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Hill 8e Basic Ch01

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    Chapter One

    StrategicLeadership:

    Managing theStrategy-Making

    Process forCompetitiveAdvantage

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    Chapter Outline:

    Strategic Leadership, CompetitiveAdvantage, Superior Performance

    Strategic Managers

    Strategy-Making Process Strategy as an Emergent Process

    Strategic Planning in Practice

    Strategic Decision Making Strategic Leadership

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    Why do some organizations succeedwhile others fail?

    Strategic Leadership

    Task of most effectively managing acompanys 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 Advantage results when acompanys strategies lead to superiorperformance compared to competitors

    Strategy is a set of related actions that managers taketo increase their companys performance.

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    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 =

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

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    Determinants ofShareholder Value

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

    of the company andgrow the profits.

    Figure 1.2

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    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 differentiate itsproduct offerings

    Create value for its

    customers Acquire and keepcustomers

    Produce goods or services

    Lower costs

    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

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    Differences in Industryand Company Performance

    A Companys Profitability andProfit Growth are determined bytwo main factors:

    The overall performanceof its industry relativeto other industries

    Its relative success in itsindustry as compared to thecompetitors

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    Return on Invested Capitalin Selected Industries, 20022006

    Data Source: Value Line Investment Survey

    Figure 1.3

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    Performance in Nonprofit Enterprises

    Nonprofit entities such as governmentagencies, universities, and charities: Are not in business to make a profit

    BUTstill need to use their resources

    efficiently and effectively Must meet goals

    Set strategies to achieve goals and competewith other nonprofits for scarce resources

    A successful strategy gives potentialdonors a compelling message as to

    why they should contribute.

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    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 Business-Level Managers

    Responsible for overall company, business unit,or divisional performance

    Functional-Managers Responsible for supervising a particular task oroperation (e.g. marketing, operations, accounting,human resources)

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    Levels of Strategic Management

    Figure 1.4

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    The Five Steps of theStrategy Making Process

    Select the corporate missionand the majorcorporate goals.

    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 external

    opportunities and counter external threats Are consistent with organizations mission and major goals Are congruent and constitute a viable business model

    Implement the strategies.

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    Crafting the Organizations MissionStatement

    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

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    The Mission

    What is it that the company does? 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)?

    Themissionis a statement of a companysreason for existence today.

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

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    Abells Frameworkfor Defining the Business

    Figure 1.6

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

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    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!

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    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

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    Values at Nucor

    Management is obligated to manage Nucor in such away that employees will have the opportunity to earnaccording 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.

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    Key characteristics of well-constructed goals:1. Precise and measurableto provide a

    yardstick 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 atta

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