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Chapter 2

Strategic Leadership:
Managing the Strategy Process

Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Chapter Outline
2.1 Vision, Mission, and Values
2.1 Vision, Mission, and Values
Vision and Mission
Vision and Mission
Living the Values
Living the Values
2.2 Strategic Leadership
2.2 Strategic Leadership
How Do You Become an Effective and Ethical Strategic Leader?
How Do You Become an Effective and Ethical Strategic Leader?
Formulating Strategy Across Levels: Corporate, Business, and
Formulating Strategy Across Levels: Corporate, Business, and
Functional Managers
Functional Managers
2.3 The Strategic Management Process
2.3 The Strategic Management Process
Top-Down Strategic Planning
Top-Down Strategic Planning
Scenario Planning
Scenario Planning
Strategy as Planned Emergence: Top-Down and Bottom-up
Strategy as Planned Emergence: Top-Down and Bottom-up
2.4Implications
2.4 Implicationsfor
forthe
theStrategist
Strategist

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Strategy Smart Videos

Did You Know


Progression of technology
Researched by Karl Fisch

http://www.youtube.com/watch?v=YmwwrGV_aiE
4:59 Minutes (2012 version)

http://www.youtube.com/watch?v=vdvo5FlRqmM
8:31 Minutes (2013 version)

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Strategy Smart Videos

Talent Report. What Workers Want. (2012)

http
://netimpact.org/learning-resources/research/what-wor
kers-want

2:46 Minutes
Topics: General Strategy

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ChapterCase 2
Neville Elder/Corbis

PepsiCosIndra
PepsiCos IndraNooyi:
Nooyi:Performance
Performancewith
witha aPurpose
Purpose

$70
$70billion
billionininannual
annualrevenues
revenues
300,000
300,000worldwide
worldwideemployees
employees
CEOIndra
CEO IndraNooyi
Nooyihad
hada aleadership
leadershiprole
rolein:
in:
1997 Divestiture of Taco Bell, Pizza Hut, & KFC
1997 Divestiture of Taco Bell, Pizza Hut, & KFC
1998 Acquisition of Tropicana
1998 Acquisition of Tropicana
2001 Acquisition of Quaker Oats (including Gatorade)
2001 Acquisition of Quaker Oats (including Gatorade)

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ChapterCase 2

Ms.Nooyi
Ms. Nooyideclared
declaredPepsiCos
PepsiCosvision
visiontotobebe
Performancewith
Performance witha aPurpose,
Purpose,defined
definedbybythree
three
dimensions:
dimensions:
Human sustainability
Human sustainability
Environmental sustainability
Environmental sustainability
The whole person at work
The whole person at work

This
Thistriple-bottom-line
triple-bottom-linecompetitive
competitiveadvantage
advantage
approachconsiders
approach considerseconomic,
economic,social,
social,and
and
environmentalperformance,
environmental performance,underscoring
underscoringCSR
CSRand
and
stakeholderstrategy.
stakeholder strategy.
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Strategy Smart Videos

Performance with purpose: PepsiCo's growth mantra 1

http://www.pepsico.com/purpose

2:41 Minutes

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2.1 Vision, Mission, and Values

Strategic management process


Process employed by strategic leaders to conceive
and implement a strategy, which leads to sustainable
competitive advantage

Strategic leadership
Executives use of power and influence to direct
assets in the pursuit of an organizations goals

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Vision and Mission

VISION
VISION
Aspiration of the firm that lays the foundation for its
mission to is a common word

MISSION
MISSION
What an organization does, including products, services,
and which markets by is a common word

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FOR-PROFIT VS. NOT-FOR-PROFIT VISIONS
Main difference is the metric by which the firm
assesses successful performance
TFA success measured by the impact its teachers
have on student performance
For-Profit firms success measured by financial
performance
Competitive Advantage vision is aspirational, not
exclusively financial

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Strategy Smart Videos

Teach For America

http://
www.youtube.com/watch?v=9J7wqVJCFYw&feature=c
4-overview-vl&list=PLu9bhgTe3LY35_yYOgGW3kSyI
MdiLmcuH

5:57 Minutes

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Exhibit 2.1 Teach For America

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CUSTOMER-ORIENTED VS. PRODUCT-ORIENTED

Customer-oriented vision statements allow firms to


adapt to changing environments.

