Name: Andrea Padilla

Date: 12-03-2016

Summary
Strategic Leadership
Main concepts
Strategy: a set of actions established by managers of a company to increase
the performance of the enterprise. By using strategies, managers may
achieve superior performance and in this way the company could have a
competitive advantage over its rivals.
Strategic leadership: it refers to how effectively the strategy-making
process is carried out in order to increase not only the companys
performance but also to create competitive advantage. Therefore, making the
enterprise more valuable to its owners or shareholders.
Strategy formulation: the part in which the manager selects the strategies
to be used in the company by analyzing the internal and external
environment of the enterprise.
Strategy implementation: when strategies are executed or put in action.
Risk capital: capital that cannot be recovered if the company goes
bankrupt.
Shareholder value: Returns earned by shareholders from the purchase of
shares. These returns come from: 1) capital appreciation in the value of a
companys shares and 2) dividend payments.
Return on invested capital (ROIC): Net profit over the capital invested in
the company (profit/invested capital).
Net profit: bet income after tax.
Capital: sum of money invested in the firm (stockholders equity + debt).
Competitive advantage: when a companys profitability is higher than the
average profitability and profit growth of other enterprises that have the
same target.
Sustained competitive advantage: when the company maintains a
superior average profitability for a number of years.
Business model: the managers plan on how his or her strategies and way
of distributing the capital investment will fit together in order to gain
competitive advantage, which will, at the same time, ensure the growth of
profit and the achievement of profitability.
Multidivisional company:

Determinants to increase shareholder value

In order to increase shareholder value, managers should implement
strategies that increase the profitability of the company (ROIC) and that
guarantee profits growth. For this to be possible, managers should pursue the
goal of having a competitive advantage that will make the company different
from its rivals.
Superior performance
The objective of profit-making companies is to maximize shareholder value
because:
1. Shareholders provide the risk capital that a manager uses for buying
resources to produce and sell goods or services. As a result, they expect to
get a return on their capital for the amount of money invested.
2. As the legal owners of the company, shareholders want their shares to
increase in value through the growth and maximization of the corporations
profits.
The profitability of a company is measured by the return that it makes on
the capital invested in the enterprise. Moreover, the profitability of a firm
depends on how well, effectively and efficiently the capital of a company is
distributed and managed to produce goods and services. Therefore, if it is well
used, shareholders will get a positive return. On the other hand, the growth of
profit is measured through the increase of net profit and this can be achieved
through various ways, such as: expanding overseas or diversifying its products.
In conclusion, these two concepts are the main determinants to increase
shareholder value. That is why managers have to formulate and execute
strategies that lead the company to gain competitive advantage over the
competition. Their challenge is to maintain the profitability of the enterprise and
at the same time generate high profits for the shareholders. In another way,
what managers should achieve is called profitable growth, which is obtained
through the application of strategic leadership.
Competitive Advantage and a Companys Business Model
A company that is able to have competitive advantage offers products or
services that are unique and that are different from the ones offered by rivals.
This is achieved through a variety of strategies implemented by managers of an
enterprise. Consequently, the firm is able to consistently outperform much better
that the competition and obtains as a result, a sustained competitive advantage,
which leads to gaining market share from rivals. Therefore, profit grows rapidly
and even faster than the one of other companies.
Moreover, through the use of a business model, a manager is able to
integrate strategies and plans of distribution of capital, which he or she expects
to turn into profit growth and profitability. This model will include:

The selection of customers and product offerings.

The creation of value for customers.
How to acquire and keep customers.
How to obtain lower costs.
How to manage delivery of goods and services to different markets.
Organization of activities in the company.
Plan how to achieve sustainability and generate high profitability.
How to make the business grow over time.

Industry Differences in Performance

The success of a company, as well as its performance, profit growth
and profitability depend also on the industry environment in which it is
involved, its characteristics and the different competitive conditions that
surround them.
Performance in Nonprofit Enterprises
Even though nonprofit enterprises are not companies, institutions or
organizations created with the objective to make profit, they still need to
achieve certain goals so their performance can be measured. Nonprofit
enterprises compete for scarce resources in order to accomplish their aims
and to receive additional donations that will help them to offer better
services.

