Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage PDF

Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage Hill, Schilling, Strategic Management: An...

Chapter 1 Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1  Icebreaker 1. Consider the following questions: − Who, in real life, do you consider to be a good leader/manager? − What qualities does that person have that make them a good leader? Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. 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 By the end of this chapter, you should be able to: 1.1 Define strategic leadership. 1.2 Discuss leadership and its relationship to superior performance. 1.3 Explain what is meant by “competitive advantage.” 1.4 Discuss the strategic role of managers at different levels within an organization. 1.5 Identify the primary steps in a strategic planning process. 1.6 Examine the criticisms of strategic planning. 1.7 Review the practice of strategic planning. 1.8 Explain strategic decision making and the cognitive biases that might lead to poor strategic decisions. 1.9 Discuss the characteristics of strategic leaders. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3  1-1 Strategy and Strategic Leadership Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4  Strategy Strategy – A 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. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5  Knowledge Check 1.1 Which of the following best explains strategy? a. The actions an organization takes to attain superior performance. b. The actions an organization takes to attain its goals. c. The actions an organization is able to take based on its strengths and weaknesses. d. The actions that lead an organization to higher profits. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6  1-2 Strategic Leadership and Superior Performance Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Figure 1.1 Determinants of Shareholder Value Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8  Superior Performance (1 of 3) Shareholder value – Returns that shareholders earn from purchasing shares in a company. − Includes capital appreciation in the value of a company’s shares and dividend payments. Risk capital – Equity capital invested with no guarantee that stockholders will recoup their cash or earn a decent return. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9  Superior Performance (2 of 3) Profitability – The return a company makes on the capital invested in the enterprise. − Return on invested capital (ROIC) – Net profit divided by capital invested in a company. − Result of how efficiently and effectively the capital is used to satisfy customer needs. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10  Superior Performance (3 of 3) Profit growth – The increase in net profit over time. Growing profits is accomplished through: − selling products in rapidly growing markets. − gaining market share from rivals. − 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. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11  1-3 Competitive Advantage and a Company’s Business Model Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12  Competitive Advantage Competitive advantage – The achieved advantage over rivals 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. Business model – The conception of how strategies should work together as a whole to enable the company to achieve competitive advantage. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13  Industry Differences and Nonprofits Profitability and profit growth of a company are determined by two main factors: − its relative success in its industry. − overall performance of its industry relative to other industries. Planning and thinking strategically are as important for the nonprofit sector as for profit-seeking firms. − Expected to use their resources efficiently and operate effectively. − Nonprofits compete for scarce resources, just as businesses do. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14  Discussion Activity 1 How is profitability different from competitive advantage? Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15  Discussion Activity 1 Debrief How is profitability different from competitive advantage? A company’s profitability is equal to the return that it makes on the capital invested in the enterprise. In other words, it is the amount of money it gets for its products or services minus the amount of money it spent to create those products or services. Profitability is determined in large part by the strategies the company adopts. Competitive advantage is indicated by greater profitability and profit growth than industry rivals, but it is achieved through the actions/strategies a company uses to be most effective within the industry. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16  1-4 Strategic Managers Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17  Strategic Managers General managers – Managers who bear responsibility for the overall performance of the company or for one of its major self-contained subunits or divisions. Functional managers – Managers responsible for supervising a particular function; that is, a task, activity, or operation, such as accounting, marketing, research and development (R&D), information technology, or logistics. Multidivisional company – A company that competes in several different businesses and has created a separate, self-contained division to manage each. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 Figure 1.2 Levels of Strategic Management Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19  Corporate-Level Managers Chief executive officer (CEO), other senior executives, and corporate staff: − Oversee the development of strategies for the entire organization. − Provide a link between people who oversee the firm’s strategic development and the shareholders. − Ensure that business strategies pursued by the company are consistent with superior profitability and profit growth. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20  Business-Level Managers Heads of business units:  Business unit – A self-contained division that provides a product or service for a particular market. − Translate statements and intents from corporate level into concrete strategies for individual businesses. − Are concerned with strategies specific to a particular business. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21  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. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22  1-5 The Strategic Planning Process Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23 A Model of the Strategic Planning Process 1. Select the corporate mission and goals. 2. Analyze the organization’s external competitive environment; identify opportunities and threats. 3. Analyze the internal operating environment; identify strengths and weaknesses. 4. Select organizational strategies that: − build on strengths and correct weaknesses. − are consistent with the mission and major goals. − are congruent and constitute a viable business model. 5. Implement the strategies. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24  Figure 1.3 Main Components of the Strategic Planning Process Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25  Mission Statement Mission – The purpose of the company, or a statement of what the company strives to do. Vision – The articulation of a company’s desired achievements or future state. Values – A statement of how employees should conduct themselves and their business to help achieve the company mission. Major goals − Characteristics of a well-constructed goal: Precise, measurable, addresses crucial issues, challenging but realistic, with appropriate time parameters. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26  Figure 1.4 Defining the Business Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27  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.  socioeconomic or macroenvironment. Internal analysis focuses on reviewing the resources, capabilities, and competencies of a company. − Goals: identify the company’s strengths and weaknesses. