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

2. Profitability of Walmart & Competitors
Figure 1.1
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3. Why do some organizations succeed while others fail?
Strategy- a set of related actions managers take to increase company’s performance.
Strategic Leadership- Effectively managing a company’s strategy-making process
Strategy Formulation- Determining & selecting strategies
Strategy Implementation- Putting strategies into action to improve company’s efficiency & effectiveness
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4. Determinants of Shareholder Value
Figure 1.2
To increase shareholder value, managers must pursue strategies that increase the profitability of the company and grow the profits.
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5. Superior Performance
“Maximizing shareholder value is the ultimate goal of profit making companies…”
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6. Differences in Industry Performance
Profitability/Profit Growth:
Overall performance of industry relative to other industries
Company’s relative success in industry compared to competitors
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7. ROI in Selected Industries (2004–2008)
Figure 1.3
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8. Performance in Nonprofit Enterprises
Nonprofit entities= government agencies, universities, charities:
Not in business to make a profit
Still need to use resources efficiently & effectively
Must meet goals
Set strategies to achieve goals and compete with other nonprofits for scarce resources
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9. “A successful strategy gives potential donors a compelling message about why they should contribute.”
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10. Strategic Managers Corporate-Level Managers Business-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)
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11. Levels of Strategic Management
Figure 1.4
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12. 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.
Select strategies that:
Build on organization’s strengths and correct weaknesses– to take advantage of external opportunities & counter external threats
Are consistent with organization’s mission and major goals
Are congruent and constitute a viable business model
Implement the strategies.
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13. Strategy Formulation & Implementation
Figure 1.5
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14. Criticisms of Formal Planning Model
Unpredictability of real world
Role lower-level managers can play
Many strategies result of serendipity
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15. Intended & Emergent Strategies
Intended/Planned Strategies
Strategies organization plans to implement
Result of formal planning process
Unrealized strategies are unprecedented changes & unplanned events after formal planning complete
Emergent Strategies
Unplanned responses to unforeseen circumstances
Serendipitous discoveries/events emerge that open up unplanned opportunities
Assess emergent strategy fits needs & capabilities
Realized Strategies
Intended strategies put into action & emergent strategies evolve
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16. Emergent & 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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17. Strategic Planning in Practice
Formal planning has positive impact on performance-should include current/future competitive environments.
Scenario Planning
Recognizes the future unpredictable
Develops strategies for future scenarios
Decentralized Planning- Functional managers
Avoids ivory tower approach
Corporate-level planners = facilitators
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18. Strategic Decision Making
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
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19. EXTERNAL ANALYSIS: THE IDENTIFICATION OF OPPORTUNITIES AND THREATS
Chapter 2
EXTERNAL ANALYSIS: THE IDENTIFICATION OF OPPORTUNITIES AND THREATS

20. Industry
“…a group of companies offering products or services that are close substitutes for each other… that satisfy the same basic customer need.”
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21. “…a group of closely related industries.”
Sector
“…a group of closely related industries.”
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22. The Computer Sector: Industries and Segments
Figure 2.1
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23. Market Segments
“…distinct groups of customers within a market that can be differentiated from each other on the basis of their distinct attributes and specific demands..”
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24. Porter’s Five Forces Model
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25. How the Five Forces Shape Competition
“…the stronger each of these five forces is, the more limited is the ability of established companies to raise prices and earn greater profits.”
Weak competitive force- viewed as an opportunity as it allows company to earn greater profits
Strong competitive force- viewed as a threat as it depresses industry profits
Strength of forces may change as industry conditions change
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26. Risk of Entry by Potential Competitors
“…companies… not currently competing in an industry but have the capability to do so...” Barriers include:
Economies of Scale – unit costs fall
Cost reductions
Bulk purchase discounts
Cost savings
Brand Loyalty = creating customer preferences
Absolute Cost Advantages v. New Entrants
Experience, patents, processes
Control of production inputs
Lower financial risks
Customer Switching Costs
Government Regulation
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27. Rivalry Among Established Companies
“…competitive struggle between companies in same industry to gain market share...” Function of:
Industry Competitive Structure- Number/size of companies, consolidated vs. fragmented
Industry Demand Conditions
Growing demand – reduces rivalry
Declining demand – encourages rivalry
Cost Conditions
High fixed costs – profitability leveraged by volume
Slow demand/growth – intense rivalry/lower profits
Exit Barriers
Write-off assets
Economic dependence
Maintain assets
High fixed cost
Emotional attachment
Bankruptcy regulations
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28. Bargaining Power of Buyers
“…consumers/end-users who…use product or intermediaries that distribute or retail the products.” Buyers most powerful when:
Suppliers = many small companies, buyers large/few
Purchase in large quantities
Suppliers depend on buyers for large % of orders
Buyers switching costs are low
Buyer can purchase from several
Buyers supply own needs
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29. Bargaining Power of Suppliers
“…provide inputs… in the industry.” Suppliers most powerful when:
Few substitutes
Industry not important to suppliers
Buyers- purchase large % of orders
Buyers experience significant switching costs
Suppliers can threaten to enter industry
Produce/supply own product
Buyers cannot threaten to make own inputs
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30. Substitute Products
“…products from different businesses or industries…can satisfy similar customer needs.”
Existence of close substitutes a strong threat - Substitutes limit price that companies can charge for product
Substitutes a weak competitive force
Few close substitutes
Companies in industry can raise prices and earn additional profits.
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31. Sixth Force: Complementors
“…sell products that add value to the products.. In an industry… when use together….”
Substitutes/complements influence demand
Important in demand & profitability in many hi-tech industries
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32. Strategic Groups Within Industries
“…follow a business model… similar to other companies within… group, but are different from the business model of other companies in other… groups.
Implications
Closest competitors in same strategic group viewed as substitutes for each other
Different competitive forces and may face different set of opportunities/threats
Mobility Barriers
Inhibit movement between strategic groups
Include barriers to enter another group or exit existing
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33. Strategic Groups in Pharmaceutical Industry
Figure 2.3
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34. Strategic Barriers Pharmaceutical Industry
Lack of R&D Skills to develop new proprietary drugs
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35. Industry Life Cycle Analysis
“…analyzes the effects of industry evolution on competitive forces over time…characterized by five distinct life cycle stages:
Embryonic- beginning to develop; perfecting products, educating customers, opening distribution channels
Growth- demand takes-off; focus on keeping up with high industry growth
Shakeout- demand approaches saturation, replacements; emergence of excess productive capacity
Mature- saturated with low/no growth; consolidation based on market share, driving down price
Decline- growth becomes negative; rivalry further intensifies based on rate of decline/exit barriers
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36. Stages in Industry Life Cycle
Strength and nature of five forces change as industry evolves     
Figure 2.4
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37. Punctuated Equilibrium & Competitive Structure
Industry Structure revolutionized by innovation
Periods of long term stability
Periods of long term stability
Figure 2.6
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38. Chapter 3
INTERNAL ANALYSIS: DISTINCTIVE COMPETENCIES, COMPETITIVE ADVANTAGE, AND PROFITABILITY

