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

2. 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

3. 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

4. strategy
Set of related actions that managers take to increase their company’s performance
Strategic leadership: Creating competitive advantage through effective management of the strategy-making process
Strategy formulation: Selecting strategies based on analysis of an organization’s external and internal environment
Strategy implementation: Putting strategies into action

5. Figure 1.2 - determinants of shareholder value

6. Superior performance
Risk capital: Equity capital for which there is no guarantee that stockholders will:
Recoup their investment
Earn a decent return
Shareholder value: Returns that shareholders earn from purchasing shares in a company
Sources
Capital appreciation in the value of a company’s shares
Dividend payments

7. Superior performance
Profitability: 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
Profit growth: Increase in net profit over time, achieved by:
Selling products in rapidly growing markets
Gaining market share from rivals

8. Superior performance
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

9. Competitive advantage
Occurs when a company’s profitability is greater than the average profitability of firms in its industry
Sustained competitive advantage: A company’s strategies enable it to maintain above-average profitability for a number of years

10. 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
Lowers costs and organizes its resources and activities
Achieves and sustains high profitability and growth

11. Figure 1.3 - return on invested capital (roic) in selected industries, 2002-2011
Source: Value Line Investment Survey.

12. Strategic management General managers
Bear responsibility for a company’s overall performance or for one of its major self-contained subunits or divisions
General managers
Responsible for supervising a particular function, task, activity, or operation
Functional managers
Competes in several different businesses and has a separate self-contained division to manage each
Multidivisional company

13. Figure 1.4 - levels of strategic management

14. Corporate-level managers
Oversee the development of strategies for the entire organization
Provide a link between people concerned with the firm’s strategic development and the shareholders
Ensure that business strategies pursued by the company are consistent with maximizing profitability and profit growth

15. Business-level managers
Heads of business units
Business unit: 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

16. 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

17. Steps in a formal strategic planning process
Select the corporate mission and goals
Analyze the organization’s external competitive environment and internal operating environment
Select strategies that:
Build on the organization’s strengths and correct it’s weaknesses
Are consistent with the organization’s mission and goals
Are congruent and constitute a viable business model
Implement the strategies

18. Main components of the strategic planning process
Existing Business Model
Mission, Vision, Values, and Goals
External Analysis: Opportunities and Threats
SWOT Strategic Choice
Strategies: Functional, Business, Global, and Corporate-Level
Governance and Ethics
Designing Organization Structure
Designing Organization Culture
Designing Organization Controls
Internal Analysis: Strengths and Weaknesses
Feedback
Strategic Formulation
Strategic Implementation

19. Components of a Mission statement
Purpose of the company, or a statement of what the company strives to do
Mission
Articulation of a company’s desired achievements or future state
Vision
Statement of how employees should conduct themselves and their business to help achieve the company mission
Values
Goal - Precise and measurable desired future state that a company attempts to realize
Establishing major goals

20. Figure 1.6 - defining the business

21. 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
Goal - Identify the company’s strengths and weaknesses

22. 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
Goal - Affirm a company-specific business model
To align, fit, or match a company’s resources and capabilities to the demands of its environment

23. SWOT strategies
Functional-level strategies - Directed at improving the effectiveness of operations within a company
Business-level strategies - Encompass the business’s 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

24. 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

25. Strategy implementation and feedback loop
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 - Provide information to the corporate level on the:
Strategic goals that are being achieved
Degree of competitive advantage being created and sustained

26. 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

27. Figure 1.7 - emergent and deliberate strategies

28. Figure 1.8 - scenario planning

29. 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

30. Cognitive Biases and Strategic Decision Making
Systematic errors in human decision making
Arise from the way people process information
Cognitive biases
Decisions are made based on prior beliefs, even when evidence proves that those beliefs are wrong
Prior hypothesis bias
Decision makers, having committed significant resources to a project, commit even more, despite receiving feedback that the project is failing
Escalating commitment
Use of simple analogies to make sense out of a complex problem
Reasoning analogy

31. Cognitive Biases and Strategic Decision Making
Tendency to generalize from a small sample or a single vivid anecdote
Violates the statistical law of large numbers
Representativeness
Tendency to overestimates one’s ability to control events
General or top managers are more prone to this
Illusion of control
Arises from our predisposition to estimate the probability of an outcome based on how easy it is to imagine it
Availability error

32. Techniques for Improving Decision Making
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
Devil’s advocacy
Generation of a plan and a counter-plan that reflect plausible but conflicting courses of action
Promotes strategic thinking
Dialectic inquiry
Identification of past successful or failed strategic initiatives to determine if they will work for the current project
Outside view

33. 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