OBJECTIVES 1 Explain how strategic leadership is essential to strategy formulation and implementation 2 Understand the relationships among vision, mission,

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Presentation transcript:

Chapter 2 Leading Strategically

OBJECTIVES 1 Explain how strategic leadership is essential to strategy formulation and implementation 2 Understand the relationships among vision, mission, values and strategy 3 Understand the roles of vision and mission in deter-mining strategic purpose and strategic coherence 4 Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formula-tion and implementation 5 Explain how ethics and biases may affect strategic decision-making

PULLING A USD 15 BILLION COW OUT OF A DITCH Xerox reaches profitability The fall from the nifty 50 Mulcahy takes over She lends a turnaround Xerox introduces the Xerox 914 copier in 1959. This copier transformed the work place Xerox was charter member of the “nifty 50”-50 stocks most favored by institutional investors Since 1970s, however, Xerox has been crippled by competition (mostly Japanese) October 2001, Xerox reports first quarterly loss in16 years. Mulcahy is not obvious choice for top position She lacks product development and financial expertise She gets it because the board has confidence in her “strategic mind”. Refines Xerox vision and reminds people of core values Aligns operation with the refined mission and values Sells Xerox’s China and Hong Kong operations and half of a stake in a joint venture with Fuji Closes down inkjet business Annual expenses cut by USD 1.7 billion Sold USD 2.3 billion worth of non-core assets Reduced long-term debt to USD 9.2 billion from USD 15.6 billion Xerox returns to profitability in 2002, generating USD 1.9 billion in operating cash flow and USD 91 million in net income on USD 15.8 billion in sales

STRATEGIC LEADERSHIP Leadership: Strategic leadership: The task of exerting influence on other people’s pursuit of goals in an organizational context Managing an overall enterprise and influencing key organizational out- comes, such as company wide performance, competitive superiority, innovation, strategic change, and survival

Formal authority and status EXECUTIVE ROLES Interpersonal roles Figure head Leader Liaison Informational roles Monitor Disseminator Spokesperson Formal authority and status Decision roles Entrepreneur Disturbance handler Resource allocator Negotiator

LEVEL 5 LEADERS Capabilities Build greatness through combination of will and humanity Level 5 leaders Can lead a group to superior levels of performance Level 4 leaders Organize people resources to accomplish predetermined objectives Level 3 leaders Work effectively with others as a member of a team to achieve group objectives Level 2 leaders Make individual contributions through talent and work ethic Level 1 leaders

TWO ATTRIBUTES OF LEVEL 5 LEADERS Being someone who prefers to share credit rather than hog it who tends to shun public attention, act with calm determination, and exercise ambitions on the company’s behalf rather than one’s own The ability to translate strategic intent into the resolve needed to pursue a strategy and usually to make hard choices over a period of time Professional will Professional modesty

WHAT DOES IT TAKE TO BE A CEO? An Ivy league MBA? Charisma? There is little consensus on whether personality or background matters more International management experience? Integrity

LEADERSHIP CHARACTERISTICS Personality differences A large amount of research has been done on personality or the psychological determinants of strategic leadership focusing specifically on: Locus of control Need for achievement Tolerance for risk or ambiguity Charisma and emotional intelligence Personality characteristics may be important; defining and isolating leadership abilities is difficult Background and demographic differences Differences in competence and action Background refers to factors such as: Work experience Education Demographic refers to factors such as: Gender Nationality Race Religion Network ties The profile of leaders is changing (e.g., more diversity among top management teams) Companies are increasingly placing value on substantive work experience; looking beyond skin color, gender, and even the items on a resume. Evidence of being a strategic leader–someone who works not only to develop a plan, but also empower the organization to realize the vision behind it, are important indicators of leadership potential

CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM The team responds to a complex and changing environment 1 The team can manage the needs of interdependent but often diverse units, arenas, or functional areas 2 The team is able to develop a coherent plan for executive succession 3

VISION AND MISSION Vision A simple statement or under- standing of what the firm will be in the future. A statement of vision is forward looking and identifies the firm’s desired long-term status A declaration of what a firm is and stands for – of its fundamental values and purpose Mission Because it’s hard to execute a strategy if it can’t be described or understand, firms with clearly and widely understood vision and mission find it easier to make strategic decisions entailing difficult trade offs

