Chapter One

Strategic
Leadership:
Managing the
Strategy-
Making
Process for
Competitive
Advantage
 Why do some organizations
succeed while others fail?
Strategy is a set of related actions that managers
take to increase their company’s performance.
 Strategic Leadership
• Task of most effectively managing a
company’s strategy-making process
 Strategy Formulation
• Task of determining and selecting strategies
 Strategy Implementation
• Task of putting strategies into action to improve a
company’s efficiency and effectiveness

Competitive Advantage
Results when a company’s strategies lead to
superior performance compared to competitors
Copyright © Houghton Mifflin Company. All rights reserved. 1|2
 Superior Performance and
Sustainable Competitive Advantage
 Superior Performance
• One company’s 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) = Return On Invested Capital
• Net profit Net income after tax
ROIC = = Capital invested
Equity + Debt to creditors
 Competitive Advantage
• When a company’s profitability is greater than the average of all
other companies in the same industry & competing for the same
customers
Sustainable Competitive Advantage
When a company’s strategies enable it to maintain
above average profitability for a number of years
Copyright © Houghton Mifflin Company. All rights reserved. 1|3
 Determinants of
Shareholder Value
Figure 1.1

To increase shareholder value, managers must

pursue strategies that increase the profitability
of the company and grow the profits.
Copyright © Houghton Mifflin Company. All rights reserved. 1|4
 Company’s Business Model
Management’s model of how strategy will allow
the company to gain competitive advantage
and achieve superior profitability
A business model encompasses how the company will:
• Select its customers • Deliver those goods and
• Define and differentiate services to the market
its product offerings • Organize activities within
• Create value for its the company
customers • Configure its resources
• Acquire and keep • Achieve and sustain a
customers high level of profitability
• Produce goods or • Grow the business over
services time
Copyright © Houghton Mifflin Company. All rights reserved. 1|5
Differences in Industry
and Company Performance
A Company’s Profitability and
Profit Growth are determined
by two main factors:

The overall performance

of its industry relative
to other industries

Its relative success in its

industry as compared to the
competitors
Copyright © Houghton Mifflin Company. All rights reserved. 1|6
 Levels of Strategic Management
Figure 1.3

Copyright © Houghton Mifflin Company. All rights reserved. 1|7

 The Five Steps of the
Strategy Making Process
 Select the corporate vision, mission, and values and the
major corporate goals and objectives.
 Analyze the external competitive environment to identify
opportunities and threats.
 Analyze the organization’s internal environment to
identify its strengths and weaknesses.
 Select strategies that:
• Build on the organization’s strengths and correct its weaknesses – in
order to take advantage of external opportunities and counter external
threats
• Are consistent with organization’s vision, mission, and values and
major goals and objectives
• Are congruent and constitute a viable business model
 Implement the strategies.
strat

Copyright © Houghton Mifflin Company. All rights reserved. 1|8

 Figure 1.4 

 

Main
Components
of the 
Strategy-
Making
Process 

Copyright © Houghton Mifflin Company. All rights reserved. 1|9

  Crafting the Organization’s
Mission Statement
Provides a framework or context within
which 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 is
committed to
 Major Goals –
The measurable desired future state that an
organization attempts to realize
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 10
 The Mission
The mission is a statement of a company’s
raison d’etre, its reason for existence today.
 What is it that the company does?
 What is the company’s business?
• 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)?
A company’s mission is best approached from
a customer-oriented business definition.
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 11
 Abell’s Framework
for Defining the Business
Figure 1.5

Source: D. F. Abell, Defining the Business: The Starting Point of

Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

Copyright © Houghton Mifflin Company. All rights reserved. 1 | 12

 Values
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
to help achieve the company’s mission
 Organizational culture
• The set of values, norms, and standards that control how
employees work to achieve an organization’s mission and
goals
• Often seen as an important source of competitive advantage

In high-performance organizations, values

respect the interests of key stakeholders.
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 13
 Major Goals
A goal is a precise and measurable desired
future state that a company must realize if
it is to attain its vision or mission.
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 limited
number of key goals that help to maintain focus
3. Challenging but realistic – to provide
employees with incentive for improving
4. Specify a time period – to motivate and
inject a sense of urgency into goal attainment
Focus on long-run performance and
competitiveness.
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 14
  External Analysis
Purpose is to identify the strategic opportunities and
threats in the organization’s operating environment
that will affect how it pursues its mission.
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 • Legal • Technological
• Government • International
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 15
  Internal Analysis
Purpose is to pinpoint the strengths and weaknesses
of the organization. Strengths lead to superior
performance and weaknesses to inferior performance.
Internal analysis includes an assessment of:
 Quantity and quality of a
company’s resources and
capabilities
 Ways of building unique
skills and company-specific
or distinctive competencies
Building & sustaining a competitive advantage
requires a company to achieve superior:
• Efficiency • Innovations
• Quality • Responsiveness to customers
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 16
  Selecting Strategies: SWOT
Analysis and Business Model
 SWOT analyses help to identify strategies that align
a company’s resources and capabilities to its
environment – in order to create and sustain a
competitive advantage.
 Functional strategies should be consistent with and
support the company’s 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 – to maximize profitability and profit growth

When taken together, the various strategies

pursued by a company must lead to a
viable business model.
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 17
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
changes and unplanned events after the formal planning is
completed
 Emergent Strategies
• Unplanned responses to unforeseen circumstances
• Serendipitous discoveries and events may emerge that can
open up new unplanned opportunities
• Must assess whether the emergent strategy fits the
company’s needs and capabilities
 Realized Strategies
• The product of whatever intended strategies are actually put
into action and of any emergent strategies that evolve
Copyright © Houghton Mifflin Company. All rights reserved. 1 | 18