efforts to begin its
journey into the future
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–17
Developing a Company Mission Statement
The role of a company’s mission statement is to describe the
enterprise’s present business and purpose—“who we are,
what we do, and why we are here.”

A Company’s
Mission Statement

Specifies the buyer

Identifies its Gives the
needs that it seeks to
products and company its own
satisfy and the
services identity
customer groups or
markets it serves

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–18

A Strategic Vision Covers Different Ground
than a Mission Statement

• A strategic vision • A firm’s mission statement

• Focuses on a firm’s strategic • Focuses on “who we are, what
course–“the direction we are we do, and why we are here.”
headed.”
• Establishes the firm’s present
• Describes the firm’s intended identity by describing:
future makeup:
• Products or services offered
• Customers
• Buyer needs being served
• Markets
• Customer groups it sells to
• Technologies
• Scope of operations and
• Businesses technologies
• Is always forward looking • Rarely says much that is
forward-looking

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 Strategic Insight

The distinction between a strategic vision and a

mission statement is fairly clear-cut: A strategic
vision sets forth a company’s future direction
(“where we are going”), whereas a company’s
mission statement describes its present
business scope and purpose (“who we are, what
we do, and why we are here”).

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–20

 Characteristics of a Mission Statement
Has a here and now theme
Provides an overview of the firm’s present business
make-up and purpose by identifying:
• the firm’s present products/services and/or the
industries in which it participates
• the types of buyers who purchase the firm’s products
• the buyer needs being satisfied
• the geographic scope of the firm’s operations
Well-worded, informative mission statements use specific
language to set the firm apart from other enterprises—hiding
behind generic wording that disguises “who we are and what we
do” serves no useful purpose

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 Strategic Insight

To be well worded and informative, a company

mission statement must employ language specific
enough to distinguish its business make-up and
purpose from those of other enterprises
(especially those in the same industry) and to give
the company its own identity.

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 What a Firm’s Mission Is NOT About

A firm’s mission is not to make a profit! Making a

profit is the intent of every commercial enterprise.
BMW, McDonald’s, and Apple all aspire to make a profit,
but are vastly different businesses (and thus their
missions are different).
A firm’s answer to “make a profit doing what and
for whom?” reveals its true mission and what its
business is all about.
Profit is more correctly an objective
and a result of what a firm does.

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 Mission Statement Examples

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.”

Harley-Davidson:
“We fulfill dreams through the experience of
motorcycling, by providing to motorcyclists and to the
general public an expanding line of motorcycles and
branded products and services in selected market
segments.”

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–24

 The Importance of Core Values
Developing a set of core values serves to guide the actions
and behavior of company personnel in conducting the
firm’s business
Typically, core values relate to such things as
Fair and equitable treatment, honor and integrity, ethical standards,
innovativeness, teamwork, a passion for top-notch quality or
superior customer service, and exhibiting good community
citizenship

Deeply-held values become core values and part of a

firm’s DNA
However, at some firms, the stated values are mere window
dressing intended to improve the firm’s public image and have
scant impact on the conduct or behaviors of personnel.

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 Core Concept
A firm’s values or core values are the beliefs,
traits, and behavioral norms that the firm’s
personnel are expected to display in conducting
the firm’s business and pursuing its strategic
vision and mission.
At enterprises where the values are genuine and
deeply-entrenched, senior managers craft visions,
missions, strategies, and operating practices that
match these values, and they hold all company
personnel responsible for conducting the
company’s business according to these values.

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 Linking the Strategic Vision and Mission
to the Firm’s Core Values

• Managers connect the strategic vision and mission

to the professed core values by:
• Crafting a vision, a mission, a strategy, and a set of
operating practices that conforms to and is consistent with
the established values
• Repeatedly emphasizing how the values-based
behavioral norms contribute to the firm’s success

• At some firms, the strategic vision, mission, and

values are combined into a single document that is
circulated to all personnel (and posted on the firm’s
website)
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 Task 2: Setting Objectives
• Objectives represent a managerial commitment to
achieving particular results and outcomes
• A well-worded and properly-phrased objective:
• Is quantifiable or measurable
• Contains a deadline for achievement
• Spells how much of what kind of performance by when
• Concrete, measurable, and challenging objectives are
managerially valuable for three reasons:
• They focus attention on what to accomplish and help align decisions
and actions throughout the organization
• They serve as yardsticks for tracking company performance
• They motivate organizational members to perform at a high level and
deliver the best possible results
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 Core Concept
Objectives are an organization’s performance
targets—the results and outcomes management
wants to achieve. They function as yardsticks for
measuring how well the organization is doing.

