CHAPTER 1

STRATEGIC LEADERSHIP: MANAGING THE STRATEGYMAKING PROCESS FOR COMPETITIVE ADVANTAGE

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LEARNING OBJECTIVES
Explain what is meant by competitive
advantage.
Discuss the strategic role of managers
at different levels within the
organization.
Identify the primary steps in a strategic
planning process.
Discuss the common pitfalls of planning
and how those pitfalls can be avoided.
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LEARNING OBJECTIVES
Outline the cognitive biases that might
lead to poor strategic decisions, and
explain how these biases can be
overcome.
Discuss the role strategy leaders play
in the strategy-making process.

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STRATEGY
Set of related actions that managers
take to increase their companys
performance.
Strategic leadership - Creating
competitive advantage through
effective management of the strategymaking process.
Strategy formulation - Selecting
strategies based on analysis of an
organizations external and internal
environment.
Strategy implementation - Putting

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SUPERIOR PERFORMANCE
Risk capital - Equity capital for which
there is no guarantee that stockholders
will:
recoup their investment.
earn a decent return.

Shareholder value - The returns that

shareholders earn from purchasing
shares in a company.
Sources
Capital appreciation in the value of a companys
shares
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All Rights Reserved.
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Dividend
payments

SUPERIOR PERFORMANCE
Profitability - The return a company
makes on the capital invested in the
enterprise.
Return on invested capital (ROIC) - Net profit
over the capital invested in a firm.
Result of how efficiently the capital is used
to satisfy customer needs.

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SUPERIOR PERFORMANCE
Profit growth - The increase in net profit over
time, achieved by:

selling products in rapidly growing markets.

gaining market share from rivals.
selling more to existing customers.
expanding overseas or diversifying into new
businesses.

To boost profitability and profit growth,

managers must:
use strategies to give their company a competitive
advantage over rivals.
deliver high profitability and sustainable profit growth.
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COMPETITIVE ADVANTAGE
Occurs when a companys profitability
is greater than the average profitability
of firms in its industry.
Sustained competitive advantage
A companys strategies that enable it
to maintain above-average profitability
for a number of years.

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BUSINESS MODEL
Conception of how strategies should
work together as a whole to enable the
company to achieve competitive
advantage.
Deals with how a company:
selects, acquires, and keeps its customers.
defines and differentiates its product
offerings.
creates value for its customers.
produces goods or services and delivers to
the market.

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STRATEGIC MANAGEMENT
General managers
Bear responsibility for a companys overall
performance or for one of its major selfcontained subunits or divisions.
Functional managers
Responsible for supervising a particular function,
task, activity, or operation.
Multidivisional company
Competes in several different businesses and has
a separate self-contained division to manage
each.
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CORPORATE-LEVEL MANAGERS
Oversee the development of strategies for
the entire organization.
Provide a link between people concerned
with the firms strategic development and
the shareholders.
Ensure that business strategies pursued
by the company are consistent with
maximizing profitability and profit growth.

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BUSINESS-LEVEL MANAGERS
Heads of business units
Business unit is a self-contained division that
provides a product or service for a particular
market.

Translate statements of intents into

concrete strategies for individual
businesses.
Are concerned with strategies specific
to a particular business.

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FUNCTIONAL- LEVEL
MANAGERS
Responsible for specific business
functions.
Develop functional strategies to fulfill
the strategic objectives set by
business- and corporate-level general
managers.
Provide information that helps
formulate realistic and attainable
strategies.
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STEPS IN A FORMAL STRATEGIC

PLANNING PROCESS
Select the corporate mission and goals.
Analyze the organizations external
competitive environment and internal
operating environment.
Select strategies that:
build on the organizations strengths and correct
its weaknesses.
are consistent with the organizations mission and
goals.
are congruent and constitute a viable business
model.

