Chapter 1 STRATEGIC LEADERSHIP: MANAGING THE STRATEGY- MAKING PROCESS FOR COMPETITIVE ADVANTAGE

2010 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. 1-2 Learning Objectives Explain “competitive advantage”Explain “competitive advantage” Discuss strategic role of managers at different levels of organizationDiscuss strategic role of managers at different levels of organization Identify steps in strategic planning processIdentify steps in strategic planning process Discuss pitfalls of planning and how they can be avoidedDiscuss pitfalls of planning and how they can be avoided Identify cognitive biases that lead to poor strategic decisions & explain how they can be avoidedIdentify cognitive biases that lead to poor strategic decisions & explain how they can be avoided Discuss role of strategic leaders in the strategy-making processDiscuss role of strategic leaders in the strategy-making process

2010 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. 1-3 “If you don’t have a strategy you will be... part of somebody else’s strategy.” - Alvin Toffler

2010 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. 1-4 Profitability of Walmart & Competitors Figure 1.1

2010 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. 1-5 Why do some organizations succeed while others fail? o Strategic Leadership- Effectively managing a company’s strategy-making process o Strategy Formulation- Determining & selecting strategies o Strategy Implementation- Putting strategies into action to improve company’s efficiency & effectiveness Strategy- a set of related actions managers take to increase company’s performance.

2010 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. 1-6 Determinants of Shareholder Value To increase shareholder value, managers must pursue strategies that increase the profitability of the company and grow the profits. Figure 1.2

2010 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. 1-7 Superior Performance Superior Performance “Maximizing shareholder value is the ultimate goal of profit making companies…”

2010 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. 1-8 Competitive Advantage “…results when a company’s strategies lead to superior performance compared to competitors

2010 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. 1-9 Sustained Competitive Advantage “A company’s… strategies enable it to maintain above average profitability for a number of years.”

2010 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 Encompasses how the company will: Company’s Business Model “…a conception of how a set of strategies…mesh… (to) allow… company to gain competitive advantage and achieve superior profitability… Select customersSelect customers Define/differentiate product offeringsDefine/differentiate product offerings Create value for customersCreate value for customers Acquire/keep customersAcquire/keep customers Produce goods/servicesProduce goods/services Lower costsLower costs Deliver goods/services to marketDeliver goods/services to market Organize activities within companyOrganize activities within company Configure its resourcesConfigure its resources Achieve/sustain a high profitabilityAchieve/sustain a high profitability Grow business over timeGrow business over time

2010 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 Differences in Industry Performance Profitability/Profit Growth: Profitability/Profit Growth:  Overall performance of industry relative to other industries  Company’s relative success in industry compared to competitors

2010 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 ROI in Selected Industries (2004–2008) Figure 1.3

2010 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 Performance in Nonprofit Enterprises Nonprofit entities= government agencies, universities, charities: Nonprofit entities= government agencies, universities, charities: oNot in business to make a profit oStill need to use resources efficiently & effectively oMust meet goals oSet strategies to achieve goals and compete with other nonprofits for scarce resources

2010 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 “A successful strategy gives potential donors a compelling message about why they should contribute.”

2010 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 Strategic Managers oCorporate-Level Managers oOversee development of strategies for whole organization oCEO is principle general manager who consults with other senior executives oBusiness-Level Managers oResponsible for business unit that provides product/service to particular market oFunctional-Managers oSupervise particular function/operation (e.g. marketing, operations, accounting, human resources)

2010 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 Levels of Strategic Management Figure 1.4

2010 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 Strategy-Making Process  Select corporate mission & major corporate goals.  Analyze external competitive environment to identify opportunities/threats. Analyze organization’s internal environment to identify strengths/weaknesses. Analyze organization’s internal environment to identify strengths/weaknesses.  Select strategies that: Build on organization’s strengths and correct weaknesses– to take advantage of external opportunities & counter external threatsBuild on organization’s strengths and correct weaknesses– to take advantage of external opportunities & counter external threats Are consistent with organization’s mission and major goalsAre consistent with organization’s mission and major goals Are congruent and constitute a viable business modelAre congruent and constitute a viable business model  Implement the strategies.

2010 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 Strategy Formulation & Implementation Figure 1.5

2010 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  Mission Statement Provides framework within which strategies are formulated: oMission – Reason for existence – what an organization does oVision – Some desired future state oValues – Key values an organization is committed to oMajor Goals – Measurable desired future state an organization attempts to realize

2010 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 The Mission o What is it 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.