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 Setting Stretch Objectives Promotes
Outstanding Company Performance
• The experiences of countless companies teaches that one
of the best ways for top executives to spur high company
performance is to deliberately set performance targets high
enough to stretch the 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 the enterprise to:
• Be more inventive
• Exhibit more urgency in improving both the firm’s
financial performance and its business position
• Be more intentional and focused in its actions to achieve
the chosen targets
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 Managerial Insight

There’s no better way for company mangers to

avoid ho-hum results than by
• Setting stretch objectives
• Using compensation incentives to motivate
organization members to go all out and perform
at their full potential
• Rewarding them (generously?) for the efforts
they have put forth when they succeed in
meeting or beating the stretch performance
targets

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 1–31

 How NOT to Handle the Task
of Setting Objectives

Setting targets that have no adverse

consequences for organizational
members if they are not achieved

Objective-setti Setting targets that, if achieved,

ng approaches represent “average” performance
to be avoided
Setting unspecific performance
targets (e.g., “become more efficient”
or “reduce costs”) that fail to specify
“how much” or “by when”

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 Every Firm Needs Two Types
of Objectives

Financial Objectives Strategic Objectives

Outcomes focused on Outcomes focused on

improving the firm’s strengthening the firm’s
financial performance ability to attract and
retain customers,
compete more
successfully against its
rivals, and improve its
future business
prospects

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–33

 Core Concept
Financial objectives relate to the financial
performance targets management has established
for the firm to achieve.
Strategic objectives relate to targeted outcomes
that enhance a firm’s ability to attract and retain
customers, compete more successfully against its
rivals, and thereby improve its future business
prospects.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–34

 Examples of Financial Objectives
An x percent increase in annual revenues
Annual increases in after-tax profits of x percent
Annual increases in earnings per share of x percent
Annual dividend increases of x percent
Profit margins of x percent
An x percent return on capital employed (ROCE) or return on
shareholders’ equity investment (ROE)
Increased shareholder value—in the form of an upward trending
stock price
Bond and credit ratings of x
Internal cash flows of x dollars to fund capital investment

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 Examples of Strategic Objectives
Winning an x percent market share
Achieving lower overall costs than rivals
Overtaking key competitors on product performance or quality or
customer service
Deriving x percent of revenues from the sale of new products
introduced within the past five years
Having broader or deeper technological capabilities than rivals
Having a wider product line than rivals
Having a better-known or more powerful brand name than rivals
Having stronger national or global sales and distribution
capabilities than rivals
Consistently getting next-generation products to market ahead of
rivals
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–36
 Good Strategic Performance Fosters
Better Financial Performance
• Setting and achieving well-chosen strategic objectives
is of prime importance!
• Setting and achieving financial objectives is necessary but not sufficient.
WHY? Because current results are “lagging indicators” reflecting past
decisions and actions—good current profitability is an unreliable
indicator of better future financial results.

• A firm with growing competitive strength and an improving market

position is better able to deliver stronger financial results .

• A firm with eroding competitive strength and a deteriorating market

position lacks the ability to improve its financial performance

• Hence, the degree to which managers set, pursue, and achieve

strategic objectives is the most reliable “leading indicator” of
whether the firm’s financial performance will improve or stall or
deteriorate.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–37
 Core Concept

A company that pursues and achieves strategic

outcomes that boost its competitiveness and
strength in the marketplace vis-à-vis rivals is better
able to improve its future financial performance.

Neglecting the importance of setting, aggressively

pursuing, and achieving a set of wisely-chosen
strategic objectives is perilous and risks undermining
a company’s future financial performance!

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–38

 Core Insight
A stronger market standing and greater
competitive strength vis-à-vis rivals—especially
when it results in competitive advantage—is what
enables and empowers a company to improve its
financial performance.
An improved likelihood of achieving better
financial performance is what makes setting,
pursuing, and achieving strategic objectives
so important !

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–39

 The Case for a Balanced Scorecard
A balanced scorecard for measuring a firm’s
performance entails:
• Setting both financial and strategic objectives
• Placing balanced emphasis on achieving both types
of objectives
A balanced scorecard gives managers a more complete
and balanced view of a firm’s overall performance as
compared to focusing solely on financial outcomes.

