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404 PART 5: THE LEADER AS SOCIAL ARCHITECT
environmental changes, strategic leaders study the events that have already taken
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place and act based on their anticipation of what the future might be like. An
example is Progressive Insurance, which was the first to offer rate quotes online.

Other companies had the same information about the growth of personal com-
puters and the Internet, but they didn’t interpret it in the same way or formulate
the same strategy for taking advantage of the new technology. Good leaders an-
ticipate, look ahead, and prepare for the future based on trends they see in the
environment today, which often requires radical thinking. The Leader’s Bookshelf
describes a successful application of radical thinking in the Oakland A’s baseball
team.
Innovative thinking carries a lot of risk. Sometimes leaders have to shift their
51
strategy several times before they get it right. In addition, strategy necessar-
ily changes over time to fit shifting environmental conditions. To improve the

chances for success, leaders develop strategies that focus on three qualities: core
competence, developing synergy, and creating value for customers.
Core competence
Core competence An organization’s core competence is something the organization does extremely
something the organization does well in comparison to competitors. Leaders try to identify the organization’s
something the organization does
extremely well in comparison to
extremely well in comparison to
competitors
competitors unique strengths—what makes their organization different from others in the in-
dustry. L.L. Bean succeeds with a core competence of excellent customer service
and a quality guarantee. A customer can return a purchase at any time and get
a refund or exchange, no questions asked. One story told about the company is
that a manager approached a young boy with his mother and commented that his
L.L. Bean jacket was frayed at the sleeves and collar. The mother commented that
it was no wonder considering how much he had worn it, but the manager said,
“That shouldn’t happen; we need to replace that for you.” 52
Synergy
Synergy Synergy occurs when organizational parts interact to produce a joint effect
the interaction of organizational
the interaction of organizational that is greater than the sum of the parts acting alone. As a result the organization
parts to produce a joint effect
parts to produce a joint effect
that is greater than the sum of
that is greater than the sum of may attain a special advantage with respect to cost, market power, technology,
the parts or employee skills. One way companies gain synergy is through alliances and
the parts
partnerships. North General Hospital, a small community hospital in Harlem
that caters mostly to the poor and elderly, had lost money every year since it
was founded in 1979—until 2005, when leaders focused on a new strategy that
included an alliance with Mount Sinai Medical Center, one of New York
City’s most prominent teaching hospitals. In return for an annual
Action Memo
fee, North General uses Mount Sinai physicians and surgeons who
perform highly specialized procedures and treat specifi c diseases
As a leader, you can prepare for the future
that affect African Americans in high rates. The deal boosts revenue
based on trends in the environment today.
for Mount Sinai, as well, and brings in more patients because North
Don’t be afraid to think radically. You
General acts as a referral service for patients with complex medical
conditions.
can shift your strategies to fi t changing
issues. 53
Focusing on core competencies and attaining synergy helps com-
Value panies create value for their customers. Value can be defi ned as the
Value
the combination of benefi ts combination of benefits received and costs paid by the customer. 54
the combination of benefi ts

received and costs paid by the
received and costs paid by the
customer Delivering value to the customer is at the heart of strategy. At Pottery Barn, for
customer
example, president Laura Alber points to a thick, $24 bath towel as an icon of
what Pottery Barn aspires to: “For us this represents a combination of design,
quality, and price,” Alber says. “If this were $60, you’d still like it. But at $24, you
Strategy formulation
Strategy formulation
integrating knowledge of the
integrating knowledge of the go, ‘This is incredible.’” 55
environment, vision, and mission
environment, vision, and mission Strategy formulation integrates knowledge of the environment, vision, and mission
with the core competence in such
with the core competence in such with the company’s core competence in such a way as to achieve synergy and create
a way as to achieve synergy and
a way as to achieve synergy and
create customer value value for customers. When these elements are brought together, the company has
create customer value