Chapter 2:
Strategic Leadership
Managing the Strategy Process
-Strategic Leadership
-The Strategic Management Process
-Stakeholders and CA
Objective
LO 2-1 Explain the role of strategic leaders and what they do.
LO 2-2 Outline how you can become a strategic leader.
LO 2-3 Describe the roles of corporate, business, and
functional managers in strategy formulation and
implementation.
LO 2-4 Evaluate top-down strategic planning, scenario
planning, and strategy as planned emergence.
LO 2-5 Assess the relationship between stakeholder strategy
and sustainable competitive advantage.
LO 2-6 Conduct a stakeholder impact analysis.
What Is Strategic Leadership?
• Successful use of power and influence
• Directing the activities of others
• Pursuing an organization’s goals
• Enabling organizational competitive advantage
Leaders Can Positively Impact Performance
• Mark Zuckerberg – Facebook
• Elon Musk – Tesla and SpaceX
• Jeff Bezos – Amazon
• Oprah Winfrey – HARPO
• Sheryl Sandberg – Facebook
• Angela Ahrendts – Apple
• Mary Barra – General Motors
• Howard Schultz - Starbucks
Leaders Can Destroy Shareholder Value
• Ken Lay – Enron
• John Sculley – Apple
• Bernard Ebbers – WorldCom
• Richard Fuld – Lehman Brothers
• Richard Wagoner – General Motors
• Robert Nardelli – The Home Depot and Chrysler
• Ron Johnson – JC Penney
How Do You Become a Strategic Leader?
• Leadership actions reflect:
• Age, education, and career experiences
• Personal interpretations of situations
• Strong leadership: innate abilities and learning
Upper Echelon’s Theory
• Organizational outcomes reflect the values of the top
management team.
• Outcomes include:
• Strategic choices
• Performance levels
Great Companies
• Based on the bestseller Good to Great
• Written by Jim Collins
• Over 1,000 companies were analyzed.
• Great companies had things in common:
• Sustained competitive advantage
• Stock returns of almost 7x the general market
• Consistent patterns of leadership
• Summarized in the Level 5 Leadership Pyramid
Level-5 Leadership Pyramid
• Exhibit 2.2
• (Adapted to compare corporations and entrepreneurs) SOURCE: Adapted from J. Collins (2001), Good to Great: Why Some
Companies Make the Leap . . . And Others Don’t (New York: HarperCollins), 20.
Jump to Appendix 3 long image description
Progression of Leaders Through the Pyramid
• Each level builds upon the previous one.
• Prior levels must be mastered before moving on.
• Each level helps individuals develop the capacity for
greater success.
• A Level-5 executive:
• Works to help the organization succeed
• Helps others reach their full potential
The Strategy Process
• Strategy Formulation:
• The choice of strategy
• Where and how to compete
• Strategy Implementation:
• Organization, coordination, integration
• How work gets done
• The execution of strategy
The Strategy Process Across Levels
• Corporate Strategy
• Where to compete?
• Industry, markets, and geography
• Business Strategy
• How to compete?
• Cost leadership, differentiation, or value innovation
• Functional Strategy
• How to implement a chosen business strategy?
Formulation and Implementation Across Levels
• Exhibit 2.3
Jump to Appendix 4 long image description
Corporate Strategy
• Decide in which industries, markets, and geographies
their companies should compete.
• Corporate executives:
• Create synergies across SBUs.
• Decide whether to enter or exit industries and markets.
• Set strategic objectives.
• Allocate scarce resources among SBU.
• Monitor performance.
• Make adjustments to the portfolio as needed.
Business Strategy
• Standalone division of corporate
• Profit and loss responsibility
• Work with corporate to determine business strategy
• Cost leadership
• Differentiation
• Value innovation
Functional Strategy
• Within each strategic business unit:
• Accounting
• Finance
• Human resources
• Product development
• Operations
• Manufacturing
• Marketing
• Customer service
• Functional managers are responsible for decisions and
actions within the function.
