Competing For Advantage

Part I – Strategic ThinkingChapter 2 – Strategic Leadership

Managerial Discretion

1) Discretion – latitude for action or decision making

How much influence do you really have?

2) Hubris – excessive pride, leading to a feeling of invincibility

Constraints on Decision Making

Decision-Making Biases

Reliance on previously formed beliefsFocus on limited objectivesExposure to limited decision alternatives Insensitivity to outcome probabilities Illusion of controlReliance on a limited set of heuristics or

rules of thumb

Top Management Teams

Group composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies

Factors that Influence the Effectiveness of Top Management Teams

Top management team heterogeneity

The CEO and top management team power

Executive succession processes

Heterogeneous Top Management Team

Introduces a variety of perspectives Has a greater propensity for strong

competitive action Tends to "think outside of the box," leading to

more creative decision making, innovation, and strategic change

Offers various areas of expertise to identify environmental opportunities, threats, or the need for change

Promotes debate

Heterogeneous Top Management Team Challenges

Cohesion

Communication

Comprehensive examination of threats and opportunities

The CEO and Top Management Team Power

CEO Duality - CEO also serves as chair of the board of directors to achieve power relative to the board

Independent Board Leadership Structure – the structure in which the board's ability to monitor top-level managers' decisions and actions (particularly in terms of financial performance) is enhanced by employing two different people to serve as CEO and board chair

CEO Duality

Is more common in the United StatesOccurs most often in the largest firms Is criticized for causing poor

performance and slow response to change

Top Management Power

Members of top management can use their social and business ties with directors

Powerful CEOs can appoint members of the top management team or other sympathetic associates to serve on the board

CEO tenure

Executive Succession Processes

Process can be internal or external

Benefits of Internal Labor Market

Continuity

Continued commitment

Familiarity

Reduced turnover

Retention of "private knowledge"

Benefits of External Labor Market

Since tenure with the same firm is thought to reduce innovation, outsiders can bring

diverse knowledge bases

new social networks

….which may offer new synergies and new competitive advantages

Effect of CEO Succession and Top Management Team on Strategy

What is strategic effectiveness?

Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectives

Reflects and understandingof the environment

Takes resources into consideration

Effectivelyimplemented

StrategicEffectiveness

(fit)

Strategic Vision vs. Mission

A strategic vision concerns “wherewe are going” or ”what do we want to be.” Markets to be pursued Future product/ market/

customer/ technology focus

Kind of company management is trying to create

The mission statement focuses on its “who we are and what we do” Current product and

service offerings Customer needs being

served Technological

and businesscapabilities

Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from

other firms of its type Conveys

Who we are, What we do, and Why we are here

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term

Control Systems

Financial Controls focus on short-term financial outcomes produce risk-averse managerial decisions

Strategic Controls focus on the content of strategic actions encourage decisions that incorporate

moderate and acceptable levels of risk

Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later

However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead

Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

Leading versus Lagging Indicators

Controls in Balanced Scorecard Framework