CHARLES W. L. HILL / GARETH R.

JONES
Strategic
StrategicManagement
Management
Chapter

An
AnIntegrated
IntegratedApproach
Approach10th
10thed.
ed.

Strategic
Strategic Leadership:
Leadership:
Managing
Managing the
the StrategyStrategyMaking
Making Process
Process for
for
Competitive
CompetitiveAdvantage
Advantage

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Prepared by C. Douglas Cloud , Professor Emeritus of Accounting, Pepperdine University

OVERVIEW
OVERVIEW

A strategy is a set of related actions that

managers take to increase their companys
performance.
Strategic leadership is how to most
effectively manage a companys strategymaking process to create competitive
advantage.

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this
chapter
chapter you
you should
should be
be able
able to
to explain
explain what
what
is
is meant
meant by
by competitive
competitive advantage.
advantage.
To increase shareholder value, managers must
pursue strategies that increase the profitability of the
company and ensure that profits grow.
To do this, a company must be able to outperform its
rival. In other words, it must have a competitive
advantage.
A company has competitive advantage over its rivals
when its profitability is greater than the average
profitability and profit growth of other companies
competing for the same set of customer.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

SUPERIOR
SUPERIOR PERFORMANCE
PERFORMANCE

Risk capital is capital that cannot be

recovered if a company fails and goes
bankrupt.
Shareholder value is the return that a
shareholder earns from purchasing shares in
a company.

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

SUPERIOR
SUPERIOR PERFORMANCE
PERFORMANCE

A Profitability is the result of how efficiently and

effectively managers use the capital at their
disposal to produce goods and services that
satisfy customer needs.
The sum of
money invested
The profit growth of a company
can be
the profit
business
measured by the increase ininnet
over
time.
Together, profitability and profit
growth are the
Net income
aftervalue.
taxes
principal drivers of shareholder

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter
you
you should
should be
be able
able to
to discuss
discuss the
the strategic
strategic role
role
of
of managers
managers at
at different
different levels
levels within
within the
the
organization.
organization.
PRIMARY
PRIMARY TYPES
TYPES OF
OF MANAGERS
MANAGERS

The general manager

bears the responsibility
for the overall
performance of the
company or for one of its
major self-contained
subunits or divisions.

The functional manager

is responsible for
supervising a particular
function, task, activity, or
operation.

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

LEVELS
LEVELS OF
OF STRATEGIC
STRATEGIC
MANAGEMENT
MANAGEMENT

Corporate-Level Managers

Oversee development of strategies for whole organization

CEO is principle general manager who consults with other
senior executives

Business-Level Managers
Responsible for business unit that provides product/service to
particular market

Functional-Managers
Supervise particular function/operation (e.g. marketing,
operations, accounting, human resources)
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this
chapter
chapter you
you should
should be
be able
able to
to identify
identify the
the
primary
primary steps
steps in
in aa strategic
strategic planning
planning
process.
process.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS

1. Select the corporate mission and major corporate

goals.
2. Analyze the organizations external competitive
environment to identify opportunities and threats.
3. Analyze the organizations internal operating
environment to identify the organizations
strengths and weaknesses.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

(continued)

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS

4. Select strategies that build on the organizations

strengths and corrects its weaknesses in order to
take advantage of external opportunities and
counter external threats.
5. Implement the strategies.

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
The
The Mission
Mission Statement
Statement

A mission statement describes what the

company does.
The vision of a company articulates, often in
bold terms, what the company would like to
achieve.
The values of a company state how managers
and employees should conduct themselves in
business.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
The
The Mission
Mission Statement
Statement

Managers should establish precise and

measureable major goals that address critical
issues.
These goals should be challenging but realistic
and, if appropriate, specify a time period in
which the goals should be achieved.
Well-constructed goals provide a means by
which the performance of managers can be
evaluated.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
External
External Analysis
Analysis

The essential purpose of the external analysis is

to identify strategic opportunities and threats
within the organizations operating environment
that will affect how it pursues its mission.
Analyzing the industry environment requires an
assessment of the competitive structure of the
companys industry, including the competitive
position of the company and its major rivals.

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Analysis
Analysis and
and the
the Business
Business
Model
Model

The comparison of strengths, weaknesses,

opportunities, and threats is normally referred to
as a SWOT analysis.
The goal of a SWOT analysis:
Create, affirm, or fine-tune a company-specific
business model.
Design a model that will best align, fit, or match a
companys resources and capabilities to the
demands of the environment in which it operates.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Strategies
Strategies
Functional-level strategies are directed at improving
the effectiveness of operations within a company.
Manufacturing, marketing, materials management,
product development, and customer service.
Business-level strategies
The way a company positions itself in the
marketplace to gain a competitive advantage.
The different position strategies that can be used in
different industry settings.
(continued)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Strategies
Strategies
Global strategies address how to expand operations
outside the home country.
How to grow and prosper in a world where
competitive advantage is determined at a global
level.
Corporate-level strategies address what business
should the company be in to maximize profitability.
How should a company enter and increase its
presence to gain a competitive edge.

