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
strategy-making process
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“If you don’t have a strategy you
will be . . . part of somebody
else’s 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 company’s performance.
o Strategic Leadership- Effectively managing
a company’s strategy-making process
o Strategy Formulation- Determining &
selecting strategies
o Strategy Implementation- Putting strategies
into action to improve company’s 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
company’s strategies
lead to superior
performance compared
to competitors
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Sustained
Competitive Advantage
“A company’s…
strategies enable it to
maintain above
average profitability for
a number of years.”
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Company’s Business Model
“…a conception of how a set of strategies…mesh… (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
Company’s relative success
in industry compared to
competitors
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ROI in Selected Industries
(2004–2008)
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 organization’s internal environment to
identify strengths/weaknesses.
 Select strategies that:
•
•
•
Build on organization’s strengths and correct weaknesses– to
take advantage of external opportunities & counter external
threats
Are consistent with organization’s 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 company’s 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 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
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 company’s
mission
o Organizational culture
• Set of values, norms, and standards that control
how employees work to achieve organization’s
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
employees with
incentive for improving
4.
Specify time period– motivates/injects sense of
urgency into goal attainment
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 External Analysis
Identifies strategic
opportunities & threats in
organization’s operating
environment that will affect
how it pursues its mission.
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External Analysis
Requires assessment of:
o Industry environment
o Competitive structure of industry
o Competitive position of the company
o Competitiveness and position of major rivals
o Country/national environments in which
company competes
o Wider socioeconomic/macroenvironment
that may affect company and its industry
• Social
• Legal
• Governmental • International • Technological
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 Internal Analysis
Strengths= superior performance
Weaknesses= inferior performance.
Includes review of:
Company’s 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 Business-level strategy – overall competitive theme
o Global strategy – expand/grow/prosper at global level
o 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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⑥The 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 tomorrow’s
competitive advantage faster
than competitors mimic the
ones you possess today.”
- Gary Hamel & C. K. Prahalad
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