Theory of
Strategic
Management
Hill Jones
Chapter 1
LEADERSHIP, STRATEGY, AND
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 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.
• Strategic Leadership- Effectively managing a
company’s strategy-making process
• Strategy Formulation- Determining & selecting
strategies
• 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…”
Reasons:
1. Provide risk capital
2. Legal owners of the company
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Shareholders value
• The returns that shareholders earn from
purchasing shares in a company
• Returns come from two sources:
1. capital appreciation in the value of a
company’s share
2. Dividend payments
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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
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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:
– Not in business to make a profit
– Still need to use resources efficiently &
effectively
– Must meet goals
– 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
•
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)
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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
• 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
2.
Address crucial issues– a limited number of key goals helps
3.
Challenging but realistic– provide
4.
Specify time period– motivates/injects sense of urgency into
judge performance
maintain focus
employees with incentive
for improving
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:
• Industry environment
– 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
• 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
• SWOT analyses identifies strategies that align company
resources/capabilities to environment to create/sustain
competitive advantage.
• Functional strategies should be consistent with & support
company business level/global strategies.
– Functional-level strategy – directed at operational effectiveness
– 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:
– Implementation/execution of strategic plans
– Design best organization structure, culture,
control systems
– Governance system for legal/ethical
compliance
– 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
Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985.
Figure 1.7
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Strategic Planning in Practice
Formal planning has positive impact on performanceshould include current/future competitive environments.
• Scenario Planning
• Recognizes the future unpredictable
• Develops strategies for future scenarios
• 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
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or duplicated,
in whole
or inInvestment
part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
Survey
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Strategic Decision Making
Companies may adopt poor strategies if groupthink or
individual cognitive biases allowed to intrude into decisionmaking 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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