VISION, MISSION AND STRATEGY The central, integrated, externally-oriented concept of how the firm will achieve its objectives. Consists of 5 elements: arenas, vehicles, differentiators, staging, and economic logic Vision and Mission Strategic Goals and objectives Fundamental purpose Values View of future Specific targets Measurable outcomes

VISION – USES OF AMBITION AND AMBIGUITY Sony’s vision in early 1950’s: “becoming the company that most changes the worldwide image of Japanese products as being of poor quality.” Vision statements generally express long-term action horizons, are ambitious and force the firm to stretch. their ambiguity allows flexibility for changing strategy or implementation tactics CitiBank’s vision in 1915: “the most powerful, the most serviceable, the most far reaching world financial institution the world has ever seen.”

GERSTNER’S 1993 VISION IBM will not be split up and its many parts will be even more closely coordinated. IBM will reassert its identity as customers’ primary computing resource. The company will be the dominant supplier of technology in the industry. PowerPC, a new microprocessor design will be IBM’s centerpiece. Built into many future computers, it will run a wide range of standard industry software. It will steeply cut manufacturing costs. Mainframes are no longer central to the strategy, but IBM will still make them, now with microprocessors. IBM is its own worst enemy. Employees must waste fewer opportunities, minimize bureaucracy, and put the good of the company before their division’s.

VISION ANCHORED IN GOALS AND OBJECTIVES Examples Wal-Mart Grow sales and profits by 70% per year Goals and objectives Ryanair Be Europe’s largest airline in 7 years Matsushita To become a “super manufacturing company”

REASONS TO CRAFT CLEAR VISIONS AND MISSIONS To crystallize and disseminate the firm’s strategy among employees To provide a shared logic for the firm’s view of its internal and external environments and of its treatment of stakeholders To galvanize concerted strategic action To link strategy formulation to implementation by tying vision and mission to specific and measurable goals and objectives

STRATEGY PURPOSE AT MATSUSHITA/PANASONIC Goal: To become a 21st century “Super manufacturing company“ Today Tomorrow A conventional manufacturing company A 21st century “Super manufacturing company“ Role Provide goods Provide solutions Principally capital Investment Expansion of R& D, marketing and IT

STRATEGY COHERENCE Strategic coherence is Staging Differentiators Economic logic Vehicles Arenas The symmetrical co-alignment of the five elements of a firm’s strategy The congruence of policies in functions (e.g., finance, production, marketing) with these elements The overarching fit of various businesses under the corporate umbrella Strategic coherence is Congruence

PERFORMANCE METRICS Some financial and non-financial performance metrics Financial performance metrics Non-financial performance metrics Return on sales Return on assets Return on equity Sales per employee Sales growth Inventory turn Accounts receivable turn Debt ratio Current ratio Cost reduction Customer retention Customer satisfaction Customer complaints Employee turnover Product returns Product quality Patents New products released Product development speed Reputation Web traffic

STAKEHOLDER ANALYSIS After identifying stakeholders ask Have I identified any vulnerable points in either the strategy or its potential implementation? Which groups are mobilized and active in promoting their interests? Have I identified supporters and opponents of the strategy? Which groups will benefit from successful execution of the strategy and which may be adversely affected? Where are various groups located? Who belong to them, and who represents them? Steps in identifying stakeholders Determine influences on strategy formulation decisions Determine stake-holders power and influence over strategy execution decisions Determine the effects of strategic decisions Stakeholders: Individuals or groups who have an interest in an organization’s ability to deliver intended results and maintain the viability of its products and services

MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE Importance of Stakeholder Influence of stakeholder Little/No importance Moderate importance Significant importance Unknown Unknown Little/No importance Moderate importance Significant importance

ETHICS AND BIASES Have any potential biases clouded our decision-making process? Is the decision ethical? New strategy – A new means to accomplish goals Implementation – Executing new strategy to realize goals Authority structures Incentive systems Role of corporate governance Common illusions about ourselves (e.g., favorability optimism , control) Escalating commitments Self-serving fairness bias Overconfidence bias Ethnocentrism and stereotyping Risk assessment

SUMMARY Explain how strategic leadership is essential to strategy formulation and implementation 1 Understand the relationships among vision, mission, values and strategy 2 Understand the roles of vision and mission in deter-mining strategic purpose and strategic coherence 3 Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formulation and implementation 4 Explain how ethics and biases may affect strategic decision-making 5