1 STRATEGIC LEADERSHIP AND DIRECTION SETTING Payne (2)

2 Strategic Leadership Strategic Leadership is: –“the ability to anticipate, envision, maintain flexibility and empower others to create strategic change as necessary” or –“the process of transforming organizations from what they are to what the leader would have them become.” Leaders (top managers) have four main tasks:  Define the vision/mission or role of the organization.  Develop the organization’s integrity (ethics, culture & values).  Designing the appropriate strategy and structure (the “content”) to achieve success, and  Oversee the implementation process for bringing about change in the organization (the “process”).

3 Leadership is Different than Management Leadership is closely related to “referent” power because it is based on personal qualities of the leader and his or her ability to elicit followers to action.  Leadership extends beyond what power is allocated to a position in an organization or even that power that is claimed by a member of an organization…it is attributed to someone by others.  Leaders (top) have three main tasks:  Define the vision/mission or role of the organization.  Develop the organization’s integrity (ethics, culture & values).  Designing the appropriate strategy and structure to achieve success.

4 Managers and Leaders Personality Dimension ManagerLeader Attitudes toward goals Impersonal, passive, functional; goals arise out of necessity, reality Personal, active, goals arise from desire, imagination Conceptions of work Combines people, ideas, things; seeks moderate risk Looks for fresh approaches to old problems; seeks high risk Relationships with others Prefers to work with others; avoids close relationships and conflicts Comfortable in solitary work; encourages close relationships, not averse to conflict Sense of self Accepts life as it is; unquestioning Questions life; struggles for sense of order SOURCE: Reprinted by permission of Harvard Business Review. From A. Zaleznik, “Managers and Leaders: Are They Different?” Harvard Business Review 55 (1977): Copyright © 1977 by the Harvard Business School Publishing Corporation; all rights reserved.

5 Strategic Actions Strategic Leadership and the Strategic Management Process StrategicLeadership Strategic Intent Strategic Mission shapes the formulation of and influences

6 Factors Affecting Managerial Discretion External Environment Industry structureIndustry structure Rate of market growthRate of market growth Number and type of competitorsNumber and type of competitors Nature and degree of political/legal constraintsNature and degree of political/legal constraints Degree to which products can be differentiatedDegree to which products can be differentiated External Environment

7 Factors Affecting Managerial Discretion Characteristics of the Organization Characteristics of the Organization SizeSize AgeAge CultureCulture Availability of resourcesAvailability of resources Patterns of interaction among employeesPatterns of interaction among employees External Environment

8 Factors Affecting Managerial Discretion External Environment Characteristics of the Organization ManagerialDiscretion Characteristics of the Manager Tolerance for ambiguityTolerance for ambiguity Commitment to the firm and its desired strategic outcomesCommitment to the firm and its desired strategic outcomes Interpersonal skillsInterpersonal skills Aspiration levelAspiration level Degree of self-confidenceDegree of self-confidence Characteristics of the Manager

9 Effective Strategic Leadership Establishingbalancedorganizationalcontrols EmphasizingethicalpracticeDevelopinghumancapital Exploiting and maintainingcorecompetencies Sustaining an effective organizationalculture Determiningstrategicdirection StrategicLeadership

10 Determining Strategic Direction Strategic direction means the development of a long-term vision of a firm’s strategic intentStrategic direction means the development of a long-term vision of a firm’s strategic intent It is important not to lose sight of the strengths of the organization when making changes required by a new strategic directionIt is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction Executives must structure the firm effectively to help achieve the visionExecutives must structure the firm effectively to help achieve the vision

11 What is a Vision? “An articulation of what the company wishes to become or where it seeks to go” or, “the firm’s aspirations of what it really wants to be…designed to capture the imagination of the firm’s people and galvanize their efforts to achieve a higher purpose.” Visions often describe organizations in a lofty, even romantic or mystical tone.

12 Strategic Vision The Power of a well-conceived strategic vision:  Guides managerial decision-making  Arouses employee buy-in and commitment  Prepares a company for the future Characteristics: Should be inspiring Clear, challenging, and about excellence Sensible, flexible and long-term Stable Gives a sense of direction Prepares for the future while honoring the past

13 Examples: Strategic Visions BIOGEN: “We dedicate ourselves daily to improving the lives of people around the world.” Disneyland: “To be the happiest place on earth.” Wells Fargo: “We want to satisfy all of our customers’ financial needs and help them succeed financially.” “TENET will distinguish itself as a leader in redefining health care delivery and will be recognized for the passion of its people and partners in providing quality, innovative care to the patients it serves in each community.”

14 What is a Mission? Grant: “A mission statement is more a statement of corporate purpose, and often defines the area of business in which it competes.” Or, “Describes the firm or organization in terms of its business. Mission statements answer the questions, ‘What business are we in?’ and ‘What do we intend to do to succeed?’ …[they] are more concrete than visions, but still do not specify the goals and objectives necessary to translate the mission into reality.”