Product-oriented vision statements are less flexible.

Strategic flexibility is a necessary condition to


achieve competitive advantage.

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PRODUCT-ORIENTED VISION STATEMENTS

A product-oriented vision defines a business in terms


of a good or service.

Product-oriented visions tend to force managers to


take a myopic view of the business landscape.

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CUSTOMER-ORIENTED VISION STATEMENTS
A customer-oriented vision defines a business in terms
of providing solutions to customer needs and are more
flexible.

Example: We are in the business of providing solutions


to professional communication needs.

However the company needs to be careful to


differentiate between a customer-oriented vision and
following customer sentiments.
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Exhibit 2.2 Companies with Customer-
Oriented Vision Statements

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EVOLUTION OF INTEL CORPORATION VISION STATEMENT

Early to be the preeminent building-block supplier of


the PC industry
1999 to be the preeminent building-block supplier to
the Internet economy
2008 to delight our customers, employees, and
shareholders by relentlessly delivering the platform
and technology advancements that become essential to
the way we work and live

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Living the Values

Values are ethical standards/norms that govern the


behavior of individuals within a firm.
Two Important Functions:
1. Values form a foundation for a firms vision and
mission.
2. Values serve as the guardrails to keep the company on
track.

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Strategy Highlight 2.1
Merck:Reconfirming
Merck: ReconfirmingIts ItsCore
CoreValues
Values
Founder
FounderGeorge
GeorgeW. W.Mercks
Merckswords
wordsformformthe
thebasis
basisofof
thecompanys
the companysvalues
valueseven
eventoday.
today.
Merck
Merckended
endedRiver
RiverBlindness
BlindnessininAfrica,
Africa,Latin
LatinAmerica
America
&&thetheMiddle
MiddleEast
Eastbybydonating
donatingitsitsrecently
recentlydiscovered
discovered
drugMectizan.
drug Mectizan.
However,
However,these
thesevalues
valueswere
werechallenged
challengedwithwiththe
theVioxx
Vioxx
Case.The
Case. Thefirm
firmdid
didvoluntarily
voluntarilypull
pullthe
thedrug
drugoff
offthe
the
marketwhen
market whenevidence
evidencelinking
linkingheart
heartattacks
attacksand
andstrokes
strokes
totoVioxx
Vioxxwas
wasrevealed,
revealed,
Resulting
ResultingininMerck
Merckshares
sharesfalling
falling27%.
27%.

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2.2 Strategic Leadership
ORGANIZATIONAL COMMITMENT

Strategic leadership the behaviors and styles of


executives that influence others to achieve the
organizations vision and mission

Strategic leaders impact firm performance as do


leaders whose decisions lead to huge destruction of
shareholder wealth and jobs.

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Exhibit 2.3 How CEOs Spend Their
Days

SOURCE: Authors depiction of data from O. Bandiera, A. Prat, and R. Sadun (2012), Managerial capital at the top: Evidence from the time use of CEOs,
London School of Economics and Harvard Business School Working Paper.

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How Do You Become an Effective
and Ethical Strategic Leader?
Upper-echelons theory Framework that views
organizational outcomes strategic choices and
performance levels as reflections of top management
values, who interpret situations through their unique
perspective lens

Strong leadership is the result of both innate abilities


and learning.

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GOOD TO GREAT
Jim Collins identified great companies as those that
transitioned from average performance to sustained
competitive advantage.

He measured that transition as cumulative stock


returns of 6.9 times the general market in the 15 years
following their transition points.