2010 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 Defining the Business Figure 1.6 Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.

2010 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 The Vision What would company like to achieve? A good vision is meant to stretch a company by articulating an ambitious but attainable future state. 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!”

2010 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 Values oHow managers and employees should conduct themselves oHow they should do business oWhat kind of organization they need to build to help achieve company’s mission oOrganizational culture Set of values, norms, and standards that control how employees work to achieve organization’s mission and goalsSet of values, norms, and standards that control how employees work to achieve organization’s mission and goals Often seen as an important source of competitive advantageOften seen as an important source of competitive advantage

2010 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 In high-performance organizations, values respect the interests of key stakeholders.

2010 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 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.”

2010 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 Well-constructed goals: 1.Precise and measurable– provide yardstick or standard to judge performance 2.Address crucial issues– a limited number of key goals helps maintain focus 3.Challenging but realistic– provide employees with incentive for improving 4.Specify time period– motivates/injects sense of urgency into goal attainment Major Goals Goal - precise/measurable desired future state a company attempts to realize.

2010 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  External Analysis Identifies strategic opportunities & threats in organization’s operating environment that will affect how it pursues its mission.

2010 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 Requires assessment of: oIndustry environment oCompetitive structure of industry oCompetitive position of the company oCompetitiveness and position of major rivals oCountry/national environments in which company competes oWider socioeconomic/macroenvironment that may affect company and its industry SocialSocial GovernmentalGovernmental Legal Legal International International Technological Technological External Analysis

2010 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 Includes review of: Company’s resources & capabilities Company’s resources & capabilities Company-specific competencies Company-specific competencies Strengths= superior performance Weaknesses= inferior performance.  Internal Analysis

2010 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 oSWOT analyses identifies strategies that align company resources/capabilities to environment to create/sustain competitive advantage. oFunctional strategies should be consistent with & support company business level/global strategies. oFunctional-level strategy – directed at operational effectiveness oBusiness-level strategy – overall competitive theme oGlobal strategy – expand/grow/prosper at global level oCorporate-level strategy – maximize profitability & profit growth  SWOT Analysis and Business Model

2010 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  Strategy Implementation Managers put strategies into action: oImplementation/execution of strategic plans oDesign best organization structure, culture, control systems oGovernance system for legal/ethical compliance oConsistency with maximizing profit & profit growth

2010 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 ⑥ The Feedback Loop  Monitor strategy execution: Determine strategic goals/objectives being achieved Determine strategic goals/objectives being achieved Evaluate competitive advantage is being created & sustained Evaluate competitive advantage is being created & sustained  Monitor/reevaluate for the next round of strategy formulation/implementation Strategic planning is ongoing.

2010 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 Criticisms of Formal Planning Model 1)Unpredictability of real world 2)Role lower-level managers can play 3)Many strategies result of serendipity

2010 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 Intended & Emergent Strategies oIntended/Planned Strategies oStrategies organization plans to implement oResult of formal planning process oUnrealized strategies are unprecedented changes & unplanned events after formal planning complete oEmergent Strategies oUnplanned responses to unforeseen circumstances oSerendipitous discoveries/events emerge that open up unplanned opportunities oAssess emergent strategy fits needs & capabilities oRealized Strategies oIntended strategies put into action & emergent strategies evolve

2010 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 Emergent & Deliberate Strategies Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June Figure 1.7

2010 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 Strategic Planning in Practice o Scenario Planning Recognizes the future unpredictableRecognizes the future unpredictable Develops strategies for future scenariosDevelops strategies for future scenarios o Decentralized Planning- Functional managers Avoids ivory tower approachAvoids ivory tower approach Corporate-level planners = facilitatorsCorporate-level planners = facilitators Formal planning has positive impact on performance- should include current/future competitive environments.

2010 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 Scenario Planning Data Source: Value Line Investment Survey Figure 1.8

2010 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 Strategic Decision Making Companies may adopt poor strategies if groupthink or individual cognitive biases allowed to intrude into decision-making process. Companies may adopt poor strategies if groupthink or individual cognitive biases allowed to intrude into decision-making process.  Cognitive biases: Rules of thumb result in errors  Groupthink: Decision makers embark on course of action without questioning underlying assumptions

2010 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 Strategic Leadership  Vision, eloquence, and consistency  Articulation of business model  Commitment  Well informed  Willing to delegate or empower  Astute use of power  Emotional intelligence Good leaders of strategy-making process have key attributes:

2010 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 “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