111182584X_336067 Strategy in Leadership.ppt

Strategic Leadership:
Managing the Strategy-
Making Process for
Competitive Advantage
1
Chapter
© 2013 Cengage 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 product or service or otherwise on a password-protected website for classroom use.
CHARLES W. L. HILL / GARETH R. JONES
Strategic Management An Integrated Approach 10th ed.
Student Version
Prepared by C. Douglas Cloud , Professor Emeritus of Accounting, Pepperdine University

OVERVIEW
 A strategy is a set of related actions that
managers take to increase their company’s
performance.
 Strategic leadership is how to most
effectively manage a company’s strategy-
making process to create competitive
advantage.

 To increase shareholder value, managers must
pursue strategies that increase the profitability of the
company and ensure that profits grow.
 To do this, a company must be able to outperform its
rival. In other words, it must have a competitive
advantage.
 A company has competitive advantage over its rivals
when its profitability is greater than the average
profitability and profit growth of other companies
competing for the same set of customer.
Learning Objective: After reading this chapter you
should be able to explain what is meant by
“competitive advantage.”

 Risk capital is capital that cannot be
recovered if a company fails and goes
bankrupt.
 Shareholder value is the return that a
shareholder earns from purchasing shares in
a company.
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.
The sum of
money invested
in the business
Net income
after taxes
 Together, profitability and profit growth are the
principal drivers of shareholder value.
SUPERIOR PERFORMANCE

should be able to discuss the strategic role of
managers at different levels within the organization.
PRIMARY TYPES OF MANAGERS
The general manager
bears the responsibility
for the overall
performance of the
company or for one of its
major self-contained
subunits or divisions.
The functional manager
is responsible for
supervising a particular
function, task, activity, or
operation.

 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)
LEVELS OF STRATEGIC MANAGEMENT

should be able to identify the primary steps in a
strategic planning process.
STRATEGY PLANNING PROCESS
1. Select the corporate mission and major corporate
goals.
2. Analyze the organization’s external competitive
environment to identify opportunities and threats.
3. Analyze the organization’s internal operating
environment to identify the organization’s
strengths and weaknesses.
(continued)

4. Select strategies that build on the organization’s
strengths and corrects its weaknesses in order to
take advantage of external opportunities and
counter external threats.
5. Implement the strategies.

The Mission Statement
 A mission statement describes what the
company does.
 The vision of a company articulates, often in
bold terms, what the company would like to
achieve.
 The values of a company state how managers
and employees should conduct themselves in
business.

The Mission Statement
 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 Analysis
 The essential purpose of the external analysis is
to identify strategic opportunities and threats
within the organization’s operating environment
that will affect how it pursues its mission.
 Analyzing the industry environment requires an
assessment of the competitive structure of the
company’s industry, including the competitive
position of the company and its major rivals.

SWOT Analysis and the Business Model
 The comparison of strengths, weaknesses,
opportunities, and threats is normally referred to
as a SWOT analysis.
 The goal of a SWOT analysis:
 Create, affirm, or fine-tune a company-specific
business model.
 Design a model that will best align, fit, or match a
company’s resources and capabilities to the
demands of the environment in which it operates.

SWOT Strategies
 Functional-level strategies are directed at improving
the effectiveness of operations within a company.
 Manufacturing, marketing, materials management,
product development, and customer service.
 Business-level strategies
 The way a company positions itself in the
marketplace to gain a competitive advantage.
 The different position strategies that can be used in
different industry settings.
(continued)

SWOT Strategies
 Global strategies address how to expand operations
outside the home country.
 How to grow and prosper in a world where
competitive advantage is determined at a global
level.
 Corporate-level strategies address what business
should the company be in to maximize profitability.
 How should a company enter and increase its
presence to gain a competitive edge.

Strategy Implementation
 Strategy implementation involves taking action at
the functional, business, and corporate levels to
execute a strategic plan.
 Putting quality improvement programs into place.
 Changing the way a product is designed.
 Positioning the product differently in the
marketplace.
 Offering different versions of the product to
different consumers.

Criticisms of Formal Planning Models
should be able to discuss the common pitfalls of
planning and how those pitfalls can be avoided.
 Uncertainty, complexity, and ambiguity can have
a large and unpredictable outcome.
 Too much importance is attached to the role of
top management, particularly the CEO.
 Radical new technology changes the dominant
paradigm in an industry.
 Many strategies are the result of serendipity.

should be able to outline the cognitive biases that
might lead to poor strategic decisions, and explain
how these biases can be overcome.
Scenario Planning
 Scenario planning involves formulation plans that
are based upon “what-if” scenarios about the
future.
 Teams of managers are asked to develop specific
strategies to cope with each scenario.
 The great virtue of the scenario approach is that it
can push managers to think outside the box.

STRATEGY DECISION MAKING
Cognitive Biases and Strategic Decision Making
 The rationality of decision-making is bound by one’s
cognitive capabilities.
 When managers make decisions, they tend to fall
back on certain rules of thumb.
 Sometimes these rules lead to severe errors,
called cognitive biases.
 Prior hypothesis bias refers to making decisions
based on a belief, even when evidence proves that the
belief is incorrect.

Cognitive Biases and Strategic Decision Making
 Escalating commitment occurs when decision
makers, having committed significant resources to
a project, commit even more despite feedback
that tells them the project is failing.
 The use of simple analogies to make sense out of
a complex problem is reasoning analogy, which
may flawed by invalid reasoning.
 Generalizing from a small sample or a single vivid
anecdote is representativeness.
 The illusion of control is the tendency to
overestimates one’s ability to control events.

Techniques for Improving Decision Making
 Devil’s advocacy requires the generation of a plan,
and a critical analysis of that plan.
 Dialectic inquiry requires the generation of a plan
and a counter-plan that reflects plausible but
conflicting courses of action.
 Strategic managers listen to a debate between
advocates of the plan and counter-plan and then
decide which will lead to higher performance.
 This approach may reveal problems with
definitions, recommended courses of action, and
assumptions of both plans.

should be able to discuss the role strategy leaders
play in the strategy-making process.
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)

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)

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.

7) Emotional Intelligence
a) Self-awareness—the ability to understand one’s
own moods, emotions, and drives.
b) Self-regulation—the ability to control or redirect
disruptive impulses or moods.
c) Motivation—a passion for work that goes beyond
money or status.
d) Empathy—the ability to understand the feelings and
viewpoints of subordinates.
e) Social skills—friendliness with a purpose.

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