The Strategic Leader's Roadmap, Revised and Updated Edition

6 Steps for Integrating Leadership and Strategy

Harbir Singh, Michael Useem

• Publisher: Wharton School Press
• Year: 2021
• Print ISBN: 9781613631218
• eBook ISBN: 9781613631201
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

" The Strategic Leader's Roadmap provides an essential playbook for combining business strategy with great leadership."—William P. Lauder, Executive Chairman, The Estée Lauder Companies Inc. In The Strategic Leader's Roadmap, Updated and Revised Edition: 6 Steps for Integrating Leadership and Strategy, Wharton management professors Harbir Singh and Michael Useem offer a six-point checklist for today's leaders to follow. They explain how leading strategically will help managers strengthen their capacity to develop strategy and to lead its execution.Drawing on one-on-one interviews with CEOs, in-depth research, and their experience teaching today's executives and tomorrow's leaders, Singh and Useem take readers into the offices—and mindsets—of some of today's foremost strategic leaders.In this fully updated and revised edition, Singh and Useem explore: How Indra Nooyi rose to become CEO of PepsiCo and led its successful strategic redirection; How Jack Ma consistently pivoted and outflanked competition to position Alibaba to become a global behemoth; How John Chambers, executive chairman of Cisco Systems, changed his and other company leaders' leadership to stay ahead of disruption; How Lawrence Culp Jr., the CEO of General Electric, has increased efficiency by up to 900% by undertaking a thorough examination of process and strategy. Fast-reading and actionable, The Strategic Leader's Roadmap will enable leaders at all levels to master the abilities necessary to keep their companies ahead of the competition.

PART I

Strategy and Leadership Fundamentals

Chapter 1

Principles of Strategy and Leadership

IKEA, the Swedish-based home furnishing company with more than 375 stores in 30 countries and annual revenue of more than $45 billion in 2019, has a simple vision statement.

“Our mission as a business is ‘to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ Our vision also goes beyond home furnishing. We want to create a better everyday for all people impacted by our business.”¹

The company’s strategy is to offer exceptionally low prices that other providers cannot match or sustain, making IKEA’s products more affordable to more customers. At the same time, the company promises a smaller sacrifice in the aesthetics of its less costly products, stressing that the products will be well designed and the company will not be stigmatized as a cut-rate brand. And in creating “a better everyday life for the many people,” IKEA included its own employees, not just customers, by paying workers above-market wages.²

A first step toward integrating strategy and leadership is to understand the basic dynamics of an organization’s current strategy. This necessitates applying an active ear to the market and having the ability to translate disparate sources, weak signals, and nascent trends into a vision of where to take an enterprise. And this must be done recurrently, since no single moment of insight can serve as an enduring platform. It requires an ability to read the past’s implications for future decisions and to learn from prior experiences which actions will better serve the enterprise in the future. It also depends on a manager’s capacity to communicate that intent persuasively and indelibly.³

Company strategy can be defined as setting the firm’s general direction and identifying what creates sustainable value and advantage for the firm. Underpinning the strategy is a broader vision with aspirational goals, providing both an overarching trajectory for the firm and an inspiration for employees to achieve it.

Setting company strategy, in the way IKEA has, requires leaders to devote time and thought to five sets of questions, summarized in box 1.1.

Vision and Competitive Positioning

A company’s vision shapes the competitive positioning of its products and services. To enact the vision, managers require an appreciation for the drivers of both differentiation and cost to define and sustain that positioning. This can be challenging since industries vary greatly in the degree of product differentiation and cost, which affects customer willingness to pay.

IKEA managers, for instance, achieved a sophisticated combination of differentiation and cost by offering simple, versatile products with smart designs at a very low price point. By focusing on clean lines in furniture design and easy-to-assemble kits, its managers were able to provide customers with aesthetically pleasing products at an attractive price and, in doing so, build an enduring competitive position in the home furnishing market.

Or consider the competitive positioning and product differentiation of Procter & Gamble Co. (P&G), a consumer goods firm with $75 billion in revenue in 2020 and more than 99,000 employees. Former chief executive A. G. Lafley, who led the company from 2000 to 2010 and again from 2013 to 2015, set forward the firm’s vision: “We will provide products and services of superior quality and value that improve the lives of the world’s consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities we live and work in, to prosper.”⁴

Box 1.1. Setting Company Strategy

1. Vision. Do you have an inspirational statement of purpose and direction for the organization? What is your winning aspiration? How does this drive your organization’s goals, sense of purpose, and approach to competition and achievement of ambition?

2. Competitive positioning. How is the firm positioned in its markets? The time-proven concepts of competitive strategy are of primary concern, including the influence of suppliers, the likelihood of new entrants, the threat of substitutes, and the firm’s position in its collaborative networks.

3. Value proposition. What features of a company’s product or service line create value—or destroy value—and are subject to a manager’s discretion? What investments are needed to enhance product or service differentiation or improve efficiency?

