Chapter 2 Leading Strategically

1. Chapter 2Leading Strategically

2. OBJECTIVES • Explain how strategic leadership is essential to strategy formulation and implementation 1 • Understand the relationships among vision, mission, values and strategy 2 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 • Explain how ethics and biases may affect strategic decision-making 5

3. PULLING A USD 15 BILLION COW OUT OF A DITCH • Xerox reaches profitability • Mulcahy takes • over • The fall from the nifty 50 • 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

4. 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

5. 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 EXECUTIVE ROLES • Formal authority and status

6. 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

7. LEVEL 5 LEADERS • Capabilities • Build greatness through combination of will and humility • Level 5leaders • 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

8. 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

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

10. 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) LEADERSHIP CHARACTERISTICS • Background and demographic differences • Differences in competence and action • 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) • 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

11. 1 • The team responds to a complex and changing environment 2 • The team can manage the needs of interdependent but often diverse units, arenas, or functional areas 3 • 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? CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM

12. A 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 • Vision • A declaration of what a firm is and stands for – of its fundamental values and purpose • Mission 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

13. VISION, MISSION AND STRATEGY • 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

14. 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.”

15. 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” VISION ANCHORED IN GOALS AND OBJECTIVES • Vision • Examples • Goalsand objectives

16. 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. GERSTNER’S 1993 VISION (the last thing IBM needs right now is a vision) IMPLICIT VISION : Get IBM back on top (ambitious and ambiguous) But further anchored in specific goals and objectives

17. 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 REASONS TO CRAFT CLEAR VISIONS AND MISSIONS THEY ALSO PROVIDE STRATEGIC PURPOSE & STRATEGIC COHERENCE BUT THEY ARE NOT A SUBSTITUTE FOR STRATEGY!

18. A conventional manufacturing company • A 21st century “Super manufacturing company“ • Role • Provide goods • Provide solutions • Expansion of R& D, marketing and IT • Investment • Principally capital STRATEGIC PURPOSE AT MATSUSHITA/PANASONIC • Goal: • To become a 21st century “Super manufacturing company“ • Today • Tomorrow STRATEGIC PURPOSE guide tradeoffs in decision making

19. Arenas • Strategic coherence is • 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 • Economic logic • Staging • Vehicles • Differentiators STRATEGIC COHERENCE • Congruence

20. 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 identifyingstakeholders • Determine influences on strategy formulation decisions • Determine stake-holders power and influence over strategy execution decisions • Determine the effects of strategic decisions 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

21. 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

22. MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE • Importance of Stakeholder • Influence ofstakeholder • Little/Noimportance • Moderateimportance • Significant importance • Unknown • Unknown • Little/Noimportance • Moderateimportance • Significant importance

23. New strategy –A new means to accomplish goals • Implementation –Executing new strategy to realize goals ETHICS AND BIASES • Have any potential biases clouded our decision-making process? • Is the decisionethical? • 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

24. 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

25. 1 • Explain how strategic leadership is essential tostrategy 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 formulation and implementation 5 • Explain how ethics and biases may affect strategic decision-making SUMMARY

26. 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?