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Exhibit 2.4 Strategic Leaders:
The Level 5 Pyramid

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Formulating Strategy Across
Levels: Corporate, Business, and
Functional Managers
CORPORATE STRATEGY
CORPORATE STRATEGY
Where
Wheretotocompete
compete(industry,
(industry,markets,
markets,and
andgeography)
geography)

BUSINESSSTRATEGY
BUSINESS STRATEGY

How
Howtotocompete
compete(cost
(costleadership,
leadership,differentiation,
differentiation,oror
integration)
integration)
FUNCTIONALSTRATEGY
FUNCTIONAL STRATEGY

How
Howtotoimplement
implementa abusiness
businessstrategy
strategy

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Exhibit 2.5 Strategy Formulation &
Implementation Across Levels:
Corporate, Business, and Functional Strategy

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2.3 The Strategic Management
Process
When strategizing for competitive advantage, managers rely
on three different approaches. This order represents how
these approaches were developed over time.

STRATEGICPLANNING
STRATEGIC PLANNING

SCENARIOPLANNING
SCENARIO PLANNING

STRATEGYAS
STRATEGY ASPLANNED
PLANNEDEMERGENCE
EMERGENCE

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Top-Down Strategic Planning

Top-down strategic planning Rational, top-down


process aiding in programming for future success

Information flows only one way: top-down.

Centralized strategic intelligence and decision-making

Exhibit 2.6 illustrates the three steps of analysis,


formulation, and implementation in a traditional top-
down strategic planning process.

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Exhibit 2.6 Top-Down Strategic
Planning in the AFI Framework

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Scenario Planning

Managers envision different what-if scenarios to


anticipate plausible futures.
Scenario planning takes place at both the corporate
and business levels of strategy.
Addresses both optimistic and pessimistic futures
Exhibit 2.7 illustrates the use of scenario planning
with the AFI strategy framework.

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Exhibit 2.7 Scenario Planning
Within the AFI Strategy Network

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SCENARIO PLANNING: ANALYSIS
Analysis stage
Managers brainstorm to identify possible future scenarios,
with critical inputs from different hierarchies and different
functional areas (e.g., R&D, manufacturing, and marketing
& sales).
Examples of external forces to be considered:
Exchange rate fluctuations
Currency appreciation/depreciation
Financial crises impacting credit/equity/liquidity
Black Swan events (impactful & unpredictable)

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SCENARIO PLANNING: FORMULATION

Formulation stage
Management teams develop different strategic plans to
address possible future scenarios.
These capture the firms internal and external
environments and answer key questions.
From the portfolio of options, managers transform
the most viable options into full-fledged, detailed
strategic plans that can be activated and executed as
needed.

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SCENARIO PLANNING: IMPLEMENTATION

Implementation stage
Executives decide which option most closely matches the
current reality and managers implement the dominant
strategic plan.

The iterative, interdependent relationship among


analysis, formulation, and implementation enhances
organizational learning and strategic flexibility.

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Strategy as Planned Emergence:
Top-Down and Bottom-Up
Critics of top-down and scenario planning argue that
strategic planning is not the same as strategic
thinking.
Most notable of these critics, Henry Mintzberg,
proposed a third approach to the strategic management
process.
From this viewpoint, managers must synthesize all
available input from different internal/external sources
into an overall strategic vision.

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Exhibit 2.8: Realized Strategy
Combines Top-Down and Bottom-Up

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Strategic initiative
Activity a firm pursues to explore and develop new
products and processes, new markets, or new ventures
Strategic initiatives may develop through:
Autonomous actions by lower-level employee
Serendipity (random events, pleasant surprises, accidental
happenstances)
The Resource Allocation Process (RAP)

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Strategy Highlight 2.2

StarbuckssCEO:
Starbuckss CEO:Its
ItsNot
NotWhat
WhatWe
WeDo
Do

The story of Frappuccino is chronicled in this Strategy


The story of Frappuccino is chronicled in this Strategy

Highlight,including:
Highlight, including:
The strong resistance by top executives
The strong resistance by top executives
The tenacious determination of one store manager, Diana
The tenacious determination of one store manager, Diana
The importance of a product champion for autonomous
The importance of a product champion for autonomous
innovation
innovation
The culmination of Frappuccino being a billion-dollar
The culmination of Frappuccino being a billion-dollar
business for Starbucks
business for Starbucks

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STRATEGIC INITIATIVES VIA AUTONOMOUS ACTIONS

Google employs a 70-20-10 rule when organizing the


work of its engineers:
70% is focused on its main business (search and ads)
20% is spent on ideas of their own choosing
10% is devoted to total wild cards (e.g., driverless car)
Google reports that half of its new products came from
the 20 percent rule.