Three Approaches to Organizational Strategy
• Strategic planning
• A formal, top-down planning approach
• Scenario planning
• A formal, top-down planning approach
• Strategy as planned emergence
• Begins with a strategic plan, but is less formal
Top Down Strategic Planning (1 of 2)
• Data-driven strategy process
• Top management attempts to program future success
through
• Analysis of:
• Prices
• Costs
• Margins
• Market demand
• Head count
• Production runs
• Five year plans and correlated budgets
• Performance monitoring
Top-Down Strategic Planning (2 of 2)
• Exhibit 2.4
Jump to Appendix 5 long image description
Shortcomings of the Top-Down Approach
• May not adapt well to change
• Formulation separate from implementation
• Information flows one-way
• Leaders’ future vision can be wrong
• Example: Apple
• Steve Jobs predicted customers needs
• Apple didn’t engage in market research
• Since Cook took over, their planning process has evolved
Scenario Planning (1 of 2)
• Asks “what if” questions:
• Top management envisions different scenarios
• Then they derive strategic responses
• Optimistic and pessimistic futures planned
• Considerations can include:
• New laws
• Demographic shifts
• Changing economic conditions
• Technological advances
Scenario Planning (2 of 2)
• Exhibit 2.5
Jump to Appendix 6 long image description
Approaches to Scenario Planning
• Obtain input from different levels and functions
• R&D, manufacturing, and marketing and sales
• Determine how to compete situationally
• Example: UPS
• What if the price of a barrel of oil was $35, or $100, or even
$200?
• Attach probabilities to different future states:
• Highly likely vs. unlikely
• 85% vs. 2% likely
Black Swan Events
• The high impact of a highly improbable event.
• In the past, most people assumed that all swans were
white.
• When they first encountered swans that were black, they were
surprised.
• Examples:
• Security breach of an IT system
• Accounting Scandals: Enron
• Real Estate Bubble: 2008 financial crisis
Questions to Ask in Scenario Planning
• What resources and capabilities do we need to compete
successfully in each scenario?
• What strategic initiatives should we put in place to
respond to each scenario?
• How can we shape our expected future environment?
Strategy as Planned Emergence
• Top Down and Bottom Up
• Bottom-up strategic initiatives emerge
• Evaluated & coordinated by management
• Relies on data, plus:
• Personal experience
• Deep domain expertise
• Front line employee insights
Key Points About Strategy
• Intended strategy
• The outcome of a rational and structured top-down strategic
plan
• Realized strategy
• Combination of intended and emergent strategy
• Emergent strategy
• Any unplanned strategic initiative
• Bubbles up from the bottom of the organization
• Can influence and shape a firm’s overall strategy
Intended vs. Realized Strategy
Jump to Appendix 7 for long description.
Strategic Initiatives
• Any activity a firm pursues to explore and develop
• New products and processes
• New markets
• New ventures
• Can bubble up from deep within a firm through:
• Autonomous actions
• Serendipity
• Resource-allocation process (RAP)
Autonomous Actions, Serendipity, and the Resource Allocation Process (RAP)
• Autonomous Actions
• Strategic initiatives undertaken by employees
• In response to unexpected situations
• Serendipity
• Random events, surprises, coincidences
• Has an effect on strategic initiatives
• Resource-Allocation Process (RAP)
• How a firm allocates resources based on policy
• Helps shape realized strategy
Companies with Good Strategy Are Valuable
• Companies with a good strategy:
• Provide products or services to consumers at an affordable
price
• Make a profit
• Can provide benefits such as:
• Education, infrastructure, public safety, health care, clean water
and air
• Strategic failure is expensive
Stakeholders
• Organizations, groups, and individuals
• Can affect or are affected by a firm’s actions
• Have an interest in the performance and survival of the
firm
• Internal stakeholders:
• Stockholders, employees (including executives, managers, and
workers), and board members
• External stakeholders:
• Customers, suppliers, alliance partners, creditors, unions,
communities, media, and governments at various levels
Internal and External Stakeholders in an Exchange Relationship with the Firm
• Exhibit 2.8
Jump to Appendix 8 long image description
Stakeholder Strategy
• An integrative approach to managing a diverse set of
stakeholders to gain and sustain competitive advantage
• Stakeholder management benefits firm performance
• Stakeholders more cooperative
• Lower business transaction cost
• Greater adaptability and flexibility
• More predictable returns
• Stronger reputation
Stakeholder Impact Analysis (1 of 2)
• A decision tool
• Helps strategic leaders can recognize, prioritize, and
address the needs of different stakeholders.
• Important stakeholder attributes:
• Power: control over actions
• Legitimacy: valid concerns
• Urgency: require immediate attention
Stakeholder Impact Analysis (2 of 2)
• Exhibit 2.9 Jump to Appendix 9 long image description
The Pyramid of Corporate Social Responsibility
• Exhibit 2.10
• SOURCE: Adapted from A. B. Carroll (1991), “The pyramid of corporate social responsibility: Toward the moral management of organizational
stakeholders,” Business Horizons, July-August: 42.
Jump to Appendix 10 long image description