Chapter 1

STRATEGIC LEADERSHIP:
MANAGING THE STRATEGYMAKING PROCESS FOR
COMPETITIVE ADVANTAGE

Learning Objectives
Explain competitive advantage
Discuss strategic role of managers at different
levels of organization
Identify steps in strategic planning process
Discuss pitfalls of planning and how they can be
avoided
Identify cognitive biases that lead to poor strategic
decisions & explain how they can be avoided
Discuss role of strategic leaders in the strategymaking process

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If you dont have a strategy you

will be . . . part of somebody
elses strategy. - Alvin Toffler

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Profitability of
Walmart & Competitors

Figure 1.1
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Why do some organizations

succeed while others fail?
Strategy- a set of related actions managers take
to increase companys performance.
o Strategic Leadership- Effectively managing a
companys strategy-making process
o Strategy Formulation- Determining & selecting
strategies
o Strategy Implementation- Putting strategies into action
to improve companys efficiency & effectiveness

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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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Superior Performance
Maximizing shareholder
value is the ultimate
goal of profit making
companies
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Competitive Advantage
results when a
companys strategies
lead to superior
performance compared
to competitors
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Sustained
Competitive Advantage

A companys
strategies enable it to
maintain above
average profitability for
a number of years.
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Companys Business Model

a conception of how a set of strategiesmesh (to)
allow company to gain competitive advantage and
achieve superior profitability
Encompasses how the company will:

Select customers
Define/differentiate
product offerings
Create value for
customers
Acquire/keep customers
Produce goods/services
Lower costs

Deliver goods/services to
market
Organize activities within
company
Configure its resources
Achieve/sustain a high
profitability
Grow business over time

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Differences in
Industry Performance
Profitability/Profit Growth:

Overall performance
of industry relative
to other industries

Companys relative success

in industry compared to
competitors

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ROI in Selected Industries

(20042008)

Figure 1.3
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Performance in
Nonprofit Enterprises
Nonprofit entities= government
agencies, universities, charities:
o Not in business to make a profit
o Still need to use resources efficiently &
effectively
o Must meet goals
o Set strategies to achieve goals and
compete with other nonprofits for scarce
resources
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A successful strategy
gives potential donors a
compelling message
about why they should
contribute.
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Strategic Managers
o Corporate-Level Managers
o Oversee development of strategies for whole
organization
o CEO is principle general manager who consults with
other senior executives

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

o Functional-Managers
o Supervise particular function/operation (e.g.
marketing, operations, accounting, human resources)
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Levels of
Strategic Management
Figure 1.4

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Strategy-Making Process
Select corporate mission & major corporate goals.
Analyze external competitive environment to
identify opportunities/threats.
Analyze organizations internal environment to
identify strengths/weaknesses.
Select strategies that:

Build on organizations strengths and correct weaknesses to

take advantage of external opportunities & counter external
threats
Are consistent with organizations mission and major goals
Are congruent and constitute a viable business model

Implement the strategies.

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Strategy Formulation
& Implementation

Figure 1.5
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 Mission Statement
Provides framework within
which strategies are formulated:
o Mission Reason for existence what an
o
o
o

organization does
Vision Some desired future state
Values Key values an organization is
committed to
Major Goals Measurable desired future
state an organization attempts to realize

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The Mission
o What is it the company does?
Who is being satisfied- What customer
groups?
What is being satisfied- What customer
needs?
How customer needs are being satisfied- by
what skills, knowledge, or distinctive
competencies?
A companys mission is best approached from
a customer-oriented business definition.
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Defining the Business

Figure 1.6

Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.
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The Vision
What would company like to achieve?
A good vision is meant to stretch a company by
articulating an ambitious but attainable future state.

Nokia is the worlds largest manufacturer of

mobile phones and operates with a simple
but powerful vision: If it can go mobile, it
will!