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
Strategy
Strategy Implementation
Implementation
Strategy implementation involves taking action at
the functional, business, and corporate levels to
execute a strategic plan.

Putting quality improvement programs into place.

Changing the way a product is designed.
Positioning the product differently in the
marketplace.
Offering different versions of the product to
different consumers.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this
chapter
chapter you
you should
should be
be able
able to
to discuss
discuss the
the
common
common pitfalls
pitfalls of
of planning
planning and
and how
how those
those
pitfalls
pitfalls can
can be
be avoided.
avoided.
Criticisms
Criticisms of
of Formal
Formal Planning
Planning
Models
Models

Uncertainty, complexity, and ambiguity can have

a large and unpredictable outcome.
Too much importance is attached to the role of
top management, particularly the CEO.
Radical new technology changes the dominant
paradigm in an industry.
Many strategies are the result of serendipity.

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this
chapter
chapter you
you should
should be
be able
able to
to outline
outline the
the
cognitive
cognitive biases
biases that
that might
might lead
lead to
to poor
poor
strategic
strategic decisions,
decisions, and
and explain
explain how
how these
these
biases
biases can
can be
be overcome.
overcome.
Scenario
Scenario Planning
Planning

Scenario planning involves formulation plans that

are based upon what-if scenarios about the
future.
Teams of managers are asked to develop specific
strategies to cope with each scenario.
The great virtue of the scenario approach is that it
can push managers to think outside the box.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

STRATEGY
STRATEGY DECISION
DECISION MAKING
MAKING
Cognitive
Cognitive Biases
Biases and
and Strategic
Strategic Decision
Decision
Making
Making
The rationality of decision-making
is bound by ones
cognitive capabilities.
When managers make decisions, they tend to fall
back on certain rules of thumb.
Sometimes these rules lead to severe errors,
called cognitive biases.
Prior hypothesis bias refers to making decisions
based on a belief, even when evidence proves that the
belief is incorrect.

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Cognitive
Cognitive Biases
Biases and
and Strategic
Strategic Decision
Decision
Making
Making

Escalating commitment occurs when decision

makers, having committed significant resources to
a project, commit even more despite feedback
that tells them the project is failing.
The use of simple analogies to make sense out of
a complex problem is reasoning analogy, which
may flawed by invalid reasoning.
Generalizing from a small sample or a single vivid
anecdote is representativeness.
The illusion of control is the tendency to
overestimates ones ability to control events.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Techniques
Techniques for
for Improving
Improving Decision
Decision Making
Making
Devils advocacy requires the generation of a plan,
and a critical analysis of that plan.
Dialectic inquiry requires the generation of a plan
and a counter-plan that reflects plausible but
conflicting courses of action.
Strategic managers listen to a debate between
advocates of the plan and counter-plan and then
decide which will lead to higher performance.
This approach may reveal problems with
definitions, recommended courses of action, and
assumptions of both plans.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning
Learning Objective:
Objective: After
After reading
reading this
this
chapter
chapter you
you should
should be
be able
able to
to discuss
discuss the
the
role
role strategy
strategy leaders
leaders play
play in
in the
the strategystrategymaking
making process.
process.
Characteristics
Characteristics of
of Good
Good Strategic
Strategic
Leaders
Leaders
1) Vision, Eloquence, and Consistency
a) A strong leader gives an organization a sense of
direction.
b) Examples: Winston Churchill, Martin Luther King, Sam
Walton
2) Articulation of a Business Model
a) Knowing how the various strategies that the company
pursues fit together.
b) Examples: Michael Dell (Dell, Inc.), Steve Jobs (Apple)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Characteristics
Characteristics of
of Good
Good Strategic
Strategic
Leaders
Leaders

3) Commitment

a) A strong leader demonstrates his or her

commitment to a vision and business model with
action and words.
b) Example: Ken Iverson (Nucor)

4) Being Well Informed

a) Effective leaders develop a network of formal and
informal sources who to keep them well informed
about what is going on within their company.
b) Example: Jim Donald (Starbucks)
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Characteristics
Characteristics of
of Good
Good Strategic
Strategic
Leaders
Leaders

5) Willingness to Delegate and Empower

a) Avoids being overloaded with responsibilities.

b) Understands that delegation is a good motivational
tool.

6) The Astute Use of Power

a) Power comes from control over resources that are
important to the organization: budgets, capital,
positions, information, and knowledge.
b) Politically astute managers use these resources to
critically place allies who can help them attain their
strategic objectives.
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Characteristics
Characteristics of
of Good
Good Strategic
Strategic
Leaders
Leaders

7) Emotional Intelligence

a) Self-awarenessthe ability to understand ones

own moods, emotions, and drives.
b) Self-regulationthe ability to control or redirect
disruptive impulses or moods.
c) Motivationa passion for work that goes beyond
money or status.
d) Empathythe ability to understand the feelings and
viewpoints of subordinates.
e) Social skillsfriendliness with a purpose.
2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.