New Business Characteristics Characteristic20 th Century21 st Century StructurePyramid: Top-Down Web: Bottom-Up StrengthsStability Control Adaptability Learning FocusInternal EfficiencyValue Creation ResourcesPhysicalIntellectual EmployeesHuman Resource - Cost Human Capital - Asset ConstraintsLegal/RegulatorySocial Responsibility

New Organization Characteristics Ambidextrous Manages stability and flexibility Emphasizes facilitating, communication, values Learning Knowledge-based Facilitate opportunities to learn and share knowledge Create opportunities to create knowledge

Managers and Leaders Management Managing Complexity Leadership Managing Change Action AgendaRational Process Planning, Controlling Emergent Process Motivating, Empowering OutcomesStability, Efficiency, Incremental Change Flexibility, Innovation, Growth, Transformation, ConcernDoing things rightDoing the right things RelationshipsAuthoritativeFacilitating PerspectiveAchieving GoalsAchieving Vision

Leadership Leaders are ‘change agents’ Leader’s success is measured by how effectively they create strategic change Strategy is about distinction and change

Leadership Functions To create change leaders must: Determine a Direction Design the Organization Nurture a Culture of Learning, Excellence, and Ethical Behavior

Create a Direction Unfreeze the organization Articulate a vision of what the organization is going to become Establish performance expectations

Design the Organization Create processes to challenge the status quo and overcome organizational inertia Motivate and empower employees Establish Controls

Shape Culture of Learning & Ethical Behavior Enable all employees to use their intelligence and apply their imagination Manage the strategy- culture relationship Establish ethical standards

Power Leaders use power to overcome organizational inertia : Systemic barriers to change Behavioral resistance to change Political barriers to change Sources of power Organizational Personal

Sources of Competitive Advantage The willingness and ability of the people in the firm to support the strategy. What is the most important factor in achieving strategic success?

Ratio of Market Value to Book Value for Selected Companies Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. AnnualMarketBookRatio of Sales Value Value Market to Company($ billions) ($ billions) ($ billions) Book Value Google Genentech Yahoo! eBay Southwest Airlines Union Pacific (Railroad) Ford Motor Company

Intellectual Capital Intellectual Capital = Market Value – Book Value Human Capital: the individual capabilities, skills, and experience of the firm’s employees Social Capital: the network of relations the individuals have throughout the organization Knowledge: the accumulated and integrated experiences of individuals in the organization Tacit Explicit

Human Capital Attracting “Hire for attitude, train for skills” IQ v. EQ Developing Train Evaluate Retaining Tangible Rewards Intangible Rewards

Social Capital Combines and leverages human capital Creates ‘social complexity’ and ‘causal ambiguity’ Social Networks Organizational Culture Can have negative consequences Closed club Group think Organizational inertia

Knowledge Tacit knowledge Embedded in personal experience Resides within the individual Shared only with consent Explicit Knowledge Documented and codified Can be widely distributed and shared