Implement the strategies

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2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

COMPONENTS OF A MISSION
STATEMENT
Mission
Purpose of the company, or a statement of what the
company strives to do.
Vision
Articulation of a companys desired achievements or
future state.
Values
Statement of how employees should conduct themselves
and their business to help achieve the company mission.
Establishing major goals
Goal - Precise and measurable desired future state that a
company attempts to realize.
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EXTERNAL AND INTERNAL

ANALYSIS
External analysis identifies strategic
opportunities and threats that will affect
how an organization pursues its
mission.
Involves examination of the:
industry environment in which the company
operates.
country or national environment.
macroenvironment.

Internal analysis focuses on reviewing

the resources, capabilities, and
competencies of a company.

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SWOT ANALYSIS
Comparison of strengths, weaknesses,
opportunities, and threats.
Purpose - Identify the strategies to:
exploit external opportunities.
build on and protect company strengths.
eradicate weaknesses and counter threats.

Goals - Affirm a company-specific

business model.
To align, fit, or match a companys resources
and capabilities to the demands of its
environment.
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SWOT STRATEGIES
Functional-level strategies Directed at improving the effectiveness
of operations within a company.
Business-level strategies Encompass the businesss overall
competitive theme.
How it positions itself in the marketplace to
gain a competitive advantage.
Different position strategies that can be
used in different industry settings.
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SWOT STRATEGIES
Global strategies - address how to
expand operations outside the home
country.
Since competitive advantage is determined
at a global level.

Corporate-level strategies
determine:
the businesses a company should be in to
maximize profitability and profit growth.
how to gain a competitive edge.
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STRATEGY IMPLEMENTATION
AND FEEDBACK LOOP
Strategy implementation
Taking action at the functional, business, and
corporate levels to execute a strategic plan.
Designing the best organization structure,
culture, and control systems to put a chosen
strategy into action.

Feedback loop - Provides information

to the corporate level on the:
strategic goals that are being achieved.
degree of competitive advantage being
created and sustained.
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CRITICISMS OF FORMAL
PLANNING MODELS
Unforeseen circumstances can
adversely affect strategic plans.
Excessive importance is attached to
the role of top management.
While ignoring lower-level managers.

Many successful strategies are a result

of serendipity rather than strategic
planning.

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SCENARIO PLANNING
Formulating plans that are based on
what-if scenarios about the future.
Encourages managers to:
think outside the box and be more flexible.
anticipate probable scenarios.

Ivory tower planning - Recognizes

that successful strategic planning
encompasses managers at all levels of
the corporation.
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COGNITIVE BIASES AND

STRATEGIC DECISION MAKING
Cognitive biases
Systematic errors in human decision making.
Arise from the way people process information.

Prior hypothesis bias

Decisions are made based on prior beliefs, even
when evidence proves that those beliefs are wrong.
Escalating commitment
Decision makers, having committed significant resources
to a project, commit even more, despite receiving
feedback that the project is failing.

Reasoning analogy

Use of simple analogies to make sense out of a

complex problem.
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COGNITIVE BIASES AND

STRATEGIC DECISION MAKING
Representativeness
Tendency to generalize from a small sample or a
single vivid anecdote.
Violates the statistical law of large numbers.
Illusion of control
Tendency to overestimates ones ability to control
events.
General or top managers are more prone to this.
Availability error
Arises from our predisposition to estimate the
probability of an outcome based on how easy it is
to imagine it.
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TECHNIQUES FOR IMPROVING

DECISION MAKING
Devils advocacy
A member of a decision-making team identifies all the
considerations that might make a proposal
unacceptable.
Possible perils of recommended courses of action are
brought into light.

Dialectic inquiry
Generation of a plan and a counter-plan that reflect
plausible but conflicting courses of action.
Promotes strategic thinking.

Outside view
Identification of past successful or failed strategic
initiatives to determine if they will work for the current
project.
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CHARACTERISTICS OF GOOD
STRATEGIC LEADERS

Vision, eloquence, and consistency

Articulation of a business model
Commitment
Being well informed
Willingness to delegate and empower
Astute use of power
Emotional intelligence
Self-awareness, self-regulation, and
motivation
Empathy and social skills

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