hill7e premium ch01

8/4/2019 Hill7e Premium Ch01

1/34

Chapter One

StrategicLeadership:

Managing theStrategy-Making

Process forCompetitiveAdvantage


2/34

Copyright Houghton Mifflin Company. All rights reserved. 1 | 2

If you dont have a strategy youwill be . . . part of somebodyelses strategy.

- Alvin Toffler

RoyaltyFree/ Stockdisc/ Getty Images


3/34


Why do some organizationssucceed while others fail?

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 acompanys efficiency and effectiveness

Competitive AdvantageResults when a companys strategies lead to

superior performance compared to competitors

Strategy is a set of related actions that managerstake to increase their companys performance.


4/34


Superior Performance andSustainable 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) = ReturnOn InvestedCapital Net profit Net income after tax

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 samecustomers

=ROIC =

Sustainable Competitive AdvantageWhen a companys strategies enable it to maintainabove average profitability for a number of years


5/34


Determinants ofShareholder Value

To increase shareholder value, managers mustpursue strategies that increase the profitability

of the company andgrow the profits.

Figure 1.1


6/34


A business model encompasses how the company will:

Companys Business Model

Managements model of how strategy will allowthe company to gaincompetitive advantage

and achievesuperior profitability

Select its customers

Define and differentiateits product offerings

Create value for its

customers Acquire and keep

customers

Produce goods orservices

Deliver those goods andservices to the market

Organize activities withinthe company

Configure its resources Achieve and sustain a

high level of profitability

Grow the business overtime


7/34Copyright Houghton Mifflin Company. All rights reserved. 1 | 7

Differences in Industryand Company Performance

A Companys Profitability andProfit Growth are determinedby two main factors:

The overall performanceof its industry relativeto other industries

Its relative success in itsindustry as compared to thecompetitors



Return on Invested Capitalin Selected Industries, 19972003

Data Source: Value Line Investment Survey

Figure 1.2



Performance in NonprofitEnterprises

Nonprofit entities such as governmentagencies, 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 resourcesA successful strategy gives potentialdonors a compelling message as to

why they should contribute.



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 executivesGeneral Managers

Responsible for overall company, businessunit, or divisional performance

Functional Managers Responsible for supervising a particular task

or operatione.g. marketing, operations, accounting, human resources



Levels of Strategic Management

Figure 1.3



The Five Steps of theStrategy Making Process

Select the corporate vision,mission, and valuesand the major corporate goalsand objectives.

Analyze the external competitive environment toidentify opportunitiesand threats.

Analyze the organizations internal environmentto identify its strengthsandweaknesses.

Select strategies that: Build on the organizations strengths and correct its

weaknesses in order to take advantage of externalopportunities 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.



MainComponents

of theStrategy-Making

Process

Figure 1.4



Crafting the OrganizationsMission Statement

Provides a framework or context withinwhich strategies are formulated, including:Mission

The reason for existence what an organization does

VisionA statement of some desired futurestate

Values

A statement of key values that an organization iscommitted toMajor Goals

The measurabledesired future state that anorganization attempts to realize



The Mission

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)?

The missionis a statement of a companysraison detre, its reason for existence today.

A companys mission is best approached froma customer-oriented business definition.



What is a Mission?

A small child sitting on a high wall is watching aman at work below. Mister, he called, why areyou hitting that rock? Michelangelo looked upand called back, Because theres an angel inthe rock and it wants to come out.

To Michelangelo, creating a statue meant chippingaway at the rock that imprisoned the angel until thework of art was set free.

Like Michelangelo, we need to see, or imagine wesee, the angel in the rock before we can take upour sculptors tools to release it.

- Story from Marilee Zdenek,

The Right-Brain Experience RoyaltyFree/ Stockdisc/ Getty Images



The MissionCustomer-Oriented Examples

The mission of Kodak is to provide customerswith 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 toproviding personal mobility for people aroundthe world.We anticipate consumer need anddeliver outstanding produces and services thatimprove peoples lives.



Abells Frameworkfor Defining the Business

Figure 1.5

Source: D. F. Abell, Defining the Business: The Starting Point ofStrategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.


19/34


The vision of Ford is to become the worldsleading consumer company for automotiveproducts and services.

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.

Nokia is the worlds largest manufacturer ofmobile phones and operates with a simple butpowerful vision: If it can go mobile, it will!