39. Internal Analysis Firm’s resources & capabilities
“…pinpoints the strengths and weaknesses of the organization. It includes assessments of:
Firm’s resources & capabilities
Distinctive competencies
Building/sustaining a competitive advantage requires a company to achieve superior:
Efficiency
Quality
Innovations
Responsiveness to customers
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40. Competitive Advantage
Competitive Advantage- firm’s profitability is greater than the average profitability for all firms in its industry.
Sustained Competitive Advantage- firm maintains above average and superior profitability and profit growth over a number of years.
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41. Distinctive Competencies
“…firm-specific strengths that allow a company to differentiate its products from those offered by rivals, and/or achieve substantially lower costs….”
1-41
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42. Resources “…assets of a company.”
Tangible (physical entities)- land, buildings, equipment, inventory, & money
Intangible (nonphysical entities created by managers & other employees)- brand names, company reputation, employee knowledge & experience, intellectual property
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43. Capabilities
“…a company’s skills at coordinating its resources and putting them to productive use.”
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44. Strategy, Resources, Capabilities, and Competencies
Figure 3.1
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45. Competitive Advantage, Value Creation, and Profitability
How profitable a company becomes depends on three basic factors:
Value/utility customers place on products
Price company charges for products
Consumer surplus = “excess” utility consumer captures beyond price paid
Costs of creating product
Basic Principle
More utility consumers get from company’s products or services, the more pricing options company has.
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46. Comparing Toyota and General Motors
Figure 3.4
Superior value creation requires the gap between perceived utility (U) and costs of production (C) be greater than attained by competitors.
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47. The Value Chain
“…company is a chain of activities for transforming inputs into outputs customers value – including primary & support activities.
Figure 3.5
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48. Building Blocks of Competitive Advantage
Efficiency – fewer inputs to produce given output
Efficiency = Outputs / Inputs
Quality – customers perceive product’s attributes provide higher utility in excellence & reliability
Innovation
Product
Process
Customer Responsiveness – customers attribute more utility by creating differentiation with competitive advantage
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49. Building Blocks of Competitive Advantage
Figure 3.6
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50. Quality Map for Automobiles
Attributes of Quality:
1. Excellence
2. Reliability
Figure 3.7
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51. Competitive Advantage & Value Creation Cycle
1-51
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52. Durability of Competitive Advantage
Depends on:
Barriers to Imitation- difficulty to copy distinctive competencies
Resources
Capabilities
Capability of Competitors
Strategic commitment
Absorptive capacity
Industry Dynamism- ability to change rapidly
Competitors also seeking distinctive competencies that give them a competitive edge.
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53. • Craftsmen • Builders • Pioneers •Salespeople
Why Companies Fail
Inertia- difficult to adapt strategies & structures to changing conditions
Prior Strategic Commitments- limit ability to imitate & cause competitive disadvantage
Icarus Paradox- so specialized/inner-directed by past success lose sight of market realities
Rising/Falling industries:
• Craftsmen • Builders • Pioneers •Salespeople
When company loses competitive advantage, profitability falls below the industry  Loses ability to attract/generate resources  Profit margins invested capital shrink rapidly.
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54. Avoiding Failure: Sustaining Competitive Advantage
Focus on Building Blocks
 Efficiency  Quality
 Innovation  Responsiveness to Customers
Institute Continuous Improvement & Learning
Track Best Practice/Use Benchmarking
Overcome Inertia
Luck may play a role in success, so always exploit a lucky break - but remember:
“The harder I work, the luckier I seem to get.”
J P Morgan
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