Firms using a balanced scorecard explicitly recognize

that better strategic performance fosters better
financial performance.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 1–40
 Core Concept

A balanced scorecard is a widely used method

for combining the use of both strategic and
financial objectives, tracking their achievement,
and giving management a more complete and
balanced view of how well an organization is
performing.

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 A Balanced Scorecard Is Usually
Superior to an Unbalanced Scorecard
• A firm’s surest path to boosting future profitability
is to relentlessly pursue strategic outcomes that
strengthen its market position, boost its
competitiveness against rivals and produces a
growing competitive advantage over rivals!
• However, stronger emphasis on achieving financial
objectives is essential whenever a firm is in such
dire financial condition that its survival depends on
achieving big gains in short-term profitability.

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 Both Short-Term and Long-Term
Objectives Are Needed
• Short-Term Objectives
• Are targets to be achieved soon
• Serve as milestones or stair steps for reaching
long-range performance targets

• Long-Term Objectives
• Are targets to be achieved within 3 to 5 years
• Are important because they require managers to
consider what to do now to put the firm in position
to perform better later.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–43
 Questions for Simulation Company
Managers
• Do you set financial objectives for your company each
decision round?
• Do you set strategic objectives for your company each
decision round?
• Can these objectives be fairly characterized as “stretch”
objectives?
• Does your management team maintain sharp focus on
achieving the targeted outcomes as you enter decisions for
each upcoming decision round?
• If you are not doing these things, do you think your
company’s results might be improved if you did do them?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 1–44

 Strategic Insight

A firm 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.

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 Strategic Intent—The Relentless Pursuit of an
Ambitious Long-Term Strategic Objective
• A firm with an unshakable—often obsessive—commitment
to achieving its strategic intent typically:
• Goes all out to marshal resources and capabilities to close in on its
strategic target.

• Crafts potent offensive strategies to throw rivals off-balance, put

them on the defensive, and force them into a game of catch-up.

• Strives to alter the market contest and tilt the “rules for competing” in
its favor.

• Rallies its personnel in efforts to make its strategic intent a reality.

Firms with strategic intent are more formidable competitors than
rivals with modest strategic objectives and market ambitions.

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 Objective Setting Must Extend
to All Organizational Levels
• Objective setting should not end with top
management’s establishment of firm-wide
performance targets.
• Its objectives must be broken down into performance
targets for each separate business, product line,
functional department, and individual work unit.
• Each organizational unit’s performance targets must
always support the achievement of firm-wide strategic
and financial objectives.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–47

 Questions for Simulation Company
Co-Managers
• Has your management team considered the merits of
crafting a strategic vision for your company?
• Has your team established both long-run and short-run
stretch objectives?
• Do you deliberately strive to craft a strategy and make decision
entries calculated to achieve these stretch performance targets?

• Or do you just enter decisions until you arrive at projected outcomes

that “look pretty good”—without any real managerial commitment to
achieving stretch performance targets?

• Has your team defined its strategic intent and begun taking
actions to achieve it? If not, why haven’t you?

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–48

 Task 3: Crafting a Strategy

• Crafting a strategy entails stitching together management’s

answers to a series of “hows”:
• How to attract and please customers
• How to compete against rivals
• How to position the firm in the marketplace to capitalize on
attractive opportunities to grow the business
• How to respond to changing economic and market conditions
• How to manage each functional piece of the business
• How to achieve the firm’s performance targets
And this stitching together must result in a coherent and
coordinated game plan for running the firm successfully.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–49
 Strategy-Making and
Good Entrepreneurship
• Good strategy-making always entails astute
entrepreneurship in:
• Proactively searching for opportunities to do new things or
to do existing things in new or better ways
• Diagnosing the direction and force of shifting market
conditions and other early warnings of future change

Masterful strategies involve doing things differently

from competitors where it counts—being more
innovative, more efficient, more imaginative, and
adapting faster—rather than running with the herd.

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 Strategic Insight

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.

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 Core Concept

In most companies, crafting and executing

strategy is a collaborative team effort where every
manager has a role for the area they head. It is
flawed thinking to view crafting and executing
strategy as tasks only high-level executives do.
Crafting and executing strategy involve
managers at all organizational levels!

