Essentials of Strategic Management,

3/e
Charles W.L. Hill | Gareth R. Jones

Chapter 1

The Strategy
Making Process

2012 South-Western, a part of Cengage Learning

Notable Quote
"Without a strategy, an organization is like a
ship without a rudder, going around in circles.
Its like a tramp; it has no place to go.""Plans
are less important than planning."
Joel Ross and Michael Kami

2012 South-Western, a part of Cengage Learning

A short Story

Once there were two company presidents who competed

in the same industry. These two presidents decided to go
on a camping trip to discuss a possible merger. They
hiked deep into the woods.
Suddenly, they came upon a grizzly bear that rose up on
its hind legs and snarled. Instantly, the first president
took off his knapsack and got out a pair of jogging shoes.
The second president said, Hey, you cant outrun that
bear. The first president responded, Maybe I cant
outrun that bear, but I surely can outrun you!

2012 South-Western, a part of Cengage Learning

What is Strategy?
Strategy
A set of actions that managers take to
increase their companys performance relative
to industry rivals.

Strategic management can be defined as

the art and science of formulating,
implementing, and evaluating cross-functional
decisions that enable an organization to
achieve its objectives.

2012 South-Western, a part of Cengage Learning

Successful Strategy = Competitive
Advantage
A strategy is implemented to create a competitive
advantage over other companies
A company is said to have a competitive advantage
when its profitability is greater than the average
profitability for all firms in the industry
A competitive advantage is considered sustained
when it is maintained for several years

2012 South-Western, a part of Cengage Learning

Strategic Managers
General Managers
Bear responsibility for overall performance

Functional Managers
Supervise a particular function (task, activity,
or operation)

2012 South-Western, a part of Cengage Learning

Strategic Managers
In multidivisional companies:
Corporate Managers oversee strategy for
whole company
Business Managers lead the strategy for their
self-contained division
Functional Managers are responsible for one
organizational activity

2012 South-Western, a part of Cengage Learning

Strategy Making Process
Select the corporate mission statement and
major goals
Analyze the external competitive environment
to identify strategic opportunities and threats
in the operating environment
Analyze the internal competitive environment
to pinpoint the strengths and weaknesses of
the organization

2012 South-Western, a part of Cengage Learning

Strategy Making Process (contd)
Select the strategy- contingent upon findings
in steps 1, 2, 3
Implement the strategy at every level of the
company
The feedback loop helps managers evaluate
the success of the strategy. Strategic
planning is ongoing.

2012 South-Western, a part of Cengage Learning

Pitfalls of Planning
The formal planning model does not consider:
The unpredictability of the real world
The role of lower-level managers
That success is often unplanned or
serendipitous

2012 South-Western, a part of Cengage Learning

Planning for the Unplanned
Emergent Strategy
The unplanned responses to unforeseen
circumstances
Autonomous actions are actions taken by
lower-level managers to formulate new
strategies and persuade top managers to alter
strategic priorities

2012 South-Western, a part of Cengage Learning

 Strategic Planning in Practice
It is important to plan for the future competitive
environment
Scenario Planning
Formulating plans that are based on what if
scenarios about the future
Decentralized Planning
Incorporating all managers in planning, not just
the top level managers
Strategic Intent
Building new resources and capabilities to create
and exploit future opportunities
2012 South-Western, a part of Cengage Learning
Cognitive Bias
Systemic errors in human decision making
that arise from the way people process
information
It has a tendency to fall back on rule of
thumb, which leads to systematic errors
Cognitive biases lead managers to make bad
decisions, even with good information

2012 South-Western, a part of Cengage Learning

Cognitive Biases
The prior hypothesis bias
Escalating commitment
Reasoning by analogy
Representativeness
Illusion of control

2012 South-Western, a part of Cengage Learning

Improving Decision Making
Devils advocacy- the critical analysis of a
plan
Dialectic Inquiry- the debate between
conflicting plans of action
The outside view- an evaluation of the project
against prior initiatives

2012 South-Western, a part of Cengage Learning

Strategic Leadership
Leadership skills are important for successful
strategic managers
A managers key strategic role is to use
knowledge, energy, and enthusiasm to
provide strategic leadership for subordinates

2012 South-Western, a part of Cengage Learning

Characteristics of Good
Strategic Leaders
Vision, Eloquence, and Consistency
Commitment
Being Well Informed
Willingness to Delegate and Empower
The Astute Use of Power
Emotional Intelligence

2012 South-Western, a part of Cengage Learning