Charles W. L. Hill / Gareth R. Jones

CHARLES W. L. HILL / GARETH R.
JONES
Strategic
StrategicManagement
Management An
AnIntegrated
IntegratedApproach
Approach10th
10thed.
ed.
Chapter Strategic
Strategic Leadership:
Leadership:
Managing
Managing the
the Strategy-
1 Making
Making Process
Strategy-
Process for
Competitive
for
CompetitiveAdvantage
Advantage
Student Version
© 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.
Prepared
Prepared by
by C.
C. Douglas
Douglas Cloud
Cloud ,, Professor
Professor Emeritus
Emeritus of
of Accounting,
Accounting, Pepperdine
Pepperdine University
University
OVERVIEW
OVERVIEW
 A strategy is a set of related actions that

managers take to increase their company’s
performance.
 Strategic leadership is how to most
effectively manage a company’s strategy-
making process to create competitive
advantage.
Learning
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter you
you
should
should be
be able
able to
to explain
explain what
what is
is meant
meant byby
“competitive
“competitive advantage.”
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.
SUPERIOR
SUPERIOR PERFORMANCE
PERFORMANCE
 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
SUPERIOR PERFORMANCE
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 sum of
money invested
 The profit growth of a company can be
measured by the increase in inthe
netbusiness
profit over
time.
 Together, profitability and profit growth are the
Net income
principal drivers of shareholder value.
after taxes
Learning
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter you
you
should
should be
be able
able to
to discuss
discuss the
the strategic
strategic role
role of
of
managers
managers atat different
different levels
levels within
within the
the organization.
organization.
PRIMARY
PRIMARY TYPES
TYPES OF
OF MANAGERS
MANAGERS
The general manager

bears the responsibility The functional manager
for the overall is responsible for
performance of the supervising a particular
company or for one of its function, task, activity, or
major self-contained operation.
subunits or divisions.
LEVELS
LEVELS OF
OF STRATEGIC
STRATEGIC MANAGEMENT
MANAGEMENT
 Corporate-Level Managers
 Oversee development of strategies for whole organization
 CEO is principle general manager who consults with other
senior executives
 Business-Level Managers
 Responsible for business unit that provides product/service to
particular market
 Functional-Managers
 Supervise particular function/operation (e.g. marketing,
operations, accounting, human resources)
Learning
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter youyou
should
should be
be able
able to
to identify
identify the
the primary
primary steps
steps in
in aa
strategic
strategic planning
planning process.
process.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
1. Select the corporate mission and major corporate
goals.
2. Analyze the organization’s external competitive
environment to identify opportunities and threats.
3. Analyze the organization’s internal operating
environment to identify the organization’s
strengths and weaknesses.
(continued)
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
4. Select strategies that build on the organization’s

strengths and corrects its weaknesses in order to
take advantage of external opportunities and
counter external threats.
5. Implement the strategies.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
The
The Mission
Mission Statement
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.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
The
The Mission
Mission Statement
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.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
External
External Analysis
Analysis
 The essential purpose of the external analysis is
to identify strategic opportunities and threats
within the organization’s operating environment
that will affect how it pursues its mission.
 Analyzing the industry environment requires an
assessment of the competitive structure of the
company’s industry, including the competitive
position of the company and its major rivals.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Analysis
Analysis and
and the
the Business
Business Model
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
company’s resources and capabilities to the
demands of the environment in which it operates.
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Strategies
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.
(continued)
STRATEGY
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
SWOT
SWOT Strategies
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
STRATEGY PLANNING
PLANNING PROCESS
PROCESS
Strategy
Strategy Implementation
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.
Learning
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter youyou
should
should be
be able
able to
to discuss
discuss the
the common
common pitfalls
pitfalls of
of
planning
planning and
and how
how those
those pitfalls
pitfalls can
can be
be avoided.
avoided.
Criticisms
Criticisms of
of Formal
Formal Planning
Planning Models
Models
 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
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter you
you
should
should be
be able
able to
to outline
outline the
the cognitive
cognitive biases
biases that
that
might
might lead
lead to
to poor
poor strategic
strategic decisions,
decisions, and
and explain
explain
how
how these
these biases
biases can
can be
be overcome.
overcome.
Scenario
Scenario Planning
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
STRATEGY DECISION
DECISION MAKING
MAKING
Cognitive
Cognitive Biases
Biases and
and Strategic
Strategic Decision
Decision Making
Making
 The rationality of decision-making is bound by one’s
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
Cognitive Biases
Biases and
and Strategic
Strategic Decision
Decision Making
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 one’s ability to control events.
Techniques
Techniques for
for Improving
Improving Decision
Decision Making
Making
 Devil’s 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
Learning Objective:
Objective: After
After reading
reading this
this chapter
chapter you
you
should
should be be able
able to
to discuss
discuss the
the role
role strategy
strategy leaders
leaders
play
play in
in the
the strategy-making
strategy-making process.
process.
Characteristics
Characteristics of
of Good
Good Strategic
Strategic Leaders
Leaders
1) Vision, Eloquence, and Consistency
a) A strong leader gives an organization a sense of
direction.
b) Examples: Winston Churchill, Martin Luther King, Sam
Walton
2) Articulation of a Business Model
a) Knowing how the various strategies that the company
pursues fit together.
b) Examples: Michael Dell (Dell, Inc.), Steve Jobs (Apple)
Characteristics
Characteristics of
of Good
Good Strategic
Strategic Leaders
Leaders
3) Commitment
a) A strong leader demonstrates his or her
commitment to a vision and business model with
action and words.
b) Example: Ken Iverson (Nucor)
4) Being Well Informed
a) Effective leaders develop a network of formal and
informal sources who to keep them well informed
about what is going on within their company.
b) Example: Jim Donald (Starbucks)
Characteristics
Characteristics of
of Good
Good Strategic
Strategic Leaders
Leaders
5) Willingness to Delegate and Empower

a) Avoids being overloaded with responsibilities.
b) Understands that delegation is a good motivational
tool.
6) The Astute Use of Power
a) Power comes from control over resources that are
important to the organization: budgets, capital,
positions, information, and knowledge.
b) Politically astute managers use these resources to
critically place allies who can help them attain their
strategic objectives.
Characteristics
Characteristics of
of Good
Good Strategic
Strategic Leaders
Leaders
7) Emotional Intelligence
a) Self-awareness—the ability to understand one’s
own moods, emotions, and drives.
b) Self-regulation—the ability to control or redirect
disruptive impulses or moods.
c) Motivation—a passion for work that goes beyond
money or status.
d) Empathy—the ability to understand the feelings and
viewpoints of subordinates.
e) Social skills—friendliness with a purpose.

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CHARLES W. L. HILL / GARETH R.

 A strategy is a set of related actions that

 Risk capital is capital that cannot be

The general manager

4. Select strategies that build on the organization’s

 Scenario planning involves formulation plans that

 Escalating commitment occurs when decision

5) Willingness to Delegate and Empower

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