15 Mission Statements Encompasses both the purpose of the company as well as the basis of competition and competitive advantage. More specific and focused than the vision. Employees are the most important audience for mission statements. Changes much more often than vision statements. Example: Anheuser-Busch Our vision: Through all of our products, services and relationships, we will add to life's enjoyment. Our mission: Be the world's beer company Enrich and entertain a global audience Deliver superior returns to our shareholders

16 Core Value Proposition (CVP) (Hardy, 2005) Provides a starting point for business planning and/or innovative business development. Developed through 5 “Value Drivers” and related questions: 1.IDEA: What does your service or product do for customers? 2.BENEFIT: What benefit does your product or service provide to customers (above and beyond competitors or substitutes)? 3.TARGET: Who are your key customers? How can they be identified and reached? 4.PERCEPTION: How do you want to be perceived by customers, employees and other stakeholders? 5.REWARD: What is in it for you, your employees, and stockholders?

17 Value Statements Values are the things organizations and people stand for or the fundamental principles that, along with the mission, make an organization unique. Usually associated with ethical behavior and social responsibility. McDonald’s Corporate Responsibility McDonald’s Corporate Responsibility Corporate responsibility is an important part of McDonald’s heritage. We have a long track record of industry leadership in community involvement, environmental protection, diversity, opportunity, and work with our suppliers to help improve their practices. We are committed to do still more to earn the trust of our customers and everyone else affected by our business. McDonald's Balanced, Active Lifestyles Initiatives McDonald’s cares about the well-being issues that are so important to many of our customers. With our balanced, active lifestyles initiatives, we are offering a variety of high-quality menu options, promoting physical activity, and providing information and education to help our customers around the world make smart choices for themselves and their families. McDonald's Balanced, Active Lifestyles Initiatives

18 Our business is preserving and improving human life. All of our actions must be measured by our success in achieving this goal. We value, above all, our ability to serve everyone who can benefit from the appropriate use of our products and services, thereby providing lasting consumer satisfaction. We are committed to the highest standards of ethics and integrity. We are responsible to our customers, to Merck employees and their families, to the environments we inhabit, and to the societies we serve worldwide. In discharging our responsibilities, we do not take professional or ethical shortcuts. Our interactions with all segments of society must reflect the high standards we profess. We are dedicated to the highest level of scientific excellence and commit our research to improving human and animal health and the quality of life. We strive to identify the most critical needs of consumers and customers, and we devote our resources to meeting those needs. We expect profits, but only from work that satisfies customer needs and benefits humanity. Our ability to meet our responsibilities depends on maintaining a financial position that invites investment in leading-edge research and that makes possible effective delivery of research results. We recognize that the ability to excel -- to most competitively meet society's and customers' needs -- depends on the integrity, knowledge, imagination, skill, diversity and teamwork of our employees, and we value these qualities most highly. To this end, we strive to create an environment of mutual respect, encouragement and teamwork -- an environment that rewards commitment and performance and is responsive to the needs of our employees and their families. Values:

19 Goals & Objectives Follows Vision & Mission to more specifically give direction and goals for the organization. These also serve to determine if appropriate control is been set for strategic decisions: Represent commitment to achieve specific performance targets by a certain time. Must be stated in quantifiable terms and contain a deadline for achievement. Spell-out how much of what kind of performance by when.

20 Types of Objectives (Controls) Required Outcomes focused on improving a firm’s financial performance. Outcomes focused on improving a firm’s competitiveness and its long-term business position. Financial Objectives Strategic Objectives Every company needs both strategic and financial objectives!

21 Examples: Financial Objectives Increase sales growth 6 to 8 percent and accelerate core net earnings per share growth to 13 to 15 percent in each of the next five years (P&G) Generate Internet-related revenue of $1.5 billion (Automation) Cut overhead costs by $30 million per year (Fortune Brands) Capitalize on e-commerce (FedEx) We want a majority of our customers,when surveyed, to say they consider us the best financial institution in the community (Wells Fargo) We want to operate 6,000 stores by 2010—up from 3000 in the year 2000 (Walgreen’s) Examples: Strategic (Non-financial) Objectives

22 Strategic vs Financial Objectives Pressures for better short-term (~1 yr) financial performance become pronounced when – Firm is struggling financially – Resource commitments for new strategic initiatives may hurt bottom-line for several years – Proposed strategic moves are risky A firm that consistently passes up opportunities to strengthen its long-term (3-5 yrs) competitive position – Risks diluting its competitiveness – Risks losing momentum in its markets – Can hurt its ability to fend off rivals’ challenges

23 Setting Objectives Birnbaum (2004) suggests a 3-step process: 1. Decide on the essence of the objective (e.g., profitability, product quality, absenteeism). - These should be specific to the organization...the “Key Performance Indicators” and tied to Key Success Factors 2. Decide on the formula to measure the objective (e.g., annual profit as % of sales, # of product defects, ratio of hours missed to total employee hours). 3. Quantify (outcome and timeframe) the objectives. (Ask yourself what matters most? How do we track it?)

24 Objectives Are Needed at All Levels Process is top-down, not bottom-up! 1. First, establish organization-wide objectives 2. Next, set business and product line objectives 3. Then, establish functional and departmental objectives 4. Individual objectives come last Objective-setting needs to be more of a top-down than a bottom- up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.