Chapter Outline:

 Strategic Leadership, Competitive

Advantage, 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 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
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 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 its services to the market
product offerings • Organize activities within
• Create value for its the company
customers • Configure its resources
• Acquire and keep • Achieve and sustain a high
customers level of profitability
• Produce goods or services • Grow the business over
• Lower costs time
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 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
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 Return on Invested Capital
in Selected Industries, 2002–2006
Figure 1.3

Data Source: Value Line Investment Survey

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 Performance in Nonprofit Enterprises
Nonprofit entities such as government
agencies, universities, and charities:
• Are not in business to make a profit
• BUT…still need to use their resources
efficiently and effectively
• Must meet goals
• Set strategies to achieve goals and compete
with other nonprofits for scarce resources

A successful strategy gives potential

donors a compelling message as to
why they should contribute.
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 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,
or divisional performance
 Functional-Managers
• Responsible for supervising a particular task or
operation (e.g. marketing, operations, accounting,
human resources)

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 Levels of Strategic Management
Figure 1.4

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 The Five Steps of the
Strategy Making Process
 Select the corporate mission and the major
corporate goals.
 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 mission and major goals
• Are congruent and constitute a viable business model
 Implement the strategies.
strat

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 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
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 The Mission
The mission is a statement of a company’s
reason for existence today.
 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)?

A company’s mission is best approached from

a customer-oriented business definition.
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 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.

The vision of Ford is “to become the world’s

leading consumer company for automotive
products and services.”

Nokia is the world’s largest manufacturer of

mobile phones and operates with a simple but
powerful vision: “If it can go mobile, it will!”
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 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.
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 Values at Nucor

 “Management is obligated to manage Nucor in such a

way that employees will have the opportunity to earn
according to their productivity.”
 “Employees should be able to feel confident that if
they do their jobs properly, they will have a job
tomorrow.”
 “Employees have the right to be treated fairly and
must believe that they will be.”
 “Employees must have an avenue of appeal when
they believe they are being treated unfairly.”
At Nucor, values emphasizing pay for performance, job
security, and fair treatment for employees help to create
an atmosphere that leads to high employee productivity.
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 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.
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  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
• Governmental • International • Macroeconomic
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  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
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  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.
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  Strategy Implementation
 After choosing a set of congruent strategies to
achieve competitive advantage, managers
must put 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 ethical
compliance
• Consistency with maximizing profit and profit
growth

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 ⑥The 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 and
implementation

Strategic planning is ongoing.

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 Emergent and Deliberate Strategies
Figure 1.7

Source: Adapted from H. Mintzberg and

A. McGugh, Administrative Science
Quarterly, Vol. 30. No. 2, June 1985.

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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
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
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 Strategic Planning in Practice
Studies suggest that formal planning has a positive
impact on company performance – and should include
the current and future competitive environments.
 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
• Perceives procedural justice in the decision making
 Strategic Intent
• Avoids the strategic fit model, which focuses too much on the
current state
• Sets ambitious vision and goals that stretch a company and then
finds ways to build to attain those goals
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 Strategic Decision Making
In spite of systematic planning, companies may adopt poor
strategies if groupthink or individual cognitive biases are
allowed to intrude into the decision-making process.
 Cognitive biases: Rules of thumb or heuristics
resulting in systematic errors
• Prior hypothesis bias
• Escalating commitment
• Reasoning by analogy
• Representativeness
• Illusion of control
• Availability error
 Groupthink: Decisionmakers embark on a course of
action 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
Good leaders of the strategy-making process
have a number of key attributes:
 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

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 “The essence of strategy lies in
creating tomorrow’s competitive
advantage faster than competitors
mimic the ones you possess today.”

- Gary Hamel &

C. K. Prahalad

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