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 Crafting Strategy Involves Managers
at All Organizational Levels
• Chief Executive Officer (CEO)
• Has ultimate responsibility for leading the
strategy-making process
• Is accountable for results that the strategy produces
• Other Senior Executives
• Have strategy-making roles and help fashion the
strategy elements for their areas of responsibility
• Managers of subsidiaries, divisions, geographic
regions, plants, and other operating units

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–53

FIGURE 2.2 A Company’s Strategy-Making Hierarchy

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 Corporate Strategy
Concerns strategy initiatives to:
Establish business positions in different industries
Hold or divest existing businesses
Take strategic actions to boost the combined performance of the set
of businesses into which the firm has diversified
To capture and turn cross-business synergies into a competitive
advantage
Is orchestrated by the CEO and other senior executives
Involves crafting strategic initiatives to:
Diversify into different industries
Boost combined performance of the firm’s different businesses
Capture cross-business synergies for competitive advantage

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 Business Strategy
Concerns actions and approaches to produce
performance in a specific line of business.
Is the responsibility of the manager in charge of the
business and involves:
Crafting responses to changing market circumstances
Initiating actions to build competitive advantage and to
develop strong competitive capabilities
Seeing that lower-level strategies are well-matched to the
overall business strategy
Getting business-level strategic moves approved at the
corporate-level

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–56

 Functional-Area Strategies

• Concern actions, approaches, and practices to be

employed in managing particular functions or
business processes or key activities:
• Functional strategies flesh out the details of a firm’s
business strategy
• Lead responsibility for functional strategies is
assigned to the head managers of functional areas
• General managers have final approval over the various
functional strategies and may exert strong influence over
the content of the functional strategies

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–57

 Operating Strategies

• Concern the narrow strategic initiatives and

approaches for managing key operating units and
strategically-relevant operating activities
• Add further detail and completeness to functional-area
and business strategies
• Are crafted by frontline managers
• Are subject to review and approval by higher-ranking
managers

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–58

 Uniting the Strategy-Making Effort
• Ideally, the pieces of a firm’s strategy up and down the
strategy pyramid should be cohesive and mutually
reinforcing, fitting together like a jigsaw puzzle.
• 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.
• Midlevel and frontline managers cannot craft unified strategic moves
without first understanding the firm’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.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–59

Uniting the Strategy-Making Effort (cont’d)
• Once strategies up and down the hierarchy have
been created, lower-level strategies must be
scrutinized for consistency and support of
higher-level strategies
• Achieving unity entails
• Removing or modifying lower-level initiatives or strategy
elements that conflict with or do not support higher-level
strategies and/or
• Adapting higher-level strategies to accommodate more
appealing strategy initiatives that have been developed at
lower organizational levels in the strategy hierarchy

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–60

 Core Concept

A company’s strategy is at full power only when its

many pieces are united.
Anything less than a unified collection of strategic
initiatives taken at various places in a company’s
organizational structure weakens the company’s
overall strategy and is likely to impair company
performance—both in the marketplace and
financially

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–61

 Strategic Vision + Mission + Objectives + Strategy =
A Strategic Plan

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–62

Task 4: Implementing and Executing the Strategy

• Implementation and execution of strategy

• Is an operations-oriented, make-things-happen activity aimed at
performing core business activities in a strategy-supportive manner
• Is the most demanding and time-consuming part of the strategy
management process

• Converting plans into actions tests a manager’s ability to:

