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CHAPTER 1
STRATEGIC LEADERSHIP: MANAGING THE STRATEGY-
MAKING PROCESS FOR COMPETITIVE ADVANTAGE

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OVERVIEW
 A strategy is a set of related actions that
managers take to increase their company’s
performance.
 STRATEGY - an integrated and coordinated
set of commitments and actions designed to
exploit core competencies and gain a
competitive advantage
2

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CORE COMPETENCIES
Core Competencies
 Activities that a firm performs
especially well compared to
competitors.
 Activities through which the firm adds
unique value to its goods or services
over a long period of time.
3

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IMPORTANT DEFINITIONS
● STRATEGIC COMPETITIVENESS
- achieved when a firm successfully
formulates and implements a value-
creating strategy
● COMPETITIVE ADVANTAGE -
when a firm implements a strategy that
creates superior value for customers;
competitors are unable to duplicate it or
find too costly to imitate it

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COMPETITIVE ADVANTAGE
The Four Criteria of Sustainable Competitive
Advantage
 Valuable capabilities
 Rare capabilities
 Costly to imitate
 Nonsubstituable
 Strategic leadership is how to most effectively manage
a company’s strategy-making process to create
competitive advantage.
5

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IMPORTANT
DEFINITIONS
● RISK - an investor’s uncertainty about the
economic gains or losses that will result from a
particular investment
● ABOVE-AVERAGE RETURNS - returns in
excess of what an investor expects to earn from other
investments with a similar amount of risk
● AVERAGE RETURNS - returns equal to those
an investor expects to earn from other investments
with a similar amount of risk

7. 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.
 Together, profitability and profit growth are the
principal drivers of shareholder value.
© 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.
http://www.businessweek.com/news/2012-01-11/corporate-profit-growth-at-2-year-low-as-u-s-feels-
europe-drag.html
SUPERIOR
PERFORMANCE
Read more about corporate profit growth:

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DETERMINANTS OF
SHAREHOLDER VALUE
To increase shareholder value, managers must
pursue strategies that increase the profitability of the
company and grow the profits.
Figure 1.2

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COMPETITIVE ADVANTAGE AND
BUSINESS MODEL
• Occurs when a company’s profitability is greater than
the average profitability of firms in its industry
Competitive advantage
• A company’s strategies enable it to maintain above-
average profitability for a number of years
Sustained competitive advantage
• Conception of how strategies should work together as
a whole to enable the company to achieve
competitive advantage
Business model
9

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STRATEGIC MANAGEMENT
• Bear responsibility for a company’s overall performance
or for one of its major self-contained subunits or
divisions
General managers
• Responsible for supervising a particular function, task,
activity, or operation
Functional managers
• Competes in several different businesses and has a
separate self-contained division to manage each
Multidivisional company
10

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FIGURE 1.4 - LEVELS OF STRATEGIC
MANAGEMENT
11

12.  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

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STEPS IN A FORMAL STRATEGIC
PLANNING PROCESS
 Select the corporate mission and goals
 Analyze the organization’s external competitive
environment and internal operating environment
 Select strategies that:
 Build on the organization’s strengths and correct it’s
weaknesses
 Are consistent with the organization’s mission and goals
 Are congruent and constitute a viable business model
 Implement the strategies
13

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MAIN COMPONENTS OF THE
STRATEGIC PLANNING PROCESS
Existing
Business
Model
Mission,
Vision,
Values, and
Goals
External
Analysis:
Opportunities
and Threats
SWOT Strategic
Choice
Strategies:
Functional,
Business,
Global, and
Corporate-
Level
Governance
and Ethics
Designing
Organization
Structure
Designing
Organization
Culture
Designing
Organization
Controls
Internal
Analysis:
Strengths and
Weaknesses
Strategic Formulation Strategic Implementation
Feedback
14

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COMPONENTS OF A MISSION
STATEMENT
• Purpose of the company, or a statement of what the company strives
to do
Mission
• Articulation of a company’s desired achievements or future state
Vision
• Statement of how employees should conduct themselves and their
business to help achieve the company mission
Values
• Precise and measurable desired future state that a company attempts
to realize
Goals
• Purpose of the company, or a statement of what the company strives
to do
Mission
• Articulation of a company’s desired achievements or future state
Vision
• Statement of how employees should conduct themselves and their
business to help achieve the company mission
Values
15