Strategic Managers
In the majority of companies there are two main types of managers:
1. General managers: responsible for the overall performance of the
company or for one of its major divisions. They are in charge of
achieving profitability, profit growth and competitive advantage through
various strategies.
2. Functional managers: responsible for supervising a particular function.
Corporate-Level Managers
These level includes the chief executive officer (CEO), senior
executives, and corporate stuff. These people make the most important
decisions at a company and they are in charge of developing the strategies
that will lead the enterprise to success. However, the CEO is the principal
general manager, as well as, the principal leader of managers at a lower
division. The main responsibility of the CEO is to integrate the business and
corporate strategies to ensure a consistent maximization of profit and high
profitability. Furthermore, corporate-level managers are said to be the link
between shareholders and the people who implement the strategies and
who help to develop the company.

Business-Level Managers
Head of a business unit who is in charge of transforming the guiding
principles that come from the corporate-level managers into strategies for
individual and specific businesses.
Functional-Level Managers
These type of managers are in charge of the organizational
departments. They are responsible for developing functional strategies in
their specific business area which will help to fulfill the business and
corporate-level managers strategies.

The Strategy-Making Process

Even if some of the best strategies come up without prior planning,
CEOs should still consider making a formal plan in order to use it as a
starting point.
A Model of the Strategic Planning Process
Five principal steps for the formal strategic planning:
1. Establish the corporate mission and major corporate goals.
2. Analyze
the
organizations
external
competitive
environment
(opportunities and threats). [Strategy formulation]
3. Analyze the organizations internal operating environment (strengths and
weaknesses). [Strategy formulation]
4. Establish strategies to reinforce the companys strengths and correct the
weaknesses. This will help the organization to take advantage of
opportunities and avoid external threats. These strategies should be
consistent with the mission and goals of the organization. [Strategy
formulation]
5. Execute the strategies. [Strategy implementation]
The strategy-making process ends up with the designing of the
organizations culture, structure and controls. Nevertheless, some companies
can make a new plan every year just to modify or reaffirm a strategy.
Furthermore, strategic plans are designed to be used for a period of 1-5
years, so they can be updated to new conditions. The results of the strategic
planning process are used to shape resource allocation in the company.
Mission statement
The mission statement is the framework that guides the formulation of
strategies. It has four components: the reason of existence of the company
(mission), a statement referring to what the company expects for the future
(vision), a statement containing the main values of the organization, and a
statement with the major goals of the enterprise.
Mission: it describes what the company does.

First step: You can define the companys business by answering 3 questions:
a) What is our business? Customers, customers needs, how the
company satisfies those needs.
b) What will it be?
c) What should it be?
The mission can be of two types:
1. A customer-oriented mission that focuses on which kinds of customer
needs the products are satisfying
2. A product-oriented mission that focuses on the characteristics of the
products sold by the company.
It is recommended to establish a customer-oriented mission because
with just the other one, you are just describing the physical part of the
product but not specifically how this product will satisfy the customer needs.
This type of mission will help to anticipate demand shifts.
Vision: it defines what the company wants to achieve in the future.
Values: (norms, standards and values) they are the core values that establish
the behavior of the companys managers and employees with its customers
and their commitment with the enterprise to achieve its mission and goals.
Major goals
Second step: establish major goals.
Characteristics of well-constructed goals:
1. They are precise and measurable.
2. They try to improve the performance of the company or address crucial
issues.
3. They challenge employees to improve the operations of an organization
because they know that the goal is achievable and realistic.
4. They have a deadline to be achieved. This will motivate even more the
employees to accomplish the objective. Nonetheless, not all goals may
require time constraints.
Major goals should be established for the long and short-term in order
to have profitability and profit growth in the long run. This will not only help
to increase competitiveness but also will ensure a high performance of the
company.
External Analysis
By examining the external environment of the company, managers will
be able to identify opportunities and threats that will influence in the
achievement of the companys mission.

The company has to analyze three environments: the industry

environment, the country or national environment and the socioeconomic or
macroenvironment. They should also include the study of its rivals, their
competitive position and the impact of globalization in the industry.
Internal Analysis
This type of analysis evaluates the resources, capabilities and
competencies of a company in order to identify its strengths and weaknesses.
SWOT Analysis and the Business Model
The SWOT analysis contains the opportunities, threats, strengths and
weaknesses of a company. It helps to create strategies to reinforce strengths,
eradicate threats, take advantage of opportunities and reduce or eliminate
weaknesses. The major goal of the SWOT analysis is to create, reaffirm or
improve the business model of an enterprise
There are four types of strategies that can be implemented after doing the
SWOT analysis:
1. Functional-level strategies: improve the effectiveness of the operations of
a company.
2. Business-level strategies: focuses on the competitiveness of the business
itself. It seeks to gain or maintain competitive advantage through various
strategies.
3. Global strategies: strategies to expand worldwide.
4. Corporate-level strategies: What business or businesses should we be in
to maximize the long-run profitability and profit growth of the
organization, and how should we enter and increase our presence in these
businesses to gain a competitive advantage?
Strategy implementation
After choosing the right group of strategies, managers have to put
them in action. This includes taking actions at the three levels: corporate,
business and functional level. In addition, strategy implementation involves
the design of the organization, the culture and the control system that a
company must put into action to execute the strategies. A governance
system is also recommended when implementing the set of strategies so
there is a balance between the legal and ethical aspect.
The Feedback Loop
Subsequently, the strategies implemented in the previous phase must be
monitored to see if they are going on according to the goals established, as
well as, the mission of the company. Moreover, they are supervised so that
managers can determine till what point strategies are working in order to
achieve objectives. If not they can decide whether to modify the strategies or
suggest changes.

