Strategic Leadership in Action: Xerox Turnaround Case Study

1. Chapter 2Leading Strategically Through Effective Vision and Mission

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 • Identify a firm’s stakeholders and explain why this identification is critical to effective strategy formulation and implementation 4

3. PULLING A $15 BILLION COW OUT OF A DITCH • Xerox reaches profitability • Mulcahy takes • over, Aug 2001 • The fall from the nifty 50 • She leads a turnaround • Xerox introduces the Xerox 914 copier in 1959. This copier transformed the workplace. • Xerox was charter member of the “nifty 50”– the 50 stocks most favored by institutional investors. • Since 1970s, Xerox had been crippled by competition, mostly Japanese. • October 2001, Xerox reports first quarterly loss in16 years. Mulcahy is not obvious choice for top position. • Lacks product development and financial expertise • Chosen because 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 stake in joint venture with Fuji • Closes down inkjet business • Annual expenses cut by $1.7 billion • Sold $2.3 billion worth of non-core assets • Long-term debt reduced from $15.6 billion to $9.2 billion • Xerox returns to profitability in 2002, generating $1.9 billion in operating cash flow and $91 million in net income on $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 outcomes, such as company-wide performance, competitive superiority, innovation, strategic change, and survival

5. Interpersonal roles • Figurehead • Leader • Liaison • Informational roles • Monitor • Disseminator • Spokesperson • Decision roles • Entrepreneur • Disturbance handler • Resource allocator • Negotiator TOP EXECUTIVE ROLES • Formal authority and status Source: Mintzberg, 1973

6. LEVEL 5 LEADERS • Capabilities • Build greatness through combination of will and modesty • Level 5leaders • Lead a group to superior levels of performance • Level 4 leaders • Organize people and 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 • Source: Collins, Good to Great, 2001. • Level 1 leaders

7. TWO ATTRIBUTES OF LEVEL 5 LEADERS • Being someone who • prefers to share credit rather than hog it, • tends to shun public attention, • acts with calm determination, and • exercises ambition 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

8. 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?

9. Personality differences • Personality or psychological determinants of strategic leadership: • Locus of control • Need for achievement • Tolerance for risk or ambiguity • Charisma and emotional intelligence • Personality characteristics may be important; defining and isolating leadership abilities is difficult. LEADERSHIP CHARACTERISTICS • Background and demographic differences • Differences in competence and action • Background: • Work experience • Education • Demographics: • Gender • Nationality • Race • Religion • Network ties • The profile of leaders is changing (e.g., greater diversity among top management teams) • Increasing value placed on substantive work experience • Evidence of being a strategic leader as important indicator of leadership potential • –someone who not only works to develop a plan, but also to empower the organization to realize the vision behind it

10. 1 • Responds to a complex and changing environment 2 • Can manage the needs of interdependent but often diverse units, arenas, or functional areas 3 • Develops a coherent plan for executive succession CRITERIA OF AN EFFECTIVE TOP-MANAGEMENT TEAM

11. 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 • Firms with clearly and widely understood visions and missions find it easier to make strategic decisions that entail difficult trade-offs

12. 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

13. VISION – USES OF AMBITION AND AMBIGUITY • Sony’s vision in early 1950s: • “becoming the company that most changes the worldwide image of Japanese products as being of poor quality.” • Vision statements • Express long-term action horizons • Are ambitious and force the firm to stretch • 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.”

14. 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 FOR IBM

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. 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

17. 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 • Goal: • To become a 21st century “Super manufacturing company” • Today • Tomorrow

18. Arenas • Strategic coherence is • The symmetrical co-alignment of the five elements of a firm’s strategy • The congruence of policies in each function (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

19. 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 turns • Accounts receivable turns • 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

20. After identifying stakeholders, ask • Have we identified any vulnerable points in either the strategy or its potential implementation? • Which groups are mobilized and active in promoting their interests? • Have we 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 belongs 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 that have an interest in an organization’s ability to deliver intended results and maintain the viability of its products and services

21. 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 this identification is critical to effective strategy formulation and implementation SUMMARY