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STRATEGIC INITIATIVES VIA AUTONOMOUS ACTIONS

Championed by a mid-level engineer, GEs leadership


relented and bought Enron Wind for $200 million.

A huge success, generating revenues over $10 billion in


2012, this acquisition opened up significant alternative-
energy opportunities, including GEs ecomagination.

From product-oriented to consumer-oriented, from


Welch to Immelt, GE transitions are underscored.

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2.4 Implications for the Strategist
THREE STRATEGIC PROCESSES

The three strategy processes discussed in this chapter,


each have strengths and weaknesses.

Important variables to consider:


Rate of environmental change (internal/external)
Firm size
Employee commitment to vision, mission, and
organizational values

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ChapterCase 2
Neville Elder/Corbis

ConsiderThis
Consider This

The
Thestakeholder
stakeholderstrategy
strategyapproach
approachadopted
adoptedbybyIndra
Indra
Nooyi is applauded by some, yet performance
Nooyi is applauded by some, yet performance under under
PepsiCosPerformance
PepsiCos Performancewith witha aPurpose
Purposevision
visionisis
laggingbehind
lagging behindCoke
CokeandandDiet
DietCoke.
Coke.
Should
ShouldMs.Ms.Nooyi
Nooyibebereplaced?
replaced?
Should
ShouldPepsiCo
PepsiCobebesplit
splitinto
intoa abeverage
beverageand
andsnack
snack
foodscompany
foods companyininorder
ordertotoleverage
leverageunbundled
unbundledprofit
profit
potential?
potential?
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Take-Away Concepts
LO 2-1 A vision captures an organizations
Describe the roles aspirations. An effective vision
of vision, mission, inspires and motivates members of the
and values in the organization.
strategic A mission statement describes what an
management organization actually doeswhat its
process. business isand why and how it does
it.
Values define the ethical standards and
norms that should govern the behavior
of individuals within the firm.

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Take-Away Concepts
LO 2-2 Product-oriented vision statements define
Evaluate the a business in terms of a good or service
provided.
strategic
Customer-oriented vision statements
implications of
define business in terms of providing
product-oriented solutions to customer needs.
and customer- Customer-oriented vision statements
oriented vision provide managers with more strategic
statements. flexibility than product-oriented missions.
To be effective, visions and missions
need to be backed up by hard-to-reverse
strategic commitments.

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Take-Away Concepts
LO 2-3 Employees tend to follow values practiced
Explain why by strategic leaders. Without commitment
from top managers, statements of values
anchoring a firm in
remain merely public relations exercises.
ethical values is
essential for long- Ethical values are the guardrails that help
term success. keep the company on track when pursuing
its mission and its quest for competitive
advantage.

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Take-Away Concepts
To become an effective strategic
LO 2-4
leader, a manager needs to develop
Outline how
skills to move sequentially through
managers become
five different leadership levels:
strategic leaders.
highly capable individual,
contributing team member,
competent manager, effective leader,
and executive.

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Take-Away Concepts
LO 2-5 Corporate executives must provide answers to the
question of where to compete (in industries,
Describe the roles markets, and geographies), and how to create
of corporate, synergies among different business units.
business, and
General managers in strategic business units must
functional answer the strategic question of how to compete in
managers in order to achieve superior performance. They must
strategy manage and align the firms different functional
areas for competitive advantage.
formulation and
implementation. Functional managers are responsible for
implementing business strategy within a single
functional area.

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Take-Away Concepts
Top-down strategic planning is a sequential, linear
LO 2-6 process that works reasonably well when the
Evaluate top-down environment does not change much.
strategic planning, In scenario planning, managers envision what-if
scenario planning, scenarios and prepare contingency plans that can be
called upon when necessary.
and strategy as
planned Strategic initiatives can be the result of top-down
planning or can emerge through a bottom-up process
emergence. from deep within the organization. They have the
potential to shape a firms strategy.

A firms realized strategy is generally a combination


of its top-down intended strategy and bottom-up
emergent strategy, resulting in planned emergence.

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