Chapter 2 - Strategic Leadership - Managing The Strategy Process (1) 2

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Chapter 2
Strategic Leadership: Managing the Strategy Process
Copyright © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a
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The AFI Strategy Framework
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Vision, Mission, and Values
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Vision, Mission, and Values
• Vision:
– What do we want to accomplish?
• Mission:
– How do we accomplish our goals?
• Values:
– What commitments do we make?
– What guardrails do we put in place?
– How can we act legally and ethically in
pursuit of the vision and mission?
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Key Aspects of an Effective Vision
1. Captures an organization’s aspiration
2. Identifies what it ultimately wants to

accomplish
3. Motivates employees to aim for a target
4. Leaves room for contributions
7
Why Is a Vision Important?
• Employees tend to feel part of

something bigger than themselves.
• Helps employees find meaning in
their work
• Allows employees to experience a
greater sense of purpose
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“One day, all children in this nation will have the opportunity to attain an
excellent education.”
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“One day, all children in this nation will have the opportunity to attain an
excellent education.”
This vision is:
Effective
Clear
Identifies what they ultimately want to accomplish
An inspiring target
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12
“To provide outstanding service

every day, one customer at a time”
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Mission Statements
• Describe what an organization does

– The products and services it provides
– The markets in which it competes
• Strategic Commitments:
– Actions to achieve the mission that are:
• Costly
• Long-term oriented
• Difficult to reverse.
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What is the difference

between vision and mission?
17
Mission Statements Differ from

Vision Statements
• Vision statements: what an • Mission statements: how

organization wants to the vision will be
accomplish accomplished
– Teach for America’s vision: – TFA says it will achieve its
“to attain an excellent vision by “enlisting our
education for all children” nation’s most promising
future leaders in the effort”
Your vision statement should inspire people to dream;

your mission statement should inspire them to act
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What is
19
Values
• Principles to guide behavior
• Employees at all levels can use them
• Helps deal with complexity and conflict
• Provides employees with a moral compass
Product-Oriented Vision Statements
Defines a business in terms of a good or service provided
Do you know
Smith Corona?
“Smith Corona never realized they were in the document

business, not the typewriter business. If they had
understood that, they would have moved into software.”
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Product-Oriented Vision Statements

Defines a business in terms of a good or service provided
• Example: “We are in the • Railroads:
typewriter business” – Saw themselves in the railroad
– Less flexible business
– Is not needs-based – Cars & jets: redefined long-distance
– Can lead to a myopic view transportation
– Rail companies slow to respond
“If I had listened to my
customers, I would have built
a better horse and buggy.”
Henry Ford
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Customer-Oriented Vision Statements
• Defines a business in terms of providing solutions to customer needs
– Google: “To organize the world’s information and make it universally accessible and useful.”
– Nike: “To bring inspiration and innovation to every athlete in the world.”
– Yahoo: “To make the world’s daily habits more inspiring and entertaining.”
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Visions Can Help Create Competitive Advantage
• Vision statements and firm performance can be positively associated if:
The vision is customer-oriented
Internal stakeholders help define the vision
Organizational structures align with the vision

statement
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• Merck
– Vision: “to preserve and improve human life”
– Values: “We try to never forget that medicine is for the people. It is not for profits.
The profits follow, and if we have remembered that, they have never failed to
appear.”
• Merck’s donations helped eradicate river blindness

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Vioxx
– Painkiller, claimed fewer side effects than aspirin
26
27
Received allegations of more dangerous side effects
• Merck’s reputation was damaged

– Stock fell 30%
– $27 billion in market value was lost
– Lawsuits cost the company $30
billion
28
Strategic Leadership
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What Is Strategic Leadership?
• Successful use of power and influence

• Directing the activities of others
• Pursuing an organization’s goals
• Enabling organizational competitive advantage
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Upper Echelon’s Theory
• Strong leadership:
innate abilities and
learning
• Organizational
outcomes reflect the
values of the top
management team.
– Outcomes include
strategic choices &
performance levels.
• Leadership actions reflect:
– Age, education, and career experiences
– Personal interpretations of situations
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Level 5 Leadership Pyramid

