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CH 1 Strategic Leadership.ppt

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CH 1 Strategic Leadership.ppt

  1. 1. Chapter One Strategic Leadership: Managing the Strategy- Making Process for Competitive Advantage
  2. 2. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 2 Why do some organizations succeed while others fail?  Strategic Leadership • Task of most effectively managing a company’s strategy-making process  Strategy Formulation • Task of determining and selecting strategies  Strategy Implementation • Task of putting strategies into action to improve a company’s efficiency and effectiveness Competitive Advantage Results when a company’s strategies lead to superior performance compared to competitors Strategy is a set of related actions that managers take to increase their company’s performance.
  3. 3. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 3 Superior Performance and Sustainable Competitive Advantage  Superior Performance • One company’s 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) = Return On Invested Capital • Net profit Net income after tax Capital invested Equity + Debt to creditors  Competitive Advantage • When a company’s profitability is greater than the average of all other companies in the same industry & competing for the same customers = ROIC = Sustainable Competitive Advantage When a company’s strategies enable it to maintain above average profitability for a number of years
  4. 4. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 4 Determinants of Shareholder Value To increase shareholder value, managers must pursue strategies that increase the profitability of the company and grow the profits. Figure 1.1
  5. 5. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 5 A business model encompasses how the company will: Company’s Business Model Management’s model of how strategy will allow the company to gain competitive advantage and achieve superior profitability • Select its customers • Define and differentiate its product offerings • Create value for its customers • Acquire and keep customers • Produce goods or services • Deliver those goods and services to the market • Organize activities within the company • Configure its resources • Achieve and sustain a high level of profitability • Grow the business over time
  6. 6. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 6 Differences in Industry and Company Performance A Company’s Profitability and Profit Growth are determined by two main factors: The overall performance of its industry relative to other industries Its relative success in its industry as compared to the competitors
  7. 7. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 7 Return on Invested Capital in Selected Industries, 1997–2003 Data Source: Value Line Investment Survey Figure 1.2
  8. 8. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 8 Performance in Nonprofit Enterprises Nonprofit entities such as government agencies, 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 resources A successful strategy gives potential donors a compelling message as to why they should contribute.
  9. 9. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 9 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 executives  General Managers • Responsible for overall company, business unit, or divisional performance  Functional Managers • Responsible for supervising a particular task or operation e.g. marketing, operations, accounting, human resources
  10. 10. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 10 Levels of Strategic Management Figure 1.3
  11. 11. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 11 The Five Steps of the Strategy Making Process  Select the corporate vision, mission, and values and the major corporate goals and objectives.  Analyze the external competitive environment to identify opportunities and threats.  Analyze the organization’s internal environment to identify its strengths and weaknesses.  Select strategies that: • Build on the organization’s strengths and correct its weaknesses – in order to take advantage of external opportunities and counter external threats • Are consistent with organization’s vision, mission, and values and major goals and objectives • Are congruent and constitute a viable business model  Implement the strategies.
  12. 12. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 12 Main Components of the Strategy- Making Process      Figure 1.4
  13. 13. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 13  Crafting the Organization’s Mission Statement Provides a framework or context within which strategies are formulated, including:  Mission – The reason for existence – what an organization does  Vision – A statement of some desired future state  Values – A statement of key values that an organization is committed to  Major Goals – The measurable desired future state that an organization attempts to realize
  14. 14. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 14 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 mission is a statement of a company’s raison d’etre, its reason for existence today. A company’s mission is best approached from a customer-oriented business definition.
  15. 15. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 15 The Mission Customer-Oriented Examples The mission of Kodak is to provide “customers with 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 to providing personal mobility for people around the world….We anticipate consumer need and deliver outstanding produces and services that improve people’s lives.”
  16. 16. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 16 Abell’s Framework for Defining the Business Figure 1.5 Source: D. F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, Prentice Hall, 1980), p. 7.
  17. 17. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 17 The vision of Ford is “to become the world’s leading consumer company for automotive products 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 world’s largest manufacturer of mobile phones and operates with a simple but powerful vision: “If it can go mobile, it will!”
  18. 18. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 18 Values In high-performance organizations, values respect 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 build to help achieve the company’s mission  Organizational culture • The set of values, norms, and standards that control how employees work to achieve an organization’s mission and goals • Often seen as an important source of competitive advantage
  19. 19. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 19 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.” At Nucor, values emphasizing pay for performance, job security, and fair treatment for employees help to create an atmosphere that leads to high employee productivity.
  20. 20. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 20 Key characteristics of well-constructed goals: 1. Precise and measurable – to provide a yardstick or standard to judge performance 2. Address crucial issues – with a limited number of key goals that help to maintain focus 3. Challenging but realistic – to provide employees with incentive for improving 4. Specify a time period – to motivate and inject a sense of urgency into goal attainment Major Goals A goal is a precise and measurable desired future state that a company must realize if it is to attain its vision or mission. Focus on long-run performance and competitiveness.
  21. 21. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 21 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 strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission. • Legal • International • Technological  External Analysis
  22. 22. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 22 Internal analysis includes an assessment of:  Quantity and quality of a company’s resources and capabilities  Ways of building unique skills and company-specific or distinctive competencies Purpose is to pinpoint the strengths and weaknesses of the organization. Strengths lead to superior performance and weaknesses to inferior performance.  Internal Analysis Building & sustaining a competitive advantage requires a company to achieve superior: • Efficiency • Quality • Innovations • Responsiveness to customers
  23. 23. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 23  SWOT analyses help to identify strategies that align a company’s resources and capabilities to its environment – in order to create and sustain a competitive advantage.  Functional strategies should be consistent with and support the company’s business level and global strategies. • Functional-level strategy – directed at operational effectiveness • Business-level strategy – businesses’ overall competitive themes • Global strategy – expand, grow and prosper at a global level • Corporate-level strategy – to maximize profitability and profit growth  Selecting Strategies: SWOT Analysis and Business Model When taken together, the various strategies pursued by a company must lead to a viable business model.
  24. 24. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 24  Strategy Implementation  After choosing a set of congruent strategies to achieve competitive advantage, managers must put 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 loop – strategic 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 being created and sustained • Managers must monitor and reevaluate for the next round of strategy formulation and implementation
  25. 25. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 25 Planned, Deliberate, Emergent and Realized Strategies Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly, Vol. 30. No. 2, June 1985. Figure 1.6
  26. 26. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 26 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 unprecedented changes and unplanned events after the formal planning is completed  Emergent Strategies • Unplanned responses to unforeseen circumstances • Serendipitous discoveries and events may emerge that can open up new unplanned opportunities • Must assess whether the emergent strategy fits the company’s needs and capabilities  Realized Strategies • The product of whatever intended strategies are actually put into action and of any emergent strategies that evolve
  27. 27. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 27 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 justice in the decision making  Strategic Intent • Avoids the strategic fit model, which focuses too much on the current state • Sets ambitious vision and goals that stretch a company and then finds ways to build to attain those goals Recent studies suggest that formal planning does have a positive impact on company performance – and should include the current and future competitive environments.
  28. 28. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 28 Strategic Decision Making In spite of systematic planning, companies may adopt poor strategies if groupthink or individual cognitive biases are allowed 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 without questioning 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
  29. 29. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 29 Processes for Improving Decision Making Reveals problems with definitions, assumptions, & recommended courses of action To bring out all the reasons that might make the proposal unacceptable Figure 1.7
  30. 30. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 30 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 process have a number of key attributes:

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