Leading Strategically Chapter 2

1. Leading StrategicallyChapter 2 Miles A. Zachary MGT 4380 Strategic Management

2. Organizational Vision • “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” – Jack Welch, former GE CEO • A vision is one key aspect of an organization a leader may use to inspire employees • It describes what an organization hopes to become in the future • Clear • Brief • Empowering

3. Organizational Vision • In a survey of 1,500 top firm executives, 98% reported that a leaders must first and foremost have “a strong sense of vision.” • 90% reported that they have questioned their own ability to be visionary leaders • Many firms do not articulate a vision • Of the firms that do have vision statements, many fail to empower employees appropriately • Thus, a strong vision embraced by employees is a powerful competitive advantage

4. Mission Statements • An organization’s mission statement attempts to capture the organization’s identity; it answers the question “Who are we?” • While vision statements focus on the future, mission statements should be written around the past and present • Strong mission statements suggest why organizational stakeholders (e.g. employees, suppliers, customers, community) why they should support the organization and ensure it’s success

5. Mission Statements • While mission and vision statements are different, they should pursue similar goals • Organizations are often troubled by divergent mission statements and vision statements • Example: Universities established with mission statements focusing solely on educating citizens v. pursuing lofty research goals inline with the university’s vision • Organizations may accomplish this by focusing on developing and pursuing narrower objectives—goals

6. SMART Goals • Goals are smaller-scoped objectives that provide clear and tangible to employees in their day-to-day work • The most effective goals are: • Specific • Measurable • Aggressive • Realistic • Time-bound

7. SMART Goals • Specific goals are explicit and direct people’s energy; often times they require articulated steps to achieve them • Measurable goals are quantifiable; useful because success can be clearly determined • Aggressive goals are challenging; require people test and extend their limits • Realistic goals are achievable; while goals should be lofty, they should be reasonable • Time-bound goals are finite; there is a delineated time horizon

8. And now what…? • The period of time after a goal is achieved is important, but often overlooked • An organization should determine whether to accept it’s new position or reformulate and pursue a new goal • Example: After achieving their goal of landing on the moon, NASA failed to articulate their next goal

9. Organizational Performance • Organizational performance is a broad term that encompasses how well an organization is pursuing their mission, vision, and goals • A vital aspect of strategic management • The ultimate dependent variable in strategic management research • Organizational performance is subjective and depends upon how it is defined

10. Organizational Performance • Two important considerations: • Performance measures—a metric with which performance can be gauged (e.g. ROA, Tobin’s q, stock price, earnings per share) • Performance referents—a standard that can be held against a measure to determine an organization’s relative performance (e.g. industry standards, competitor performance, social norms) • Different measures and referents communicate different information; suggests the importance of multiple measures of performance

12. Balanced Scorecard • Many measures and referents exist, so it’s important to identify rich yet manageable objectives • The balanced scorecard approach was developed by Harvard professors Robert Kaplan and David Norton to help managers diversify performance analysis • Recommends that managers focus on a few key measures reflecting four (4) dimensions • Financial • Customer • Internal business process • Learning and growth

14. Triple Bottom Line • The triple bottom line approach to reflects a more holistic view of performance than the balanced scorecard approach • Focuses on three (3) bases: • People (society) • Planet (environment) • Profit (financial) • Developed in the 1980’s, but gained popularity in the late 1990’s • Many firms are finding social cache by emphasizing social and environmental values

15. CEO Celebrity • Many CEOs are thrust into the public spotlight • Firm Advantages • Enhance corporate image • Increase stock price • Improve stakeholder morale • Firm Disadvantages • Gaps in actual and expected performance may be magnified • Unethical or illegal behavior attracts negative publicity

16. CEO Celebrity • Individual CEOs are presented with both benefits and costs • Individual Benefits • High compensation/benefits • Prestige-based power • Elite network opportunities • Individual Costs • Face bad reputation with negative performance • Increased media scrutiny • Friends and family forced into the spotlight

18. Corporate Entrepreneurship • While entrepreneurship is traditionally thought of as a person starting a new venture, corporate entrepreneurship describes entrepreneurial activity in an existing organization • Organizations failing to continually innovate fall into the trap of creative destruction (Schumpeter, 1934) • Corporate entrepreneurs innovate new products and services and find/develop resources to support it • Successful corporate innovators are valuable organizational assets and can benefit from this value • However, some risks still exist…

19. Entrepreneurial Orientation • Entrepreneurial orientation (EO) refers to the processes, practices, and decision-making styles of organizations that act entrepreneurially • Firm-level concept • Essential part of crafting an entrepreneurial strategy • A firm’s EO is determined by aggregating 5 dimensions: • Autonomy • