Chapter One
Strategic
Leadership:
Managing the
StrategyMaking
Process for
Competitive
Advantage
“If you don’t have a strategy you
will be . . . part of somebody
else’s strategy.”
- Alvin Toffler
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Why do some organizations
succeed while others fail?
Strategy is a set of related actions that managers
take to increase their company’s performance.
 Strategic Leadership
• Task of most effectively managing a
company’s strategy-making process
 Strategy Formulation
• Task of determining and selecting strategies
 Strategy Implementation
• Task of putting strategies into action to improve a
company’s efficiency and effectiveness
Competitive Advantage
Results when a company’s strategies lead to
superior performance compared to competitors
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Superior Performance and
Sustainable Competitive Advantage
 Superior Performance
• One company’s profitability relative to that of other companies in
the same or similar business or industry
• Maximizing shareholder value is the ultimate goal of profit making
companies
ROIC (Profitability) = Return On Invested Capital
•
ROIC
=
Net profit
Capital invested
=
Net income after tax
Equity + Debt to creditors
 Competitive Advantage
• When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the same
customers
Sustainable Competitive Advantage
When a company’s strategies enable it to maintain
above average profitability for a number of years
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Determinants of
Shareholder Value
Figure 1.1
To increase shareholder value, managers must
pursue strategies that increase the profitability
of the company and grow the profits.
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Company’s Business Model
Management’s model of how strategy will allow
the company to gain competitive advantage
and achieve superior profitability
A business model encompasses how the company will:
• Select its customers
• Deliver those goods and
services to the market
• Define and differentiate
its product offerings
• Organize activities within
the company
• Create value for its
customers
• Configure its resources
• Acquire and keep
• Achieve and sustain a
customers
high level of profitability
• Produce goods or
• Grow the business over
services
time
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Differences in Industry
and Company Performance
A Company’s Profitability and
Profit Growth are determined
by two main factors:
The overall performance
of its industry relative
to other industries
Its relative success in its
industry as compared to the
competitors
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Return on Invested Capital
in Selected Industries, 1997–2003
Figure 1.2
Data Source: Value Line Investment Survey
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Performance in Nonprofit
Enterprises
Nonprofit entities such as government
agencies, universities, and charities:
• Are not in business to make a profit
• Should use their resources efficiently
and effectively
• Set performance goals unique to the
organization
• Set strategies to achieve goals and compete
with other nonprofits for scarce resources
A successful strategy gives potential
donors a compelling message as to
why they should contribute.
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Strategic Managers
 Corporate Level Managers
• Oversee the development of strategies for the
whole organization
• The CEO is the principle general manager who
consults with other senior executives
 General Managers
• Responsible for overall company, business
unit, or divisional performance
 Functional Managers
• Responsible for supervising a particular task
or operation
e.g. marketing, operations, accounting, human resources
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Levels of Strategic Management
Figure 1.3
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The Five Steps of the
Strategy Making Process
 Select the corporate vision, mission, and values



and the major corporate goals and objectives.
Analyze the external competitive environment to
identify opportunities and threats.
Analyze the organization’s internal environment
to identify its strengths and weaknesses.
Select strategies that:
•
•
•
Build on the organization’s strengths and correct its
weaknesses – in order to take advantage of external
opportunities and counter external threats
Are consistent with organization’s vision, mission, and values
and major goals and objectives
Are congruent and constitute a viable business model
 Implement the strategies.
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Figure 1.4


Main
Components
of the
StrategyMaking
Process
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