4. Competitive advantage. Given the external and internal factors, what decisions by a manager can create additional advantage for the enterprise in the market? Expressed negatively, what bad decisions or cases of indecision can result in disadvantage?

5. Strategic redirection. In light of answers to the previous questions, is the enterprise due for a course correction?

While the statement may appear lofty or even contrived, it served as a pragmatic vision for focusing Lafley and employees on developing products that could “improve the lives” of consumers, though consumers might pay more for them. The number of well-known billion-dollar P&G brands that achieved this—Crest, Duracell, Gillette, Olay, Pampers, and Tide among them—more than doubled during Lafley’s tenure at P&G, and he built a fivefold increase in the number of less established brands with sales of $500 million to $1 billion.⁵

Some industries, such as fashion, pharmaceuticals, and smartphones, present opportunities for high product differentiation, whereas other industries have less of an opportunity. When product differentiation is low, companies tend to focus on greater efficiency and lower costs compared with competitors. One example: the discount retail industry, where a primary driver of a firm’s competitive advantage is its low prices, made possible by intensive effort within the firm to cut costs as much as possible. Walmart has long dominated this industry with its exceptionally low expenses in its supply chain, using real-time inventory and logistic systems to reduce stockpile costs and the expense of selling in its stores. Its managers deliberately set forward a long-term, low-cost model built on a superior supply chain and global manufacturing system. Other players in the online retail market have optimized a combination of differentiation and efficiency, delivering products exceptionally quickly and inexpensively.

In industries with greater potential for product differentiation, brand can prove a potent driver. Customers are willing to pay more for beverages made by the Coca-Cola Company and PepsiCo, for example, than for those made by lesser-known companies, even when taste tests reveal little real disparity among them. Similarly, customers are prepared to spend more on fragrances from the Estée Lauder Companies and L’Oréal S.A. than those from less prestigious makers, and clients are willing to spend more on consulting firms with premier reputations, such as McKinsey & Company, and well-known investment banks, such as Goldman Sachs.

Technology has become a differentiator as well. Lipitor, the cholesterol-reducing drug produced by Pfizer, earned more than $1.97 billion in revenue in 2019. Many physicians and patients continue to prefer Pfizer’s offering not only because its prescriptions do not require a special liver test but also because they are already familiar with the brand. Customer service is yet another example of a differentiator, as evident among exclusive hotels and luxury stores that charge customers a premium for their high-class ambiance.⁶

Most firms start with relatively similar inputs to create their products, but efficiencies in making them can vary considerably. From purchasing and manufacturing to marketing and distribution, reducing costs can help move a company toward a superior value frontier where the combination of product differentiation and production cost is optimal given the enterprise and its market. For optimizing their competitive positioning, managers are called to focus on four features of their firm’s strategy, as outlined in box 1.2.

A superior value proposition is the combination of differentiated product features and costs that most appeals to customers. A manager’s ability to build a superior value proposition begins with learning to appreciate what drives a customer’s willingness to pay for a product or service. That readiness is linked to product differentiation—the features of the product or service that enhance its desirability to the customer regardless of cost. The success of Apple Inc.’s iPhone, for instance, can be attributed in part to the distinctive combination of value, design, and functional features that increases customer willingness to pay a premium.⁷

Box 1.2. Features of Competitive Positioning

1. Product or service differentiation. Understand the drivers of customer willingness to pay and ways to strengthen that willingness.

2. Relative cost of production and delivery of the product or service. Appreciate the key elements of cost in the supply chain, production, logistics, and marketing.

3. Superior value proposition. Identify the frontier where the combination of product differentiation and cost relative to competitors is optimal for the industry or market.

4. Sustained value proposition. Recognize that product innovation and competitive dynamics result in ever-changing superior value frontiers defined by the current leaders’ combinations of product differentiation and relative cost.

The relative cost position for delivering products or services also enters into the makeup of a superior value proposition. The relative expense of producing Apple goods—the company’s research and development, manufacturing and distribution, and branding and marketing—is high compared with the costs to produce rival products such as Microsoft’s tablet. Similarly, Apple’s cost of designing and marketing laptop computers far exceeds those of other competitors such as Lenovo and Dell. However, these higher costs result in products for which customers have a greater willingness to pay premium prices, more than offsetting the high relative cost position. However, firms with higher cost positions that do not have commensurate levels of differentiation end up at a competitive disadva...

Table of contents

• Copyright
• Contents
• Introduction: Strategic Leadership as the Driver of Growth and Renewal
• Part I: Strategy and Leadership Fundamentals
• Part II: The Strategic Leader’s Roadmap
• Part III: Strategic Leadership in Action
• Part IV: Strategic Leadership at the Board and Investor Levels
• Conclusion: Becoming a Strategic Leader
• References
• Notes
• About the Authors
• About Wharton School Press
• About the Wharton School