A conceptual framework of leadership progression
Exhibit 2.4
(Adapted to compare corporations and entrepreneurs)
SOURCE: Adapted from J. Collins (2001), Good to Great: Why Some Companies Make the Leap . . . And Others Don’t (New York: HarperCollins), 20.
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Corporate, Business, and Functional Strategy
Exhibit 2.5
Strategic Formulation and Implementation across Levels: Corporate, Business, and Functional Strategy
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Strategic Business Units (SBU’s)
• Standalone
• Has profit- • Receive • Implement
divisions of a
and-loss guidelines from business
larger
responsibility corporate strategy
conglomerate
headquarters
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Functions Within Each SBU

• Accounting, finance, human resources, product development, operations, manufacturing,
marketing, and customer service
• Functional managers responsible for

– Decisions and actions in a single function
– Contributing to business-level strategy
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The Strategic Management Process
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Three Approaches to Strategize for Competitive Advantage
• Strategic planning
– A formal, top-down planning approach
• Scenario planning
– A formal, top-down planning approach
• Strategy as planned emergence
– Begins with a strategic plan, less formal
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Top Down Strategic Planning
• Rational, data-driven strategy process

• Centralized strategic intelligence and decision-
making
• Top management attempts to program future
success through
– Detailed analysis of:
• Prices
• Costs
• Margins
• Market demand
• Head count
• Production runs
– Five year plans and correlated budgets
– Performance monitoring
38
AFI Framework for

Top-Down Strategic Planning
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Shortcomings of the Top-Down Approach
• May not adapt well to change

• Formulation separate from
implementation
• Information flows top-down (one-
way)
• The leaders’ future vision can be
wrong
• Example: Apple
– Steve Jobs predicted customers
needs
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Scenario Planning
• Uses a top-down approach

• Asks “what if” questions
– Top management envisions different scenarios.
– Then they derive strategic responses.
• Consider optimistic and pessimistic
futures
• Examples:
– New laws restrict carbon emissions
– Demographic shifts
– Changing economic conditions
– Technological advances
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AFI Framework for Scenario Planning

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Formulation & Implementation Using Scenario

Planning
• Formulation Stage
– Identify strategic options.
– Develop contingency plans.
– Use analytical tools.
– Build future options.
• Implementation Stage
– Execute dominant strategic plan.
• The option that best matches the current reality
• Modifications made as needed
– Determine if alternate scenario should be used
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Strategy as Planned Emergence
• Top Down and Bottom Up

– Bottom-up strategic initiatives
emerge
– Evaluated & coordinated by
management
• Relies on data, plus:
– Personal experience
– Deep domain expertise
– Front line employee insights
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AFI Framework for Planned Emergence

45
forced to adjust strategies

to stay alive
When these guys come…
– Circuit City and Radio Shack

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Key Points About Strategy
• Intended strategy
– The outcome of a rational and structured top-down strategic plan
• Realized strategy
– Combination of intended and emergent strategy
• Emergent strategy
– Any unplanned strategic initiative
– Bubbles up from the bottom of the organization
– Can influence and shape a firm’s overall strategy
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Strategic Initiatives
• Any activity a firm pursues to explore and develop

– New products and processes
– New markets
– New ventures
• Can bubble up from deep within a firm through:
– Autonomous actions
– Serendipity
– Resource-allocation process (RAP)
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Autonomous Actions, Serendipity, and the Resource Allocation

Process (RAP)
• Autonomous actions
– Strategic initiatives undertaken by employees
– In response to unexpected external or internal opportunities
• Serendipity
– Random events, surprises, coincidences
– Has an effect on strategic initiatives
• Resource-allocation process (RAP)
– How a firm allocates resources based on policy
– Helps shape realized strategy
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Google employs a 70-20-10

rule when organizing the
work of its engineers:
• 70% is focused on its main business (search and ads)

