Chapter 2Leading Strategically

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OBJECTIVES

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5 Explain how ethics and biases may affect strategic decision-making

Identify a firm’s stakeholders and explain why such identification is critical to effective strategy formula-tion and implementation

Understand the roles of vision and mission in deter-mining strategic purpose and strategic coherence

Understand the relationships among vision, mission, values and strategy

Explain how strategic leadership is essential to strategy formulation and implementation

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PULLING A USD 15 BILLION COW OUT OF A DITCH

• 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

The fall from the nifty 50

Mulcahy takes over

She lends a turnaround

Xerox reaches profitability

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STRATEGIC LEADERSHIP

The task of exerting influence on other people’s pursuit of goals in an organizational context

Leadership:

Managing an overall enterprise and influencing key organizational out-comes, such as company wide performance, competitive superiority, innovation, strategic change, and survival

Strategic leadership:

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EXECUTIVE ROLES

Formal authority and status

Interpersonal roles• Figure head

• Ceremonial• Liaison

• With external stakeholders

• Leader• Of employees

Informational roles• Monitor opportunities and

threats• Disseminator (internal)• Spokesperson (external)

Decision roles• Entrepreneur - designing

the strategy• Disturbance handler - of

internal/external conflicts• Resource allocator• Negotiator

CEO Surprises

Seven Surprises for new CEOs• You can't run the company (no time! Too many stakeholders to deal

with)• Giving orders is costly (it demoralizes, creates resentment, stifles

creativity/ adaptability/flexibility and speed)• It's hard to know what's really going on• You are always sending a message• You are not the boss (the board is)• Pleasing shareholders is not the goal (focus on long-term value

creation)• You are still only human

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LEVEL 5 LEADERS

Level 5leaders

Build greatness through combination of will and humility

Level 4 leadersCan lead a group to superior levels of performance

Level 3 leadersOrganize people resources to accomplish predetermined objectives

Level 2 leadersWork effectively with others as a member of a team to achieve group objectives

Level 1 leadersMake individual contributions through talent and work ethic

Capabilities

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Professional modesty

TWO ATTRIBUTES OF LEVEL 5 LEADERS

Professional will

• 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

• 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

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

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

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WHAT DOES IT TAKE TO BE A CEO?

Charisma?

There is little consensuson whether personality or background matters more

There is little consensuson whether personality or background matters more

An Ivy league MBA?

Integrity

International management experience?

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LEADERSHIP CHARACTERISTICS

Differences in competence and action

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

TAKE THE “ARE YOU A STRATEGIST QUIZ” Exhibit 2.4

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

• (In)tolerance for risk or ambiguity (my score 35/112)– CEO 44-48 MBA 55-60

• Charisma and emotional intelligence

Personality characteristics may be important; defining and isolating leadership abilities is difficult(similar argument in entrepreneurship)

Background and demographic differences

Background refers to factors such as:

• Work experience

• Education (law, acct, fin)Demographic refers to factors such as:

• Gender

• Nationality

• Race

• Religion

• Network ties

• Traditional: WASP male Ivy leaguer

• The profile of leaders is changing (e.g., more diversity among top management teams)

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CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM

The team responds to a complex and changing environment

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The team can manage the needs of interdependent but often diverse units, arenas, or functional areas

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The team is able to develop a coherent plan for executive succession

How would you go about hiring a new president for UNLV? How about a provost? Would you look for different things?

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VISION AND 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

VisionA simple statement or under-standing of what the firm willbe in the future. A statementof vision is forward looking and identifies the firm’s desiredlong-term status

A declaration of what a firm is and stands for – of its fundamental values and purpose

Mission

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VISION, MISSION AND STRATEGY

Vision and Mission

• Fundamental purpose

• Values

• View of future

Strategic Goals and objectives

• Specific targets

• Measurable outcomes

StrategyThe central, integrated,

externally-oriented concept of how the firm will achieve its objectives. Consists of

5 elements: arenas, vehicles, differentiators, staging, and economic

logic

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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.”

CitiBank’s vision in 1915:“the most powerful, the most serviceable, the most far reaching world financial institution the world has ever seen.”

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

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VISION ANCHORED IN GOALS AND OBJECTIVES

Vision

Goalsand objectives

Examples

Wal-Mart Grow sales and profits by 70% per year

Ryanair Be Europe’s largest airline in 7 years

Matsushita To become a “super manufacturing company”

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GERSTNER’S 1993 VISION (the last thing IBM needs right now is a 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.

IMPLICIT VISION : Get IBM back on top (ambitious and ambiguous)

But further anchored in specific goals and objectives

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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

THEY ALSO PROVIDE STRATEGIC PURPOSE

&STRATEGIC COHERENCE

BUTTHEY ARE NOT A SUBSTITUTE FOR STRATEGY!

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STRATEGIC 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

STRATEGIC PURPOSE guide tradeoffs in decision making

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STRATEGIC COHERENCE

• 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

Staging

Differentiators

Economic logic

Vehicles

Arenas

Congruence

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STAKEHOLDER ANALYSIS

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

Steps in identifyingstakeholders

1. Determine influences on strategy formulation decisions

2. Determine stake-holders power and influence over strategy execution decisions

3. Determine the effects of strategic decisions

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?

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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

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MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE

UnknownLittle/Noimportance

Moderateimportance

Significant importance

Influence ofstakeholder

Unknown

Little/Noimportance

Moderateimportance

Significant importance

Importance of Stakeholder

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Implementation – Executing new strategy to realize goals

ETHICS AND BIASES

Is the decisionethical?

Have any potential biases clouded our decision-making process?

• Common illusions about ourselves (e.g., favorability optimism , control)

• Escalating commitments• Self-serving fairness bias • Overconfidence bias• Ethnocentrism and stereotyping • Risk assessment

New strategy –A new means to accomplish goals

• Authority structures• Incentive systems• Role of corporate

governance

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BIASES

Illusion of favorability people give themselves more credit for success and take less(aka fundamental attribution error) responsibility for failures

Illusion of optimism we tend to overestimate the probability of favorable outcomes

Illusion of control we tend to think we are more in control than we actually are (happens a lot in craps games)

Escalation of commitment we tend to throw good money after bad

Self-serving fairness bias we expect more credit and reward and expect others to accept less (e.g. administrative merit – 50% of faculty get merit increase, but 100% of administrators, no administrators get minimum merit)

Overconfidence bias we place erroneously high levels of confidence in our own knowledge or abilities

Confirmatory bias we seek confirmatory evidence of our beliefs while discounting contradictory evidence

Add ethnocentrism and stereotyping and imperfect theories about the world

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SUMMARY

Explain how strategic leadership is essential tostrategy 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

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GROUP ACTIVITY

As a group, craft a vision and mission statement for the College of Business and then for the university as a whole. How are they similar? How do they differ? How are they similar or different from those that you might draw up for a for-profit organization?

Using the vision/mission you crafted, develop a list of stakeholders for the university and their relative power and stake in the university. Which stakeholders are accounted for in your mission/vision and which are left out? Did you identify any groups that could negatively affect your realization of the vision/mission?

What roles should strategic leadership play in the realization of the vision/mission statements that you articulated in the first question? Who can you identify as strategic leaders?