Strategic management principles with slides

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

LEARNING OBJECTIVES
 Explain what is meant by competitive advantage.
 Discuss the strategic role of managers at
different levels within the organization.
 Identify the primary steps in a strategic planning
process.
 Discuss the common pitfalls of planning and how
those pitfalls can be avoided.
2

LEARNING OBJECTIVES
 Outline the cognitive biases that might lead to
poor strategic decisions, and explain how these
biases can be overcome.
 Discuss the role strategy leaders play in the
strategy-making process.
3

STRATEGY
 Set of related actions that managers take to
increase their company’s performance.
 Strategic leadership - Creating competitive
advantage through effective management of the
strategy-making process.
 Strategy formulation - Selecting strategies based on
analysis of an organization’s external and internal
environment.
 Strategy implementation - Putting strategies into
action.
4

SUPERIOR PERFORMANCE
 Risk capital - Equity capital for which there is no
guarantee that stockholders will:
 recoup their investment.
 earn a decent return.
 Shareholder value - The returns that
shareholders earn from purchasing shares in a
company.
 Sources
 Capital appreciation in the value of a company’s shares
 Dividend payments
6

 Profitability - The return a company makes on
the capital invested in the enterprise.
 Return on invested capital (ROIC) - Net profit over the
capital invested in a firm.
 Result of how efficiently the capital is used to satisfy
customer needs.
7

 Profit growth - The increase in net profit over
time, achieved by:
 selling products in rapidly growing markets.
 gaining market share from rivals.
 selling more to existing customers.
 expanding overseas or diversifying into new businesses.
 To boost profitability and profit growth,
managers must:
 use strategies to give their company a competitive
advantage over rivals.
 deliver high profitability and sustainable profit growth.
8

COMPETITIVE ADVANTAGE
 Occurs when a company’s profitability is greater
than the average profitability of firms in its
industry.
 Sustained competitive advantage – A company’s
strategies that enable it to maintain above-
average profitability for a number of years.
9

BUSINESS MODEL
 Conception of how strategies should work
together as a whole to enable the company to
achieve competitive advantage.
 Deals with how a company:
 selects, acquires, and keeps its customers.
 defines and differentiates its product offerings.
 creates value for its customers.
 produces goods or services and delivers to the market.
 lowers costs and organizes its resources and activities.
 achieves and sustains high profitability and growth.
10

STRATEGIC MANAGEMENT
12
• 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

CORPORATE-LEVEL MANAGERS
 Oversee the development of strategies for the entire
organization.
 Provide a link between people concerned with the
firm’s strategic development and the shareholders.
 Ensure that business strategies pursued by the
company are consistent with maximizing profitability
and profit growth.
14

BUSINESS-LEVEL MANAGERS
 Heads of business units
 Business unit is a self-contained division that provides a
product or service for a particular market.
 Translate statements of intents into concrete
strategies for individual businesses.
 Are concerned with strategies specific to a
particular business.
15

FUNCTIONAL- LEVEL MANAGERS
 Responsible for specific business functions.
 Develop functional strategies to fulfill the
strategic objectives set by business- and
corporate-level general managers.
 Provide information that helps formulate realistic
and attainable strategies.
16

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
17

COMPONENTS OF A MISSION
STATEMENT
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• 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
• Goal - Precise and measurable desired future state that a company
attempts to realize.
Establishing major goals

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.
 Goals identify the company’s strengths and weaknesses.
21

SWOT ANALYSIS
 Comparison of strengths, weaknesses,
opportunities, and threats.
 Purpose - Identify the strategies to:
 exploit external opportunities.
 build on and protect company strengths.
 eradicate weaknesses and counter threats.
 Goals - Affirm a company-specific business
model.
 To align, fit, or match a company’s resources and
capabilities to the demands of its environment.
22

SWOT STRATEGIES
 Functional-level strategies - Directed at
improving the effectiveness of operations within
a company.
 Business-level strategies - Encompass the
business’s overall competitive theme.
 How it positions itself in the marketplace to gain a
competitive advantage.
 Different position strategies that can be used in
different industry settings.
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SWOT STRATEGIES
 Global strategies - address how to expand
operations outside the home country.
 Since competitive advantage is determined at a global
level.
 Corporate-level strategies determine:
 the businesses a company should be in to maximize
profitability and profit growth.
 how to gain a competitive edge.
24

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 - Provides information to the
corporate level on the:
 strategic goals that are being achieved.
 degree of competitive advantage being created and
sustained.
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CRITICISMS OF FORMAL PLANNING
MODELS
 Unforeseen circumstances can adversely affect
strategic plans.
 Excessive importance is attached to the role of
top management.
 While ignoring lower-level managers.
 Many successful strategies are a result of
serendipity rather than strategic planning.
26

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.
29

• Decision makers, having committed significant resources to a project,
commit even more, despite receiving feedback that the project is failing.
Escalating commitment
COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
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• 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
• Use of simple analogies to make sense out of a complex
problem.
Reasoning analogy

COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
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• 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

TECHNIQUES FOR IMPROVING
DECISION MAKING
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• 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

CHARACTERISTICS OF GOOD STRATEGIC
LEADERS
 Vision, eloquence, and consistency
 Articulation of a business model
 Commitment
 Being well informed
 Willingness to delegate and empower
 Astute use of power
 Emotional intelligence
 Self-awareness, self-regulation, and motivation
 Empathy and social skills
33

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