20/34


Values

In high-performance organizations, valuesrespect the interests of key stakeholders.

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 buildto help achieve the companys mission

Organizational culture The set of values, norms, and standards that control how

employees work to achieve an organizations mission andgoals

Often seen as an important source of competitive advantage


21/34


Values at Nucor

Management is obligated to manage Nucor in sucha way that employees will have the opportunity toearn according to their productivity.

Employees should be able to feel confident that ifthey do their jobs properly, they will have a jobtomorrow.

Employees have the right to be treated fairly andmust believe that they will be.

Employees must have an avenue of appeal whenthey believe they are being treated unfairly.

At Nucor, values emphasizing pay for performance, jobsecurity, and fair treatment for employees help to createan atmosphere that leads to high employee productivity.


22/34


Key characteristics of well-constructed goals:

1. Precise and measurableto provide ayardstick or standard to judge performance

2. Address crucial issueswith a limitednumber of key goals that help to maintain focus

3. Challenging but realisticto provideemployees with incentive for improving

4. Specify a time periodto motivate andinject a sense of urgency into goal attainment

Major Goals

A goal is a precise and measurable desiredfuture state that a company must realizeif it is to attain its vision or mission.

Focus on long-run performance andcompetitiveness.


23/34


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 Government

Purpose is to identify the strategicopportunitiesandthreatsin the organizations operating environmentthat will affect how it pursues its mission.

Legal International

Technological

External Analysis


24/34


Internal analysis includes an assessment of:

Quantity and quality of acompanys resources andcapabilities

Ways of building uniqueskills and company-specificor distinctive competencies

Purpose is to pinpoint the strengthsand weaknessesof the organization. Strengths lead to superiorperformance and weaknesses to inferior performance.

Internal Analysis

Building & sustaining a competitive advantagerequires a company to achieve superior:

Efficiency Quality

Innovations Responsiveness to customers


25/34


SWOT analyses help to identify strategies that aligna companys resources and capabilities to itsenvironment in order to create and sustain acompetitive advantage.

Functional strategies should be consistent with and

support the companys business level and globalstrategies. Functional-level strategydirected at operational effectiveness Business-level strategybusinesses overall competitive themes Global strategyexpand, grow and prosper at a global level

Corporate-level strategytomaximize profitability and profit growth

Selecting Strategies: SWOTAnalysis and Business Model

When taken together, the various strategiespursued by a company must lead to a

viable business model.


26/34


Strategy Implementation After choosing a set of congruent strategies to

achieve competitive advantage, managers mustput 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 loopstrategic 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 beingcreated and sustained

Managers must monitor and reevaluate for the next round ofstrategy formulation and implementation


27/34


Strategic Implementation


28/34


Planned, Deliberate, Emergentand Realized Strategies

Source: Adapted from H. Mintzberg andA. McGugh, Administrative ScienceQuarterly, Vol. 30. No. 2, June 1985.

Figure 1.6


29/34


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 unprecedentedchanges and unplanned events after the formal planning is

completed Emergent Strategies

Unplanned responses to unforeseen circumstances

Serendipitous discoveries and events may emerge that canopen up new unplanned opportunities

Must assess whether the emergent strategy fits thecompanys needs and capabilities

Realized Strategies The product of whatever intended strategies are actually put

into action and of any emergent strategies that evolve


30/34


Strategic Planning in Practice

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 justicein the decision making

Strategic Intent Avoids the strategicfit model, which focuses too much on the

current state

Sets ambitious vision and goals that stretch a company andthen finds ways to build to attain those goals

Recent studies suggest that formal planning does have apositive impact on company performance and shouldinclude the current and future competitive environments.


31/34


Strategic Decision Making

In spite of systematic planning, companies may adopt poorstrategies if groupthink or individual cognitive biases areallowed 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 withoutquestioning the underlying assumptions

Group coalesces around a person or policy Decisions based on an emotional rather than an objective assessment

of the correct course of action


32/34


Processes for ImprovingDecision Making

Reveals problems withdefinitions, assumptions,& recommended coursesof action

To bring out all thereasons that mightmake the proposalunacceptable

Figure 1.7


33/34


Strategic Leadership

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

Good leaders of the strategy-making processhave a number of key attributes:


34/34

The essence of strategy lies increating tomorrows competitiveadvantage faster than

competitors mimic the ones youpossess today.- Gary Hamel &

C. K. Prahalad

hill7e premium ch01

Documents