CHAPTER 2

Strategic Leadership
Managing the Strategy Process
Learning Objectives:

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

What Do Strategic Leaders Do?

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

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

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
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

Shortcomings if 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
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

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 Event
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

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

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

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
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

The Pyramid of Corporate Social Responsibility