CHAPTER 1

STRATEGIC LEADERSHIP: MANAGING THE STRATEGY-

MAKING PROCESS FOR COMPETITIVE ADVANTAGE

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 OVERVIEW
A strategy is a set of related actions that
managers take to increase their companys
performance.

STRATEGY - an integrated and coordinated

set of commitments and actions designed to
exploit core competencies and gain a
competitive advantage

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 CORE COMPETENCIES
Core Competencies
Activities that a firm performs
especially well compared to
competitors.
Activities through which the firm adds
unique value to its goods or services
over a long period of time.

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 IMPORTANT DEFINITIONS
STRATEGIC COMPETITIVENESS
- achieved when a firm successfully
formulates and implements a value-
creating strategy

COMPETITIVE ADVANTAGE -
when a firm implements a strategy that
creates superior value for customers;
competitors are unable to duplicate it or
find too costly to imitate it
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 COMPETITIVE ADVANTAGE
The Four Criteria of Sustainable Competitive
Advantage
Valuable capabilities
Rare capabilities
Costly to imitate
Nonsubstituable

Strategic leadership is how to most effectively manage

a companys strategy-making process to create
competitive advantage.

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 IMPORTANT
DEFINITIONS
RISK - an investors uncertainty about the
economic gains or losses that will result from a
particular investment

ABOVE-AVERAGE RETURNS - returns in

excess of what an investor expects to earn from other
investments with a similar amount of risk

AVERAGE RETURNS - returns equal to those

an investor expects to earn from other investments
with a similar amount of risk

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 SUPERIOR
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 profit growth of a company can be
measured by the increase in net profit over
time.
Together, profitability and profit growth are the
principal drivers of shareholder value.
Read more about corporate profit growth:
http://www.businessweek.com/news/2012-01-11/corporate-profit-growth-at-2-year-low-as-u-s-feels-
europe-drag.html
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 DETERMINANTS OF
SHAREHOLDER VALUE

Figure 1.2

To increase shareholder value, managers must

pursue strategies that increase the profitability of the
company and grow the profits.
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COMPETITIVE ADVANTAGE AND
BUSINESS MODEL
Competitive advantage

Occurs when a companys profitability is greater than

the average profitability of firms in its industry

Sustained competitive advantage

A companys strategies enable it to maintain above-

average profitability for a number of years

Business model

Conception of how strategies should work together as

a whole to enable the company to achieve
competitive advantage

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STRATEGIC MANAGEMENT
General managers

Bear responsibility for a companys overall performance

or for one of its major self-contained subunits or
divisions

Functional managers

Responsible for supervising a particular function, task,

activity, or operation

Multidivisional company

Competes in several different businesses and has a

separate self-contained division to manage each

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FIGURE 1.4 - LEVELS OF STRATEGIC
MANAGEMENT

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 LEVELS OF STRATEGIC
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)
STEPS IN A FORMAL STRATEGIC
PLANNING PROCESS
Select the corporate mission and goals
Analyze the organizations external competitive
environment and internal operating environment
Select strategies that:
Build on the organizations strengths and correct its
weaknesses
Are consistent with the organizations mission and goals
Are congruent and constitute a viable business model
Implement the strategies

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 MAIN COMPONENTS OF THE
STRATEGIC PLANNING PROCESS
Feedback

External
Analysis:
Opportunities Designing
and Threats Organization
Structure
Existing Business

Strategies:
Mission, Functional,
Designing
Model

Vision, SWOT Strategic Business, Governance

Organization
Values, and Choice Global, and and Ethics
Culture
Goals Corporate-
Level
Designing
Internal Organization
Analysis: Controls
Strengths and
Weaknesses

Strategic Formulation Strategic Implementation

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COMPONENTS OF A MISSION
STATEMENT
Mission

Purpose of the company, or a statement of what the company strives

to do

Vision

Articulation of a companys desired achievements or future state

Values

Statement of how employees should conduct themselves and their

business to help achieve the company mission

Goals

Precise and measurable desired future state that a company attempts

to realize

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 CHARACTERISTICS OF A
MISSION STATEMENT

