Transcript Chapter 11 - Students.ppt

Chapter 11 - 12
Performance, Governance, Ethics
and Implementation
Major Causes of Poor Performance
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Poor Management
High Cost Structure
Inadequate Differentiation
Overexpansion
Structural Shifts in Demand
Organizational Inertia
Stakeholder View of Strategy
Board of Directors
Governance mechanism of owners to
oversee, evaluate and ratify the actions
of management
Rises out of agency problem – separation
of ownership and management
setting corporate strategy, direction, mission, values
hire/fire CEO/TMT
control, monitor, supervise TMT
review/approve resource allocations
protect shareholders interests
Board Involvement
Mostly little or no involvement
Boards tend to be dominated by
management
Keys to board power
CEO/Chairman duality
insiders vs. outsiders
outsiders often weak, unknowledgeable
effective board process
Trends in Governance
Legal action against boards
Institutional investors becoming increasingly
powerful
Special interests groups and social
institutional owners
Internationalization of board composition
Presiding and Lead Directors – 1/3 of S&P
500 – Presiding run meetings sans CEOs,
Leads are actively involved
Executive Compensation
Aligning the interests of shareholders and
managers by rewarding them for pursuing their
interests
Peter Drucker - “There are only bad and worse
executive compensation packages. Most
encourage the top management to milk the
company”
Warren Buffett - “...mediocre CEOs are getting
incredibly overpaid”
Top execs make over 200 times the average
worker, up from 44 only 30 years ago.
Executive Compensation
Bonuses, incentives and stock ownership
 difficulty in evaluating decision making
 financial objectives used
 lengthy feedback period
 beyond managerial control
 managerial manipulation
Stock Options
 riding the stock market wave
 strike period is too long
 growth, not cost-cutting, should be rewarded
 require holding the stock after exercise
 expense options against profits
Corporate Social Performance
• Friedman – “The Social Responsibility of
Business Is to Increase Its Profits“
• Corporations as Citizens
• Corporations dependent upon its stakeholders
• Corporations that are attentive to their
stakeholders can gain competitive advantages
• Corporations, which control resources beyond
those held by individuals, have an even greater
responsibility to be “good citizens”
Three Major Ethical Framework
A. Utilitarian – greatest good for the
greatest number
B. Moral rights – maintains the fundamental
rights and privileges of the people
affected by the decision – protecting
stakeholders
C. Justice model – distributes benefits and
harm in a fair, equitable and impartial
way
Ethical Litmus Tests
A. Accepted values and standards of the
organization
B. Open communication to all stakeholders
– 60 Minutes test
C. Peer review
Thinking Ethically
1) Identify which stakeholders the decision
would affect and in what ways
2) Judge the ethics of the proposed
strategic decisions given the information
from Step 1
3) Establish moral intent (resolve to place
moral concerns ahead of other concerns)
4) Engage in ethical behavior
Implementation and Control
Weak Executions? We can all think of a
thousand of examples
Burger King
Blimpies
Strong Executions? We can think of far
fewer examples
Perdue
L.L Bean vs. American Express
Implementing Strategy
Strategic Control Systems
Firm’s assumptions, premises, goals and
strategies are constantly monitored, tested
and evaluated – internally and externally
Implement
Strategies
Formulate
Goals
Strategic
Control
Strategic Control Systems
Strategic Control is an on-going process
Time lags shortened
Changes in environments detected sooner
Speed and flexibility increased
3 Strategic Control Levers
A. Personal Control – face to face
B. Output Control –forecasts and outcomes
C. Behavioral Control – standardize the
means for accomplishing goals - rules
and procedures
Rewards
Get employees focused on high-priority
tasks, motivating high levels of individual
and collective performance
You get what you measure and reward
Reinforce organizational goals and values
Designing Effective Rewards
A. Performance payoff needs to be
significant – at least 10%
B. Everyone should be eligible
C. Has to be fair
D. Control over outcomes
E. Short cycle
F. Non monetary rewards
G. Make sure the slackers are not rewarded
Culture
Shared values (what is important) and beliefs that shape
a company’s people, structure and control systems to
produce norms (how we do things)
Determines acceptable/expect behaviors
Federal Express vs. UPS
Home Depot
Dupont – accidents reported to CEO within 24 hours. 17
times better than industry, 68 better than manufacturing
Culture can have positive, and potentially negative,
affects
Apple and Logitech
Sustaining an Effective Culture
Does not happen overnight – cultivated instead of
built
Storytelling
HP
3M sandpaper
Pepsi’s 99.5% service level
Pep Rallies - Burger Contests
Culture Committees – Institutionalize culture
“Walking the walk”
8 Steps in Strategy Implementation
1. Build a capable organization to carry out
strategy
2. Develop budgets and steer resources
appropriately to critical activities
3. Establish strategy-supportive policies
and procedures
4. Institutionalize best practices and
continuous improvement
8 Steps in Strategy Implementation
5. Install information/communication system
to help employees compete
6. Tie rewards/incentive to execution and
achievement of strategic objectives
7. Create a strategy supportive culture
8. Display strategic leadership and
continually push for its effective
implementation