Strategic Leadership: Managing the Strategy Process Notes

Strategic Leadership: Managing the Strategy Process

Learning Objectives

  • Explain the role of strategic leaders and their functions.
  • Outline the steps to become a strategic leader.
  • Compare and contrast roles of corporate, business, and functional managers in strategy formulation and implementation.
  • Describe the roles of vision, mission, and values in a firm’s strategy.
  • Evaluate strategic implications of product-oriented and customer-oriented vision statements.
  • Justify why anchoring a firm in ethical core values is essential for long-term success.
  • Evaluate top-down strategic planning, scenario planning, and strategy as planned emergence.
  • Describe and evaluate the two distinct modes of decision making.
  • Compare and contrast devil’s advocacy and dialectic inquiry as frameworks to improve strategic decision making.

What Is Strategic Leadership?

  • Successful use of power and influence to direct activities of others in pursuit of organizational goals, enabling competitive advantage.
  • Power:
    • The ability to influence others.
    • Formal authority (position) and informal authority (persuasion).

Impact of Leaders

  • Leaders can positively impact performance.
    • Examples: Mark Zuckerberg, Elon Musk, Jeff Bezos, Oprah Winfrey, Sheryl Sandberg, Angela Ahrendts, Mary Barra, Howard Schultz.
  • Leaders can destroy shareholder value.
    • Examples: Ken Lay, John Sculley, Bernard Ebbers, Richard Fuld, Richard Wagoner, Robert Nardelli, Ron Johnson.

What Strategic Leaders Do

  • CEOs typically spend their time:
    • 67% in meetings
    • 13% working alone
    • 7% on e-mail
    • 6% on phone calls
    • 5% on business meals
    • 2% on public events

How to Become a Strategic Leader

  • A function of innate abilities and learning.
  • Leadership actions reflect:
    • Age, education, and career experiences.
    • Personal interpretations of situations.
  • Upper Echelons Theory:
    • Organizational outcomes reflect values of the top management team.
    • Their unique perspectives and values.
    • Outcomes include strategic choices and performance levels.

The Level-5 Pyramid

  • Great companies share:
    • Transition from average performance to sustained competitive advantage.
    • Stock returns 7x the general market.
    • Consistent patterns of leadership.
    • Summarized in the Level-5 Leadership Pyramid.
  • Best-selling book Good to Great:
    • Written by Jim Collins.
    • Over 1,000 companies were analyzed.
  • Progression of Leaders Through the Pyramid
    • Each level builds upon the previous one.
    • Prior levels must be mastered before moving on.
    • Each level helps individuals develop the capacity for greater success.
    • A Level-5 executive:
      • Works to help the organization succeed.
      • Helps others reach their full potential.

The Strategy Process

  • Strategy Formulation:
    • The choice of strategy.
    • Where and how to compete.
  • Strategy Implementation:
    • Organization, coordination, integration.
    • How work gets done.
    • The execution of strategy.
    • Three distinct areas: corporate, business, and functional.

Strategy Process Across Levels

  • Corporate Strategy
    • Where to compete?
    • Industry, markets, and geography.
  • Business Strategy
    • How to compete?
    • Cost leadership, differentiation, or value innovation.
  • Functional Strategy
    • How to implement a chosen business strategy?
    • Different strategies require different activities.

Vision, Mission, Values

  • Vision: What do we want to accomplish ultimately?
  • Mission: How do we accomplish our goals?
  • Values:
    • What commitments do we make?
    • What safeguards do we put in place?
    • How do we act both legally and ethically as we pursue our vision and mission?

Vision

  • Captures an organization’s aspiration.
  • Spells out what the organization wants to accomplish.
  • Identifies the long-term objective.
  • Should be forward-looking and inspiring.
  • An effective vision:
    • Is expressed as a statement.
    • Should be forward-looking and inspiring.
    • Should provide meaning for employees in pursuit of the organization’s ultimate goals.

Vision Is Strategic Intent

  • Outlines a firm’s stretch goal.
  • Is based on a firm’s vision.
  • Actions based on vision will:
    • Build necessary resources.
    • Build capabilities.
    • Ensure continuous organizational learning.
    • Ensure learning from failure.

Vision and Competitive Advantage

  • Research shows that vision statements and firm performance are related.
  • This relationship is strongest when:
    • The vision is customer-oriented.
    • Internal stakeholders help define the vision.
    • Organizational structures align to the vision, for example, compensation.

Customer- vs. Product-Oriented Vision Statements

  • Customer-oriented vision statements:
    • Allow companies to adapt to changing environments.
    • Focus on problem solving for the customer.
  • Product-oriented vision statements:
    • Focus on improving existing products and services.

Product-Oriented Vision Statements

  • Define a business in terms of a good or service provided.
  • Force managers to take a more myopic view.
  • Can hinder understanding of the competitive landscape.
  • Example: U.S. Railroad companies.
    • They were focused on the railroad business.
    • They should have been focused on transportation and logistics.

Customer-Oriented Vision Statements

  • Define a business in terms providing solutions to customer needs.
  • Customer needs may change.
  • The means of meeting those needs may change also.
  • Example: Ford Motor Company.
    • Entered the market in the early 1900s.
    • Ford didn’t build a better horse and buggy.
    • Ford’s focus: “to provide personal mobility for people around the world.”

