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Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage

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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 companys performance.Strategic leadership is how to most effectively manage a companys 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. Together, profitability and profit growth are the principal drivers of shareholder value.

SUPERIOR PERFORMANCE

The sum of money invested in the business

Net income after taxes

Learning Objective: After reading this chapter you 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 ManagersOversee development of strategies for whole organizationCEO is principle general manager who consults with other senior executivesBusiness-Level ManagersResponsible for business unit that provides product/service to particular marketFunctional-ManagersSupervise particular function/operation (e.g. marketing, operations, accounting, human resources)
LEVELS OF STRATEGIC MANAGEMENT


Learning Objective: After reading this chapter you should be able to identify the primary steps in a strategic planning process.

STRATEGY PLANNING PROCESS
Select the corporate mission and major corporate goals.Analyze the organizations external competitive environment to identify opportunities and threats.Analyze the organizations internal operating environment to identify the organizations strengths and weaknesses.
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Select strategies that build on the organizations strengths and corrects its weaknesses in order to take advantage of external opportunities and counter external threats.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 organizations operating environment that will affect how it pursues its mission.Analyzing the industry environment requires an assessment of the competitive structure of the companys 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 companys 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.
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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

Learning Objective: After reading this chapter you 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.


Learning Objective: After reading this chapter you 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 ones 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 ones ability to control events.

Techniques for Improving Decision Making
Devils 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.

Learning Objective: After reading this chapter you should be able to discuss the role strategy leaders play in the strategy-making process.

Characteristics of Good Strategic Leaders
Vision, Eloquence, and ConsistencyA strong leader gives an organization a sense of direction.Examples: Winston Churchill, Martin Luther King, Sam WaltonArticulation of a Business ModelKnowing how the various strategies that the company pursues fit together.Examples: Michael Dell (Dell, Inc.), Steve Jobs (Apple)

CommitmentA strong leader demonstrates his or her commitment to a vision and business model with action and words.Example: Ken Iverson (Nucor)Being Well InformedEffective leaders develop a network of formal and informal sources who to keep them well informed about what is going on within their company.Example: Jim Donald (Starbucks)

Willingness to Delegate and EmpowerAvoids being overloaded with responsibilities.Understands that delegation is a good motivational tool.The Astute Use of PowerPower comes from control over resources that are important to the organization: budgets, capital, positions, information, and knowledge.Politically astute managers use these resources to critically place allies who can help them attain their strategic objectives.

Emotional IntelligenceSelf-awarenessthe ability to understand ones own moods, emotions, and drives.Self-regulationthe ability to control or redirect disruptive impulses or moods.Motivationa passion for work that goes beyond money or status.Empathythe ability to understand the feelings and viewpoints of subordinates.Social skillsfriendliness with a purpose.

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