• Direct organizational change
• Motivate company personnel
• Build and strengthen competencies and competitive capabilities
• Create and nurture a strategy-supportive work climate
• Meet or beat performance targets
• Put the strategy in place and execute it proficiently on many
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–63
organizational fronts
 What Does Managing the Strategy
Execution Process Involve?
• Staffing the organization and developing/strengthening the resources,
capabilities, competencies, and organizational structure to execute the strategy
successfully
• Allocating ample resources to activities critical to successful strategy execution
and the achievement of its financial and strategic objectives
• Ensuring policies and procedures facilitate rather than impede execution
• Using the best known practices to perform core business activities and pushing
for continuous improvement in how well these activities are being performed
• Installing information and operating systems that enable personnel to better
perform daily activities and operate the business more proficiently
• Motivating people and tying rewards and incentives directly to the achievement
of performance objectives and good strategy execution
• Creating a culture and work climate conducive to strategy execution
• Exerting the internal leadership needed to drive implementation forward and
keep improving on how the strategy is being executed
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–64
 Judging the Success of a Firm’s Strategy
Execution Effort
• Good strategy execution
• Requires diligent pursuit of operating excellence and is a job for a
firm’s entire management team
• Hinges upon the skills and cooperation of operating managers who
can push needed changes in their organization units and consistently
deliver good results
• Three tests for determining whether management’s
handling of the strategy execution process has been
successful:
• Has the firm met or exceeded its strategic and financial performance
targets?
• Is the firm making good progress in achieving operating excellence?
• Is the firm moving expeditiously along the chosen directional path?
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–65
 Task 5: Evaluating Performance and Initiating
Corrective Adjustments
• This task involves:
• Deciding to continue or to change the firm’s vision,
objectives, strategy, and/or strategy execution methods
Stay the course? Fine-tune? Do a major overhaul?
• Assessing which of the firm’s operating methods and
approaches to strategy execution merit continuation and
which need improvement
• Making adjustments that will move the firm closer to
operating excellence
A firm’s direction, objectives, strategy, and operating methods
must be revisited any time external or internal circumstances
warrant—over time, revisions are to be expected.
Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–66
 Core Concept

A company’s vision, objectives, strategy, and

approach to strategy execution are never final.

Reviewing them and deciding whether and when

to make revisions is an ongoing process, not an
every-now-and-then task.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–67

 Corporate Governance:
The Role of the Board of Directors in the
Strategy-Making, Strategy-Executing Process

• Senior managers have lead responsibility for

performing all five strategy-making,
strategy-executing tasks
• It is the duty of a firm’s board of directors to:
• Exercise strong oversight of how the firm’s business is
being conducted and managed
• Make sure that management performs its
strategy-making, strategy-executing tasks in the best
interests of shareholders and other stakeholders

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–68

 The Four Essential Obligations
of a Firm’s Board of Directors
1. Critically appraise the firm’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, and most especially those of
shareholders
4. Oversee the firm’s financial accounting and reporting
practices

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–69

 What Are the Key Responsibilities
of Board Members?
• To be well informed about the firm’s performance
• To provide insight and advice to management
• To guide and judge the performance of the CEO and other
top executives
• To have the courage to curb inappropriate or unduly risky
management actions
• To certify that the CEO is doing what the board expects and
has approved
• To be intensely involved in debating pros and cons of key
actions and decisions

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–70

 Core Concept

Effective corporate governance is undermined

when boards of directors shirk their responsibility
to maintain ultimate control over the firm’s
strategic direction, the major elements of its
strategy, the business approaches top executives
are using to implement and execute the strategy,
executive compensation, and the financial
reporting process.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–71

 Accessibility Content: Text Alternates

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. 2–72

 Figure 2.1 The Strategy-Making, Strategy-Executing Process,
Text Alternate
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Revise as needed in light of the company’s actual

performance, changing conditions, new opportunities, and
new ideas.
Task 1: Developing a strategic vision, mission, and core values.
Task 2: Setting objectives.
Task 3: Crafting a strategy to achieve the objectives, mission, and vision.
Task 4: Implementing and executing the strategy.
Task 5: Monitoring developments, evaluating performance, and initiating
corrective adjustments.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Return to parent-slide containing images 2–73
 Figure 2.2 A Company’s Strategy-Making Hierarchy, Text
Alternative
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All of the strategies have a two-way influence.

Corporate strategy: The overall companywide game plan for managing a set of businesses.
Orchestrated by the CEO and other senior executives.

Business Strategy: (one for each business the firm has diversified into): How to strengthen market
position and gain competitive advantage. Orchestrated by general managers of each of the firm’s
different lines of business, often with advice and input from heads of functional area activities within each
business and other key people.

Functional Area Strategies (within each business): Add detail to the hows of overall business
strategy. Provide a game plan for managing a particular activity in ways that support the overall business
strategy. Orchestrated by heads of major functional activities within a particular business, often in
collaboration with other key people.

Operating Strategies (within each business): Add detail and completeness to business and functional
strategies. Provide a game plan for managing specific lower-echelon activities with strategic significance.
Orchestrated by brand managers; operating managers and managers of strategically important activities
like advertising and website operations, often in collaboration with other key people.

In the case of a single-business company, these two levels merge into one level—the business
strategy— that is orchestrated by the firm’s CEO and other top executives.

Copyright © 2022 by Arthur A. Thompson and Glo-Bus Software, Inc. Return to parent-slide containing images 2–74