Mission

  • What an organization actually does.
    • The products and services it will provide.
    • The markets in which it will compete.
  • Defines how the vision is accomplished.

Mission: Strategic Commitments

  • Credible actions that back up the vision and mission statements.
  • These commitments are often:
    • Costly.
    • Long-term oriented.
    • Difficult to reverse.

Values

  • Organizational core values:
    • Ethical standards and norms.
    • Govern the behavior of individuals.
    • Provide stability to the strategy.
    • Serve as guardrails to keep the company on track.
  • Help employees:
    • Understand the company culture.
    • Deal with complexity.
    • Resolve conflict.

Three Approaches to Organizational Strategy

  • Strategic planning:
    • A formal, top-down approach.
  • Scenario planning:
    • A formal, top-down approach.
  • Strategy as planned emergence:
    • Begins with a strategic plan, but it is less formal.

Top Down Strategic Planning: Overview

  • Data-driven strategy process.
  • Top management attempts to program future success through analysis of:
    • Prices.
    • Costs.
    • Margins.
    • Market demand.
    • Head count.
    • Production runs.
    • Five-year plans and budgets.
    • Performance monitoring.

Shortcomings of the Top-Down Approach

  1. May not adapt well to change.
  2. Formulation is separate from implementation.
  3. Information flows one-way.
  4. Leaders’ future vision can be wrong.
    • Example: Apple.
      • Steve Jobs predicted customers needs.
      • Apple didn’t engage in market research.
      • Since Cook took over, their planning process has evolved.

Scenario Planning: Overview

  • Asks “what if” questions:
    • Top management envisions different scenarios.
    • Then they derive strategic responses.
  • Optimistic and pessimistic futures are planned.
  • Considerations can include:
    • New laws.
    • Demographic shifts.
    • Changing economic conditions.
    • Technological advances.

Approaches to Scenario Planning

  • Obtain input from different levels and functions:
    • R&D, manufacturing, and marketing and sales.
  • Determine how to compete situationally.
  • Attach probabilities into different future states:
    • Highly likely vs. unlikely.

Black Swan Event

  • The high impact of a highly improbable event.
  • It can affect strategic planning
  • People once assumed all swans were white.
    • When they first encountered swans that were black, they were surprised.
  • Examples:
    • Security breach of an IT system.
    • Accounting scandals: Enron.
    • Real estate bubble: 2008 financial crisis.

Questions to Ask in Scenario Planning

  1. What resources and capabilities do we need to compete successfully in each future scenario?
  2. What strategic initiatives should we put in place to respond to each respective scenario?
  3. How can we shape our expected future environment?

Strategy as Planned Emergence

  • Top-Down & Bottom-Up:
    • Bottom-up strategic initiatives emerge.
    • Evaluated and coordinated by management.
    • Less formal and less stylized.
  • Relies on data, plus:
    • Personal experience.
    • Deep domain expertise.
    • Front line employee insights.

Key Points About Strategy

  • Intended strategy:
    • Outcome of a rational and structured top-down strategic plan.
  • Emergent strategy:
    • Any unplanned strategic initiative.
    • Bubbles up from the bottom of the organization.
    • Can influence and shape a firm’s overall strategy.
  • Realized strategy:
    • Combination of intended and emergent strategy.

Strategic Initiatives

  • An activity a firm pursues to explore and develop:
    • New products and processes.
    • New markets.
    • New ventures.
  • Can bubble up from deep within a firm through:
    • Autonomous actions.
    • Serendipity.
    • Resource-allocation process (RAP).

Autonomous Actions, Serendipity, Resource Allocation

  • Autonomous Actions:
    • Strategic initiatives undertaken by employees.
    • A response to unexpected situations.
  • Serendipity:
    • Random events, surprises, coincidences.
    • Has an effect on strategic initiatives.
  • Resource Allocation Process (RAP):
    • How a firm allocates resources based on policy.
    • Helps shape realized strategy.

Strategic Decision Making

  • Can be limited due to our cognitive limitations:
    • Choosing “good enough” options vs. optimal solutions.
    • Human decision making has cognitive limitations, biases.
    • Artificial intelligence can augment the information at our fingertips.
  • Managers can become better at decision making.
    • Theories and frameworks help make sense of uncertain information.

Two Decision Making Modes

  • System 1:
    • Brain’s default mode.
    • Gut reaction.
    • Familiar, efficient, automatic.
    • Requires little energy.
  • System 2:
    • Logical, analytical, deliberate.
    • Requires more energy.
    • Slower.

Cognitive Biases

  • Illusion of Control: Overestimating our ability to control events.
  • Escalating Commitment: Continuing to support a failing project.
  • Confirmation Bias: Seeking information to confirm existing beliefs.
  • Reason by Analogy: Using simple analogies for complex problems.
  • Representativeness: Drawing conclusions from small samples.
  • Groupthink: Opinions coalesce without critical evaluation.

How to Improve Decision Making

  • Devil’s Advocacy:
    • Challenging the path forward with alternative viewpoints.
    • Highlighting potential problems.
    • Offering criticisms.
  • Dialectic Inquiry:
    • Exploring alternatives.
    • Discussing compromises.