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 Crafting the Organization’s
Mission Statement
Provides a framework or context within
which strategies are formulated, including:
 Mission –
The reason for existence – what an organization does
 Vision –
A statement of some desired future state
 Values –
A statement of key values that an organization is
committed to
 Major Goals –
The measurable desired future state that an
organization attempts to realize
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The Mission
The mission is a statement of a company’s
raison d’etre, its reason for existence today.
 What is it that the company does?
 What is the companies business?
• 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 company’s mission is best approached from
a customer-oriented business definition.
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What is a Mission?
A small child sitting on a high wall is watching a
man at work below. “Mister,” he called, “why are
you hitting that rock? “Michelangelo looked up
and called back, “Because there’s an angel in
the rock and it wants to come out.”
To Michelangelo, creating a statue meant chipping
away at the rock that imprisoned the angel until the
work of art was set free.
Like Michelangelo, we need to see, or imagine we
see, “the angel in the rock” before we can take up
our sculptor’s tools to release it.
- Story from Marilee Zdenek,
The Right-Brain Experience
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The Mission
Customer-Oriented Examples
The mission of Kodak is to provide “customers
with the solutions they need to capture, store,
process, output, and communicate images –
anywhere, anytime.”
Ford Motor Company describes itself as a
company that is “passionately committed to
providing personal mobility for people around
the world….We anticipate consumer need and
deliver outstanding produces and services that
improve people’s lives.”
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Abell’s Framework
for Defining the Business
Figure 1.5
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 the company like to achieve?
A good vision is meant to stretch a company by
articulating an ambitious but attainable future state.
The vision of Ford is “to become the world’s
leading consumer company for automotive
products and services.”
Nokia is the world’s 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
The values of a company should state:
 How managers and employees should
conduct themselves
 How they should do business
 What kind of organization they need to build
to help achieve the company’s mission
 Organizational culture
•
•
The set of values, norms, and standards that control how
employees work to achieve an organization’s mission and
goals
Often seen as an important source of competitive advantage
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.”
At Nucor, values emphasizing pay for performance, job
security, and fair treatment for employees help to create
an atmosphere that leads to high employee productivity.
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Major Goals
A goal is a precise and measurable desired
future state that a company must realize
if it is to attain its vision or mission.
Key characteristics of well-constructed goals:
1.
2.
3.
4.
Precise and measurable – to provide a
yardstick or standard to judge performance
Address crucial issues – with a limited
number of key goals that help to maintain focus
Challenging but realistic – to provide
employees with incentive for improving
Specify a time period – to motivate and
inject a sense of urgency into goal attainment
Focus on long-run performance and
competitiveness.
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 External Analysis
Purpose is to identify the strategic opportunities and
threats in the organization’s operating environment
that will affect how it pursues its mission.
External Analysis requires an assessment of:
 Industry environment in which company operates
• Competitive structure of industry
• Competitive position of the company
• Competitiveness and position of major rivals
 The country or national environments
in which company competes
 The wider socioeconomic or macroenvironment
that may affect the company and its industry
• Social
• Government
• Legal
• International
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• Technological
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 Internal Analysis
Purpose is to pinpoint the strengths and weaknesses
of the organization. Strengths lead to superior
performance and weaknesses to inferior performance.
Internal analysis includes an assessment of:
 Quantity and quality of a
company’s resources and
capabilities
 Ways of building unique
skills and company-specific
or distinctive competencies
Building & sustaining a competitive advantage
requires a company to achieve superior:
• Efficiency • Innovations
• Quality
• Responsiveness to customers
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 Selecting Strategies: SWOT
Analysis and Business Model
 SWOT analyses help to identify strategies that align
a company’s resources and capabilities to its
environment – in order to create and sustain a
competitive advantage.
 Functional strategies should be consistent with and
support the company’s business level and global
strategies.
• Functional-level strategy – directed at operational effectiveness
• Business-level strategy – businesses’ overall competitive themes
• Global strategy – expand, grow and prosper at a global level
• Corporate-level strategy – to maximize profitability and profit growth
When taken together, the various strategies
pursued by a company must lead to a
viable business model.
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 Strategy Implementation
 After choosing a set of congruent strategies to
achieve competitive advantage, managers must
put those strategies into action:
•
•
•
•
•
•
Implementation and execution of the strategic plans
Design of the best organization structure
Consistency of strategy with company culture
Control systems to measure and monitor progress
Governance systems for legal and ethical compliance
Consistency with maximizing profit and profit growth
 The feedback loop – strategic planning is ongoing
• Managers must monitor strategy execution:
» To determine if strategic goals and objectives are being achieved
» To evaluate to what extent competitive advantage is being
created and sustained
• Managers must monitor and reevaluate for the next round of
strategy formulation and implementation
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Strategic Implementation
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Planned, Deliberate, Emergent
and Realized Strategies
Figure 1.6
Source: Adapted from H. Mintzberg and
A. McGugh, Administrative Science
Quarterly, Vol. 30. No. 2, June 1985.
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Intended and Emergent Strategies
 Intended or Planned Strategies
• Strategies an organization plans to put into action
• Typically the result of a formal planning process
• Unrealized strategies are the result of unprecedented
changes and unplanned events after the formal planning is
completed
 Emergent Strategies
• Unplanned responses to unforeseen circumstances
• Serendipitous discoveries and events may emerge that can
open up new unplanned opportunities
• Must assess whether the emergent strategy fits the
company’s needs and capabilities
 Realized Strategies
• The product of whatever intended strategies are actually put
into action and of any emergent strategies that evolve
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Strategic Planning in Practice
Recent studies suggest that formal planning does have a
positive impact on company performance – and should
include the current and future competitive environments.
 Scenario Planning
• Recognizes that the future is inherently unpredictable
• Develops strategies for possible future scenarios
 Decentralized Planning
• Involves the functional managers
• Avoids the ivory tower approach
• Perceives procedural justice in the decision making
 Strategic Intent
• Avoids the strategic fit model, which focuses too much on the
current state
• Sets ambitious vision and goals that stretch a company and
then finds ways to build to attain those goals
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Strategic Decision Making
In spite of systematic planning, companies may adopt poor
strategies if groupthink or individual cognitive biases are
allowed to intrude into the decision-making process:
 Cognitive biases:
Rules of thumb or heuristics resulting in systematic errors
•
•
•
•
•
Prior hypothesis bias
Escalating commitment
Reasoning by analogy
Representativeness
Illusion of control
 Groupthink:
Decisionmakers embark on a course of action without
questioning the underlying assumptions
• Group coalesces around a person or policy
• Decisions based on an emotional rather than an objective assessment
of the correct course of action
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Processes for Improving
Decision Making
Figure 1.7
To bring out all the
reasons that might
make the proposal
unacceptable
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Reveals problems with
definitions, assumptions,
& recommended courses
of action
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Strategic Leadership
Good leaders of the strategy-making process
have a number of key attributes:






Vision, eloquence, and consistency
Commitment
Being well informed
Willingness to delegate and empower
The astute use of power
Emotional intelligence
•
•
•
•
•
Self-awareness
Self-regulation
Motivation
Empathy
Social skills
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“The essence of strategy lies in
creating tomorrow’s competitive
advantage faster than
competitors mimic the ones you
possess today.”
- Gary Hamel &
C. K. Prahalad
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