Hill and Jones Chapter 1 Slides

8/3/2019 Hill and Jones Chapter 1 Slides

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ChapterOne

StrategicLeadership:

Managing theStrategy-Making

Process forCompetitiveAdvantage


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Copyright Houghton Mifflin Company. All rights reserved. 1 | 2

Chapter Outline:

Strategic Leadership, CompetitiveAdvantage, Superior Performance

Strategic Managers

Strategy-Making Process Strategy as an Emergent Process Strategic Planning in Practice

Strategic Decision Making Strategic Leadership


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Why do some organizations succeedwhile others fail?

Strategic Leadership

Task of most effectively managing acompanys strategy-making process

Strategy Formulation Task of determining and selecting strategies

Strategy Implementation

Task of putting strategies into action to improve acompanys efficiency and effectiveness

Competitive Advantage results when acompanys strategies lead to superiorperformance compared to competitors

Strategy is a set of related actions that managers take toincrease their companys performance.


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Superior Performance andSustainable Competitive Advantage

Superior Performance One companys profitability relative to that of other companies in

the same or similar business or industry Maximizing shareholder value is the ultimate goal of profit making

companies

ROIC(Profitability) = ReturnOn InvestedCapital Net profit Net income after tax

Capital investedEquity + Debt to creditors

Competitive Advantage When a companys profitability is greater than the average of all

other companies in the same industry & competing for the samecustomers

=ROIC =

Sustained Competitive AdvantageWhen a companys strategies enable it to maintain above

average profitability for a number of years


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Determinants ofShareholder Value

To increase shareholder value, managers mustpursue strategies that increase the profitability of

the company andgrow the profits.

Figure 1.2


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A business model encompasses how the company will:

Companys Business Model

Managements model of how strategy will allowthe company to gaincompetitive advantage

and achievesuperior profitability

Select its customers

Define and differentiate itsproduct offerings

Create value for its

customers Acquire and keepcustomers

Produce goods or services

Lower costs

Deliver those goods andservices to the market

Organize activities withinthe company

Configure its resources Achieve and sustain a high

level of profitability

Grow the business overtime


7/29Copyright Houghton Mifflin Company. All rights reserved. 1 | 7

Differences in Industryand Company Performance

A Companys Profitability and ProfitGrowth are determined by two mainfactors:

The overall performanceof its industry relative

to other industries

Its relative success in itsindustry as compared to thecompetitors



Return on Invested Capitalin Selected Industries, 20022006

Data Source: Value Line Investment Survey

Figure 1.3



Performance in Nonprofit Enterprises

Nonprofit entities such as governmentagencies, universities, and charities: Are not in business to make a profit

BUTstill need to use their resources efficiently

and effectively Must meet goals

Set strategies to achieve goals and competewith other nonprofits for scarce resources

A successful strategy gives potentialdonors a compelling message as to

why they should contribute.



Strategic Managers

Corporate-Level Managers Oversee the development of strategies for the

whole organization

The CEO is the principle general manager who

consults with other senior executives Business-Level Managers

Responsible for overall company, business unit, ordivisional performance

Functional-Managers Responsible for supervising a particular task or

operation (e.g. marketing, operations, accounting,human resources)



Levels of Strategic Management

Figure 1.4



The Five Steps of theStrategy Making Process

Select the corporate mission and the majorcorporate goals.

Analyze the external competitive environment toidentify opportunitiesand threats.

Analyze the organizations internal environment toidentify its strengthsandweaknesses.

Select strategies that: Build on the organizations strengths and correct its

weaknesses in order to take advantage of external

opportunities and counter external threats Are consistent with organizations mission and majorgoals Are congruent and constitute a viable business model

Implement the stratstrategies.



Crafting the Organizations MissionStatement

Provides a framework or context withinwhich strategies are formulated, including:Mission

The reason for existence what an organization does

Vision A statement of some desired future state

Values

A statement of key values that an organization iscommitted toMajor Goals

The measurable desired future state that an organizationattempts to realize



The Mission

What is it that 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)?

Themission is a statement of a companysreason for existence today.

A companys mission is best approached froma customer-oriented business definition.



Abells Frameworkfor 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.



The vision of Ford is to become the worldsleading consumer company for automotiveproducts and services.

The Vision

What would the company like to achieve?A good vision is meant to stretch a company by

articulating an ambitious but attainable future state.

Nokia is the worlds largest manufacturer ofmobile phones and operates with a simple butpowerful vision: If it can go mobile, it will!



Values

In high-performance organizations, valuesrespect the interests of key stakeholders.

The values of a company should state: How managers and employees should conduct

themselves How they should do business

What kind of organization they need to build tohelp achieve the companys mission

Organizational culture The set of values, norms, and standards that control how

employees work to achieve an organizations mission and goals Often seen as an important source of competitive advantage



Values at Nucor

Management is obligated to manage Nucor in such away that employees will have the opportunity to earnaccording to their productivity.