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 MISSION AND VISION EXAMPLES
Organization Mission
North South University produce competent graduates in their
selected disciplines who will have
productive careers or choose to engage
in advanced studies.
Microsoft At Microsoft, we work to
help people and businesses
throughout the world realize
their full potential. This is
our mission. Everything we
do reflects this mission and
the values that make it
possible.
Vision
will be and remain a center of
excellence in higher education. It will
gain recognition, nationally and globally
and will attract students, faculty, and
staff from all parts of the world.
Create experiences that
combine the magic of
software with the power of
Internet services across a
world of devices.
 MISSION AND VISION EXAMPLES

Organization Mission Vision

Chevron Our Company's foundation At the heart of The
is built on our Values, Chevron Way is our Vision
which distinguish us and to be the global energy
guide our actions. We company most admired for
conduct our business in a its people, partnership and
socially responsible and performance.
ethical manner. We
respect the law, support
universal human rights,
protect the environment,
and benefit the
communities where we
work."
 The Mission Statement

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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
 STRATEGY PLANNING PROCESS

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.
EXTERNAL AND INTERNAL ANALYSIS
External analysis - Identifies strategic
opportunities and threats that will affect how an
organization pursues its mission
Involves examination of the:
Industry environment in which the company operates
Country or national environment
Macroenvironment
Internal analysis - Focuses on reviewing the
resources, capabilities, and competencies of a
company
Goal - Identify the companys strengths and weaknesses
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SWOT ANALYSIS
Functional-level strategies

Directed at improving the effectiveness of operations within a

company

Business-level strategies

Encompass the businesss overall competitive theme

Global strategies

Address how to expand operations outside the home country

Corporate-level strategies

Determine:
The businesses a company should be in to maximize profitability
and profit growth
How to gain a competitive edge
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STRATEGY IMPLEMENTATION AND
FEEDBACK LOOP
Strategy implementation
Taking action at the functional, business, and corporate
levels to execute a strategic plan
Designing the best organization structure, culture, and
control systems to put a chosen strategy into action
Feedback loop - Provide information to the
corporate level on the:
Strategic goals that are being achieved
Degree of competitive advantage being created and
sustained

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FIGURE 1.7 - EMERGENT AND
DELIBERATE STRATEGIES

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FIGURE 1.8 - SCENARIO PLANNING

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SCENARIO PLANNING
Formulating plans that are based on what-if
scenarios about the future
Encourages managers to:
Think outside the box and be more flexible
Anticipate probable scenarios
Ivory tower planning - Recognizes that successful
strategic planning encompasses managers at all
levels of the corporation

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COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
Cognitive biases

Systematic errors in human decision making

Arise from the way people process information

Prior hypothesis bias

Decisions are made based on prior beliefs, even when evidence proves
that those beliefs are wrong

Escalating commitment

Decision makers, having committed significant resources to a project,

commit even more, despite receiving feedback that the project is failing

Reasoning analogy

Use of simple analogies to make sense out of a complex problem

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COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
Representativeness

Tendency to generalize from a small sample or a single

vivid anecdote
Violates the statistical law of large numbers

Illusion of control

Tendency to overestimates ones ability to control events

General or top managers are more prone to this

Availability error

Arises from our predisposition to estimate the probability of

an outcome based on how easy it is to imagine it

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TECHNIQUES FOR IMPROVING
DECISION MAKING
Devils advocacy

A member of a decision-making team identifies all the

considerations that might make a proposal unacceptable
Possible perils of recommended courses of action are
brought into light

Dialectic inquiry

Generation of a plan and a counter-plan that reflect plausible

but conflicting courses of action
Promotes strategic thinking

Outside view

Identification of past successful or failed strategic initiatives to

determine if they will work for the current project

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 Characteristics of Good Strategic
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)

(continued)
 Characteristics of Good Strategic 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)

1-31
 Characteristics of Good Strategic 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.

(continued)
 Characteristics of Good Strategic 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.

Read more about emotional intelligence.

http://www.ihhp.com/what_is_eq.htm