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Values
o How managers and employees should
conduct themselves
o How they should do business
o What kind of organization they need to
build to help achieve companys
mission
o Organizational culture

Set of values, norms, and standards that control

how employees work to achieve organizations
mission and goals
Often seen as an important source of competitive
advantage

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In high-performance
organizations, values
respect the interests
of key stakeholders.
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Values at Nucor

Management is obligated to manage Nucor in such a way that

employees will have the opportunity to earn according to their
productivity.

Employees should be able to feel confident that if they do

their jobs properly, they will have a job tomorrow.

Employees have the right to be treated fairly and must

believe that they will be.

Employees must have an avenue of appeal when they believe

they are being treated unfairly.

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Major Goals
Goal - precise/measurable desired future
state a company attempts to realize.
Well-constructed goals:
1. Precise and measurable provide yardstick or
standard to judge performance

2. Address crucial issues a limited number of key

goals helps maintain focus

3. Challenging but realistic provide

incentive for improving

employees with

4. Specify time period motivates/injects sense of

urgency into goal attainment

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 External Analysis
Identifies strategic
opportunities & threats in
organizations operating
environment that will affect
how it pursues its mission.
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External Analysis
Requires assessment of:
o Industry environment
o
o
o

o
o

Competitive structure of industry

Competitive position of the company
Competitiveness and position of major rivals

Country/national environments in which company competes

Wider socioeconomic/macroenvironment that may affect
company and its industry
Social
Governmental

Legal
Technological
International
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 Internal Analysis

Strengths= superior performance

Weaknesses= inferior performance.

Includes review of:

Companys resources &
capabilities
Company-specific competencies

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 SWOT Analysis

and Business Model

o SWOT analyses identifies strategies that align company

resources/capabilities to environment to create/sustain
competitive advantage.
o Functional strategies should be consistent with &
support company business level/global strategies.
o Functional-level strategy directed at operational effectiveness
o
o
o

Business-level strategy overall competitive theme

Global strategy expand/grow/prosper at global level
Corporate-level strategy maximize profitability & profit growth

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 Strategy Implementation
Managers put strategies into action:
o Implementation/execution of strategic
plans
o Design best organization structure,
culture, control systems
o Governance system for legal/ethical
compliance
o Consistency with maximizing profit &
profit growth
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The Feedback Loop

Strategic planning is ongoing.
Monitor strategy execution:
Determine strategic goals/objectives being achieved
Evaluate competitive advantage is being created &
sustained

Monitor/reevaluate for the next round of

strategy formulation/implementation

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Criticisms of
Formal Planning Model
1) Unpredictability of real world
2) Role lower-level
managers can play
3) Many strategies
result of serendipity
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Intended & Emergent Strategies

o Intended/Planned Strategies
o Strategies organization plans to implement
o Result of formal planning process
o Unrealized strategies are unprecedented changes &
unplanned events after formal planning complete

o Emergent Strategies
o Unplanned responses to unforeseen circumstances
o Serendipitous discoveries/events emerge that open
up unplanned opportunities
o Assess emergent strategy fits needs & capabilities

o Realized Strategies
o Intended strategies put into action & emergent
strategies evolve

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Emergent &
Deliberate Strategies
Figure 1.7

Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985.
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Strategic Planning in Practice

Formal planning has positive impact on performanceshould include current/future competitive environments.

o Scenario Planning
Recognizes the future unpredictable
Develops strategies for future scenarios

o Decentralized Planning- Functional

managers
Avoids ivory tower approach
Corporate-level planners = facilitators

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Scenario Planning

Figure 1.8
Data Source: Value Line Investment Survey

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Strategic Decision Making

Companies may adopt poor strategies if
groupthink or individual cognitive biases allowed
to intrude into decision-making process.

Cognitive biases: Rules of thumb

result in errors
Groupthink: Decision makers
embark on course of action without
questioning underlying assumptions
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Strategic Leadership
Good leaders of strategy-making
process have key attributes:

Vision, eloquence, and consistency

Articulation of business model
Commitment
Well informed
Willing to delegate or
empower
Astute use of power
Emotional intelligence
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The essence of strategy lies

in creating tomorrows
competitive advantage faster
than competitors mimic the
ones you possess today.
- Gary Hamel & C. K. Prahalad

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