CHAPTER 1

STRATEGIC LEADERSHIP: MANAGING THE STRATEGY-MAKING PROCESS FOR

COMPETITIVE ADVANTAGE

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5
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 that enable it to maintain above-
average profitability for a number of years.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6
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.
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8
STRATEGIC MANAGEMENT
General managers

• Bear responsibility for a company’s overall performance or

for one of its major self-contained subunits or divisions.

Functional managers

• Responsible for supervising a particular function, task,

activity, or operation.

Multidivisional company

• Competes in several different businesses and has a separate

self-contained division to manage each.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
BUSINESS-LEVEL MANAGERS
 Heads of business units
 Business unit is a 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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13
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

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
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.
 Goals identify the company’s strengths and weaknesses.
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17
STRATEGY IMPLEMENTATION AND
FEEDBACK LOOP
 Strategy implementation
 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 - Provides information to the
corporate level on the:
 strategic goals that are being achieved.
 degree of competitive advantage being created and
sustained.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21
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.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22
COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
Cognitive biases
• Systematic errors in human decision making.
• Arise from the way people process information.

Prior hypothesis bias

• Decisions are made based on prior beliefs, even when evidence
proves that those beliefs are wrong.
Escalating commitment
• Decision makers, having committed significant resources to a project,
commit even more, despite receiving feedback that the project is failing.

Reasoning analogy
• Use of simple analogies to make sense out of a complex
problem.
©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23
COGNITIVE BIASES AND STRATEGIC
DECISION MAKING
Representativeness

• Tendency to generalize from a small sample or a single vivid

anecdote.
• Violates the statistical law of large numbers.

Illusion of control

• Tendency to overestimates one’s ability to control events.

• General or top managers are more prone to this.

Availability error

• Arises from our predisposition to estimate the probability of an

outcome based on how easy it is to imagine it.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24
TECHNIQUES FOR IMPROVING
DECISION MAKING
Devil’s advocacy
• 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.

Dialectic inquiry
• Generation of a plan and a counter-plan that reflect plausible but
conflicting courses of action.
• Promotes strategic thinking.

Outside view
• Identification of past successful or failed strategic initiatives to
determine if they will work for the current project.

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
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

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26