Strategy as an Emergent Process

The formal planning model to make strategies has always been
criticized for 3 reasons: the unpredictability of the world, the role that lower
level managers can play in the strategic management process, and that
many successful strategies are often the result of serendipity.
Intended and Emergent Strategies
Henry Mintzberg made a model of strategy development that proposes
that emergent strategies are often more successful and even more
appropriate than intended strategies, which are always planned but that are
not suitable to change quickly in unpredictable circumstances in the
environment.
In practice, most organizations combine intended and emergent
strategies. Managers should always take into consideration emergent
strategies because they may help to achieve the goals that the company is
seeking for and even bring a new perspective to the enterprise, with fresh
and innovative ideas that will help to develop the business.

Strategic Planning in Practice

Despite criticisms, a study suggests that strategic planning does have
a positive effect on the performance of a company. However, another study
says that the combination of intended and emergent strategies form part of a
good strategy formulation process, especially in an unpredictable scenario. In
conclusion, top managers should make plans within the context of the current
competitive environment and also within the future competitive environment.
Scenario Planning
Means to make plans based upon what if scenarios in the future. They
can both me pessimistic or optimistic. This will help managers to establish
strategic options that can be used under any kind of circumstance. This can
help managers to think out of the box and anticipate what they can do in
different scenarios.
Decentralized Planning
Error: strategic planning should be just the responsibility of the top
manager.
Successful strategic planning encompasses managers at all levels of
the corporation because they can mix ideas and different points of view.
Much of the planning should be done by the business and functional
managers because they are close to the facts. In other words, planning
should be decentralized. Corporate level managers should be facilitators who
help the other managers to set up strategies.

Strategic Decision Making

Cognitive Biases and Strategic Decision Making

Managers may make poor decisions because of cognitive biases, which
are systematic errors that arise from the way people process information.
The prior hypothesis bias happens when people who have strong prior
beliefs tend to make decisions on the basis of these beliefs, even when
presented with evidence that their beliefs are wrong.
Another cognitive bias, escalating commitment happens when decision
makers keep spending more and more resources even if they have received
feedback that the project is failing. This is an irrational response.
A third bias, is reasoning by analogy that is the use of simple analogies
to make sense out of complex problems.
A fourth bias is representativeness which tends to generalize from a
small sample or a single vivid anecdote.
A fifth bias is the illusion of control, which means that decision makers
overestimate ones ability to control events.
Last but not least, the availability error, which arises from our
predisposition to estimate the probability of an outcome based on how easy
the outcome is to imagine.
Techniques for improving decision making
There are three techniques to counteract cognitive biases:
1. Devils advocacy: generate a plan and make a critical analysis. One
member of the decision making group acts as the devils advocate
and says all the reasons that might make the proposal
unacceptable. So the top manager is aware.
2. Dialectic inquiry: generation of a plan and a counter-plan. There is a
debate between those who are in favor of the plan and those who
are in favor of the counter-plan. Then strategic managers make the
decision between the two proposals.
3. Outside view: planners have to identify past successful or failed
strategic initiatives to determine whether those initiatives will work
for project at hand.

Strategic Leadership
Key characteristics of good strategic leaders that lead to high
performance:
1. Vision, eloquence, and consistency. Sense of direction,
communicate the vision and energize people and consistently
articulate the vision till it becomes part of the organizations
culture.

2. Articulation of a business model that is congruent with the

strategies, goals, mission and vision of the company.
3. Commitment to the vision and business model
4. Being well informed
develop a network of formal and informal
sources who keep them well informed about what happens in the
company.
5. Willingness to delegate and empower subordinates to make
decisions , this means motivation
6. Astute use of power
7. Emotional intelligence: self awareness, self- regulation, motivation,
empathy and social skills.