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CHARACTERISTICS OF A
MISSION STATEMENT
16

17. MISSION AND VISION EXAMPLES
Organization Mission Vision
North South University … produce competent graduates in their
selected disciplines who will have
productive careers or choose to engage
in advanced studies.
… will be and remain a center of
excellence in higher education. It will
gain recognition, nationally and globally
and will attract students, faculty, and
staff from all parts of the world.
Microsoft At Microsoft, we work to
help people and businesses
throughout the world realize
their full potential. This is
our mission. Everything we
do reflects this mission and
the values that make it
possible.
Create experiences that
combine the magic of
software with the power of
Internet services across a
world of devices.

18. MISSION AND VISION EXAMPLES
Organization Mission Vision
Chevron Our Company's foundation
is built on our Values,
which distinguish us and
guide our actions. We
conduct our business in a
socially responsible and
ethical manner. We
respect the law, support
universal human rights,
protect the environment,
and benefit the
communities where we
work."
At the heart of The
Chevron Way is our Vision
to be the global energy
company most admired for
its people, partnership and
performance.

19. The Mission Statement
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. STRATEGY PLANNING PROCESS
 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.

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EXTERNAL AND INTERNAL ANALYSIS
 External analysis - Identifies strategic
opportunities and threats that will affect how an
organization pursues its mission
 Involves examination of the:
 Industry environment in which the company operates
 Country or national environment
 Macroenvironment
 Internal analysis - Focuses on reviewing the
resources, capabilities, and competencies of a
company
 Goal - Identify the company’s strengths and weaknesses
21

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SWOT ANALYSIS
• Directed at improving the effectiveness of operations within a
company
Functional-level strategies
• Encompass the business’s overall competitive theme
Business-level strategies
• Address how to expand operations outside the home country
Global strategies
• Determine:
• The businesses a company should be in to maximize profitability
and profit growth
• How to gain a competitive edge
Corporate-level strategies
22

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STRATEGY IMPLEMENTATION AND
FEEDBACK LOOP
 Strategy implementation
 Taking action at the functional, business, and corporate
levels to execute a strategic plan
 Designing the best organization structure, culture, and
control systems to put a chosen strategy into action
 Feedback loop - Provide information to the
corporate level on the:
 Strategic goals that are being achieved
 Degree of competitive advantage being created and
sustained
23

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FIGURE 1.7 - EMERGENT AND
DELIBERATE STRATEGIES
24

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FIGURE 1.8 - SCENARIO PLANNING
25

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SCENARIO PLANNING
 Formulating plans that are based on “what-if”
scenarios about the future
 Encourages managers to:
 Think outside the box and be more flexible
 Anticipate probable scenarios
 Ivory tower planning - Recognizes that successful
strategic planning encompasses managers at all
levels of the corporation
26

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COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
• Systematic errors in human decision making
• Arise from the way people process information
Cognitive biases
• Decisions are made based on prior beliefs, even when evidence proves
that those beliefs are wrong
Prior hypothesis bias
• Decision makers, having committed significant resources to a project,
commit even more, despite receiving feedback that the project is failing
Escalating commitment
• Use of simple analogies to make sense out of a complex problem
Reasoning analogy
27

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COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
• Tendency to generalize from a small sample or a single
vivid anecdote
• Violates the statistical law of large numbers
Representativeness
• Tendency to overestimates one’s ability to control events
• General or top managers are more prone to this
Illusion of control
• Arises from our predisposition to estimate the probability of
an outcome based on how easy it is to imagine it
Availability error
28

29. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
TECHNIQUES FOR IMPROVING
DECISION MAKING
• A member of a decision-making team identifies all the
considerations that might make a proposal unacceptable
• Possible perils of recommended courses of action are
brought into light
Devil’s advocacy
• Generation of a plan and a counter-plan that reflect plausible
but conflicting courses of action
• Promotes strategic thinking
Dialectic inquiry
• Identification of past successful or failed strategic initiatives to
determine if they will work for the current project
Outside view
29

30. 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)
(continued)

31. 1-31
Characteristics of Good Strategic Leaders
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)

32. (continued)
Characteristics of Good Strategic Leaders
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.

33. Characteristics of Good Strategic Leaders
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.
http://www.ihhp.com/what_is_eq.htm
Read more about emotional intelligence.