• 20% is spent on ideas of their own choosing
• 10% is devoted to total wild cards (e.g., driverless car)
Google reports that half

of its new products came
from the 20 percent rule
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• Diana – Starbucks manager in

California
– Received requests for iced
beverage
– Tried the beverage, and liked it
• Requested Starbucks HQ
offer the drink
– Request denied
– She did it anyway
• Sales skyrocketed
– Was eventually adopted by
Starbucks Execs
• This is now the Starbucks
Frappuccino
– At one point, was 20% of
Starbucks revenues
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Strategy Smart Videos
52

1 of 5
• PepsiCo Chairman and CEO Indra Nooyi

• PepsiCo’s Performance with Purpose Overview
• Link:
– http://www.pepsico.com/purpose
• 2:41 Minutes
53

2 of 5
• Teach for America (TFA)

• This is the story / background on TFA
• Link:
– https://www.youtube.com/watch?v=9J7wqVJCFYw&f
eature=c4-overview-
vl&list=PLu9bhgTe3LY35_yYOgGW3kSyIMdiLmcuH
• 5:56 Minutes
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3 of 5
• Hilton Worldwide
• Vision, Mission, Values
• Link:
– https://www.youtube.com/watch?v=LKgGdnz0658
• 2:26 Minutes
55

4 of 5
• Jim Collins
• From Good to Great: What Defines a Level V
Leader?
• Link:
– https://www.youtube.com/watch?v=q-KyQ90XByY
• 2:34 Minutes
56

5 of 5
• Marissa Mayer
• What's Next for Yahoo in Two Minutes
• Link:
– https://www.youtube.com/watch?v=h3PqYDueBm8
• 2:08 minutes

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1

The AFI Strategy Framework

Vision, Mission, and Values

Vision, Mission, and Values

Key Aspects of an Effective Vision

1. Captures an organization’s aspiration

2. Identifies what it ultimately wants to

3. Motivates employees to aim for a target

4. Leaves room for contributions

Why Is a Vision Important?

• Employees tend to feel part of

“To provide outstanding service

• Describe what an organization does

What is the difference

Mission Statements Differ from

• Vision statements: what an • Mission statements: how

Your vision statement should inspire people to dream;

• Employees at all levels can use them

• Helps deal with complexity and conflict

• Provides employees with a moral compass

“Smith Corona never realized they were in the document

Product-Oriented Vision Statements

Customer-Oriented Vision Statements

• Defines a business in terms of providing solutions to customer needs

Visions Can Help Create Competitive Advantage

• Vision statements and firm performance can be positively associated if:

The vision is customer-oriented

Internal stakeholders help define the vision

Organizational structures align with the vision

• Merck’s donations helped eradicate river blindness

Received allegations of more dangerous side effects

• Merck’s reputation was damaged

What Is Strategic Leadership?

• Successful use of power and influence

Upper Echelon’s Theory

Level 5 Leadership Pyramid

Corporate, Business, and Functional Strategy

Strategic Business Units (SBU’s)

Functions Within Each SBU

• Functional managers responsible for

The Strategic Management Process

Three Approaches to Strategize for Competitive Advantage

Top Down Strategic Planning

• Rational, data-driven strategy process

AFI Framework for

Shortcomings of the Top-Down Approach

• May not adapt well to change

• Uses a top-down approach

AFI Framework for Scenario Planning

Formulation & Implementation Using Scenario

Strategy as Planned Emergence

• Top Down and Bottom Up

AFI Framework for Planned Emergence

forced to adjust strategies

When these guys come…

– Circuit City and Radio Shack

Key Points About Strategy

• Any activity a firm pursues to explore and develop

Autonomous Actions, Serendipity, and the Resource Allocation

Google employs a 70-20-10

• 70% is focused on its main business (search and ads)

Google reports that half

• Diana – Starbucks manager in