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28  SWOT Analysis SWOT analysis – The comparison of strengths, weaknesses, opportunities, and threats. Purpose is to identify the strategies to: − exploit external opportunities. − counter threats. − build on and protect company strengths. − eradicate counter threats and weaknesses. Goal is to create or fine-tune a company-specific business model. − To align, fit, or match a company’s resources and capabilities to the demands of its environment. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29  SWOT Strategies Functional-level strategies are directed at improving the effectiveness of operations within a company. Business-level strategies encompass the business’s overall competitive theme and how it positions itself in the marketplace to gain a competitive advantage. Global strategies address how to expand operations outside the home country. Corporate-level strategies determine the businesses a company should be in to maximize profitability and profit growth as well as gain a competitive edge. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30 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. − Indicates degree of competitive advantage being created and sustained. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31  Polling Activity Strategic planning is... a. identifying organizational goals and the steps needed to achieve them. b. describing the steps to get from where a company is to where it wants to go. c. determining the approach the company uses to be successful. d. making sure a company has competitive advantage over its rivals. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32  1-6 Strategy as an Emergent Process Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33  Criticisms of Formal Planning Model Unpredictability of the real world. Excessive importance attached to the role of top management. − While ignoring the role of lower-level managers. Many successful strategies are a result of serendipity rather than rational strategizing. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34  Figure 1.5 Emergent and Deliberate Strategies Source: Adapted from H. Mintzberg and A. McGugh, Administrative Science Quarterly 30:2 (June 1985). Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35  Discussion Activity 2 How would you describe the differences between a deliberate strategy and an emergent strategy? Which do you feel management should pay more attention to? Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36  Discussion Activity 2 Debrief How would you describe the differences between a deliberate strategy and an emergent strategy? Which do you feel management should pay more attention to? Deliberate strategy is that which has been planned by management. Emergent strategy is unplanned by management and often arises through autonomous actions of lower-level managers and through serendipity. Both are important, and many management experts (e.g., Mintzberg) feel that a combination of both is potentially best for an organization. The corporate culture necessary for producing emergent strategies, it can be argued, lead to greater success for organizations. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37  1-7 Strategic Planning in Practice Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 38  Scenario Planning 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. In a typical scenario-planning exercise, with some scenarios optimistic and some pessimistic, teams of managers are asked to develop specific strategies to cope with each scenario. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 39  Figure 1.6 Scenario Planning Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40  Decentralized Planning In an “ivory tower” approach, strategic plans are formulated in a vacuum by top managers who have little understanding or appreciation of current operating realities. Correcting the ivory tower approach requires managers at all levels of the corporation be involved in strategic planning. − Business and functional managers who are closest to the facts can and should be involved in planning. − Corporate-level planners should take on roles as facilitators. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41  Activity Decide on an industry you would like to focus on and engage in scenario planning by describing several what-if events for that company in that industry, and outline some general steps you might take to address that event. For example, you manage a restaurant, and a new restaurant opens across the street; or you manage a plastic tableware manufacturer, and your main supplier’s facility burns to the ground. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42  1-8 Strategic Decision Making Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 43 Cognitive Biases and Strategic Decision Making (1 of 2) Cognitive biases – Systematic errors in decision making that arise from the way people process information. − Confirmation bias – Refers to the fact that decision makers who have strong prior beliefs tend to make decisions on the basis of these beliefs, even when presented with evidence that their beliefs are wrong. − Escalating commitment – Occurs when decision makers, having already committed significant resources to a project, commit even more resources after receiving feedback that the project is failing. − Reasoning by analogy – Use of simple analogies to make sense out of complex problems. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 44 Cognitive Biases and Strategic Decision Making (2 of 2) − Representativeness – A bias rooted in the tendency to generalize from a small sample or even a single, vivid anecdote. − Illusion of control – A cognitive bias rooted in the tendency to overestimate one’s ability to control events; also referred to as overconfidence. − Availability error – A bias that arises from our predisposition to estimate the probability of an outcome based on how easy the outcome is to imagine. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 45  Techniques for Improving Decision Making Devil’s advocacy – A technique in which one member of a decision-making team identifies all the considerations that might make a proposal unacceptable. Dialectic inquiry – The generation of a plan (a thesis) and a counterplan (an antithesis) that reflect plausible but conflicting courses of action. Outside view – Identification of past successful or failed strategic initiatives to determine whether they will work for the current project. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 46  Knowledge Check 1.2 The R&D department at a mattress manufacturer has been experimenting to find a fiber that is self-cleaning, but the main element of their approach is now under investigation by the Department of Environmental Protection. The researchers want to cease their activities and start over in another direction, but the company manager, who is responsible for all the capital already invested in the project, tells them to go on with their work. The company manager is exhibiting the cognitive bias of: a. confirmation bias. b. illusion of control. c. escalating commitment. d. availability error. Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 47  1-9 Strategic Leadership Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 48 Characteristics of Strong 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 Management: Hill, Schilling, Strategic social skills An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 49  Self-Assessment What attributes do you believe companies must possess in order to be successful? How would you assess your current capabilities against the characteristics of strategic leaders listed in the textbook? Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 50  Summary Click the link to review the objectives for this presentation. Link to Objectives Hill, Schilling, Strategic Management: An Integrated Approach, Theory and Cases, 14 th Edition. © 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 51