Strategy Formulation, Change Management, & its Unintended Consequences Dinesh Iyer Ohio University

Strategic Leadership

Sources of Variation in Business Unit Profitability Year Effect 2.39% Unexplained Variation 42.89% Industry Effect 18.68% This represents the variation in profitability across business units, across time that cannot be accounted for by the identity of the business unit, its industry, its corporate parent, or the particular year. Corporate Parent Effect 4.33% Business Unit Effect 31.71% From: Anita McGahan and Michael Porter, “How Much Does Industry Matter, Really?” Strategic Management Journal (1987).

What about Leadership? Leadership Makes a difference!!! Analysis of 200 management techniques employed by 150 companies over ten years: CEO’s influence 15 percent of the total variance in a company’s profitability or total return to shareholders. Also, found that the industry in which a company operates accounts for 15 percent of the variance in profitability.

What about Leadership? Formal leadership does not make a difference!!! Three major arguments Substitutes for leadership Leadership irrelevance Complexity theory

Substitutes for leadership Closely knit teams of highly trained individuals Intrinsic satisfaction Computer technology Professional norms Substitutes for leadership and leadership function Recent research suggests that the theory of substitutes for leadership may be flawed and found that “leadership matters”. Specifically, they found that the likeability of the leader and whether the leader provides rewards for performance were found to be major correlates of performance!

Research on leadership… Leadership irrelevance Pfeffer argues that factors outside the leader’s control have a larger impact on business outcomes that do leadership actions. High-level leaders have unilateral control over only a few resources. And this control is limited by obligations to stakeholders. Firms tend to choose new organizational leaders whose values are compatible with those of the firm. Collins suggests that corporate leaders are slaves of much larger organizational forces. It is not the leaders personality that makes a difference; more important is the organization’s personality. Above arguments have been recast as a leader constraint theory i.e. leaders are constrained in what they can do but still have plenty of room to influence others!!!

Research on leadership… Complexity theory Organizations are complex systems that cannot be explained by the usual rules of nature. Managers cannot predict which business strategies or product mixes will survive. Ultimately, all companies will die but at different times, because it is the system, not the leadership and management, that dominates!

Research on Leadership… Transactional (routine) and Charismatic (inspirational) leadership Transactional leadership was not significantly related to performance. Charismatic leadership showed a slight positive relationship with performance. When the environment is uncertain, CL is more strongly related to performance.

A framework for understanding leadership L = f (l, gm, s) Leader Group members Situational factors

Leadership framework Leader characteristics and traits Internal and external environment Leader behavior and style Leadership effectiveness Group member characteristics Managing Today! By Stephen P Robbins 1997

Leadership or Management What’s the difference? Management Planning, Organizing, Leading, Controlling etc. Management produces order, consistency, and predictability. Leadership Deals with change, inspiration, motivation, influence etc. Leadership produces change and adaptability.

Leadership and Management! A leader creates a vision (Lofty goal!?!) to direct the organization. In contrast, the key function of the manager is to implement the vision. The manager and his/her team thus choose the means to achieve the end that the leader formulates.

But, remember… The difference between leadership and management is one of emphasis: Effective leaders also manage, and effective managers also lead.

Strategic Leadership

Lewin’s Freeze Phase Unfreezing-Realizing change needs to occur Change/Transition-Making the changes happen Freezing-Changes become the norm

Kotter’s 8 Step Model Step 1- Create urgency Everyone must want the change to occur Step 2-Form a powerful coalition Managers must convince everyone Step 3-Create vision for change Easier for company to grasp Step 4-Communicate the vision Ensure the company is on track

Kotter’s 8 Step Model Step 5-Remove obstacles Fix anything that could prevent change from happening Step 6- Create short term wins Showed how profitable the changes were Step 7-Building on change Provide more products to become more successful Step 8- Anchor the changes in corporate culture It should then become part of company’s core

MCKINSEY’S 7S FRAMEWORK

Saturn: A different Kind of Company What are Saturn’s key resources and capabilities (technology-based, knowledge-based, market-based, etc.)? How do these resources and capabilities result in a sustainable competitive advantage for Saturn? What are the major strategic challenges facing Saturn? What has been the relationship between Saturn’s strategy and General Motors’ strategy? How does Saturn help create new capabilities for General Motors?

Saturn History Spring Hill Manufacturing Ad Alaska Ad Homecoming Homecoming event Homecoming based Ad Other Other sad Ad Recent news link Saturn-Penske Deal falls through 10/1/2009 Chevrolet refund offer 7/11/12

General Motors’ Organization Structure, 1921 Board of Directors President Executive Committee Financial Staff GM Acceptance Corporation Legal Department General Advisory Staff Chevrolet Division Sheridan Division Canadian Division Oldsmobile Division Buick Division Cadillac Division GM Export Company GM Truck Division Samson Tractor Division Oakland Division Inter-company Parts Division Scripps Booth Corp. Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

General Motors’ Organization Structure, 1997 Board of Directors Corporate Functions President’s Council North American Operations Delphi Automotive Systems GM Acceptance Corporation International Operations Hughes Electronics GM Europe Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group Asian & Pacific Operations Latin American, African, & Middle East Operation

General Electric’s Organization Structure, 2002 Corporate Executive Office Chairman & CEO Corporate Staff Finance Business R&D Human Legal Development Resources Service Divisions GE Aircraft Engines GE Trans- portation GE Industrial Systems GE Plastics GE Appliances GE Supply GE Power Systems GE Medical Systems GE Lighting GE Specialty Materials NBC GE Capital 26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty Equipment Services Financing Financing Insurance Management General Electric’s Organization Structure, 2002

General Electric’s Organizational Structure, January 2009 Corporate Executive Office Chairman & CEO Corporate Staff Business Development Legal Commercial & Communications Global Research Corporate Initiatives Group Human Resources Finance International Technology Infrastructure Aviation Enterprise Solutions Healthcare Transportation Industrial & Commercial Appliances Consumer Electronics Electrical Distribution Lighting Energy Infrastructure Energy Oil & Gas Water & Process Technologies GE Capital Aviation Financial Services Commercial Finance Energy Financial GE Money Treasury NBC Universal Cable Film International Network Sports & Olympics © 2010 Robert M. Grant www.contemporarystrategyanalysis.com 12