Employees should be able to feel confident that ifthey do their jobs properly, they will have a jobtomorrow.

Employees have the right to be treated fairly andmust believe that they will be.

Employees must have an avenue of appeal when theybelieve they are being treated unfairly.

At Nucor, values emphasizing pay for performance, jobsecurity, and fair treatment for employees help to create an

atmosphere that leads to high employee productivity.



Key characteristics of well-constructed goals:1. Precise and measurable to provide a

yardstick or standard to judge performance

2. Address crucial issues with a limitednumber of key goals that help to maintain focus

3. Challenging but realistic to provideemployees with incentive for improving

4. Specify a time period to motivate andinject a sense of urgency into goal attainment

Major Goals

A goal is a precise and measurable desiredfuture state that a company must realize

if it is to attain its vision or mission.

Focus on long-run performance andcompetitiveness.


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External Analysis requires an assessment of:

Industry environment in which company operates Competitive structure of industry

Competitive position of the company

Competitiveness and position of major rivals

The country or national environments

in which company competes The wider socioeconomic or macroenvironment that

may affect the company and its industry Social Governmental

Purpose is to identify the strategicopportunitiesandthreatsin the organizations operating environmentthat will affect how it pursues its mission.

Legal International

Technological Macroeconomic

External Analysis


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Internal analysis includes an assessment of:

Quantity and quality of a companysresources and capabilitiesWays of building unique

skills and company-specificor distinctive competencies

Purpose is to pinpoint the strengths and weaknessesof the organization. Strengths lead to superiorperformance and weaknesses to inferior performance.

Internal Analysis

Building & sustaining a competitive advantagerequires a company to achieve superior:

Efficiency Quality

Innovations Responsiveness to customers


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SWOT analyses help to identify strategies that align acompanys resources and capabilities to its environment in order to create and sustain a competitive advantage. Functional strategies should be consistent with and

support the companys business level and global

strategies. Functional-level strategy directed at operational effectiveness Business-level strategy businesses overall competitive themes Global strategy expand, grow and prosper at a global level Corporate-level strategy tomaximize profitability and profit growth

Selecting Strategies: SWOTAnalysis and Business Model

When taken together, the various strategiespursued by a company must lead to a

viable business model.


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Strategy ImplementationAfter choosing a set of congruent strategies to

achieve competitive advantage, managersmustput those strategies into action: Implementation and execution of the strategic plans

Design of the best organization structure Consistency of strategy with company culture

Control systems to measure and monitor progress

Governance systems for legal and ethicalcompliance

Consistency with maximizing profit and profitgrowth


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The Feedback Loop

Managers must monitor strategy execution: To determine if strategic goals and objectives are

being achieved

To evaluate to what extent competitive advantage is

being created and sustained Managers must monitor and reevaluate for

the next round of strategy formulation andimplementation

Strategic planning is ongoing.


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Emergent and Deliberate Strategies

Source: Adapted from H. Mintzberg andA. McGugh,Administrative ScienceQuarterly, Vol. 30. No. 2, June 1985.

Figure 1.7


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Intended and Emergent Strategies

Intended or Planned Strategies Strategies an organization plans to put into action

Typically the result of a formal planning process

Unrealized strategies are the result of unprecedented changesand unplanned events after the formal planning is completed

Emergent Strategies Unplanned responses to unforeseen circumstances

Serendipitous discoveries and events may emerge that can openup new unplanned opportunities

Must assess whether the emergent strategy fits the companysneeds and capabilities

Realized Strategies The product of whatever intended strategies are actually put into

action and of any emergent strategies that evolve


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Strategic Planning in Practice

Scenario Planning Recognizes that the future is inherently unpredictable

Develops strategies for possible future scenarios

Decentralized Planning Involves the functional managers

Avoids the ivory tower approach

Perceivesprocedural justice in the decision making Strategic Intent

Avoids the strategicfit model, which focuses too much on thecurrent state

Sets ambitious vision and goals that stretch a company and

then finds ways to build to attain those goals

Studies suggest that formal planning has a positiveimpact on company performance and should include thecurrent and future competitive environments.


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Strategic Decision Making

In spite of systematic planning, companies may adopt poorstrategies if groupthink or individual cognitive biases areallowed to intrude into the decision-making process.

Cognitive biases:Rules of thumb or heuristicsresulting in systematic errors

Prior hypothesis bias Escalating commitment

Reasoning by analogy

Representativeness

Illusion of control

Availability error

Groupthink: Decisionmakers embark on a course ofaction without questioning the underlying assumptions Group coalesces around a person or policy Decisions based on an emotional rather than an objective assessment

of the correct course of action


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Strategic Leadership

Vision, eloquence, and consistency Articulation of the business model

Commitment Being well informed Willingness to delegate and empower The astute use of power

Emotional intelligence: self-awareness, self-regulation, motivation, empathy, social skills

Good leaders of the strategy-making processhave a number of key attributes:

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