GARETH R. JONES /CHARLES W. L.

HILL

Theory of Strategic Management 10th ed.

Strategic Leadership:
Chapter Managing the Strategy-
Making Process for
1 Competitive Advantage

2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in Prepared by C. Douglas Cloud
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Professor Emeritus of Accounting
Pepperdine University
 DELLS MISSION STATEMENT

Dells mission is to be the most successful

computer company in the world at
delivering the best customer experience in
markets we serve.

How does Dells profitability

compare to Hewlett-Packards and
Apples profitability?

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.
 DELLS MISSION STATEMENT

Read more about Dell:

http://retailindustry.about.com/od/topusretailcompanies/p/dellincprofile.htm
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.
 Why do some organizations
succeed while others fail?
Strategy is a set of related actions that managers
take to increase their companys performance.
Strategic Leadership
Task of most effectively managing a
companys strategy-making process
Strategy Formulation
Task of determining and selecting strategies
Strategy Implementation
Task of putting strategies into action to improve a
companys efficiency and effectiveness

Competitive Advantage
Results when a companys strategies lead to
superior performance compared to competitors
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 Superior Performance and
Sustainable Competitive Advantage
Superior Performance
One companys 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 companys profitability is greater than the average of all
other companies in the same industry & competing for the same
customers
Sustainable Competitive Advantage
When a companys strategies enable it to maintain
above average profitability for a number of years
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 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.
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 Companys Business Model
Managements 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
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 Strategic Managers and Strategic
Leadership
A. General managers are responsible for
the overall performance of the
organization or for one of its major self-
contained divisions.
B. Functional managers are responsible
for specific business functions, such as
human resources, purchasing,
production, sales, customer service, and
accounts.

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 Strategic Managers and Strategic
Leadership
C. The corporate level consists of the
CEO, board of directors, and corporate
staff. The CEOs role is to define the
mission and goals of the firm, determine
what businesses the firm should be in,
allocate resources to the different
business areas of the firm, and
formulate and implement strategies that
span individual businesses.

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 Differences in Industry
and Company Performance
A Companys 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, 19972003
Figure 1.2

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
Should use their resources efficiently
and effectively
Set performance goals unique to the
organization
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
General 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 1.3

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 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 organizations internal environment
to identify its strengths and weaknesses.
Select strategies that:
Build on the organizations strengths and correct its
weaknesses in order to take advantage of external
opportunities and counter external threats
Are consistent with organizations vision, mission, and values
and major goals and objectives
Are congruent and constitute a viable business model
Implement the strategies.
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 Figure 1.4

Main
Components
of the
Strategy-
Making
Process

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 Crafting the Organizations
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 companys
raison detre, its reason for existence today.
What is it that the company does?
What is the companies 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 companys mission is best approached from
a customer-oriented business definition.
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 The Mission
Customer-Oriented Examples
The mission of Kodak is to provide customers
with the solutions they need to capture, store,
process, output, and communicate images
anywhere, anytime.

Ford Motor Company describes itself as a

company that is passionately committed to
providing personal mobility for people around
the world.We anticipate consumer need and
deliver outstanding produces and services that
improve peoples lives.
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 Abells 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.

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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 worlds

leading consumer company for automotive
products and services.

Nokia is the worlds 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 companys mission
Organizational culture
The set of values, norms, and standards that control how
employees work to achieve an organizations 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 organizations 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
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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
companys 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 companys resources and capabilities to its
environment in order to create and sustain a
competitive advantage.
Functional strategies should be consistent with and
support the companys 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
The feedback loop strategic planning is ongoing
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
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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
companys 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
Recent studies suggest that formal planning does have 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
Groupthink:
Decisionmakers embark on a course of action without
questioning the underlying assumptions
Decisions based on an emotional rather than an objective assessment
of the correct course of action

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 Processes for Improving
Decision Making
Figure 1.7

To bring out all the Reveals problems with

reasons that might definitions, assumptions,
make the proposal & recommended courses
unacceptable 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
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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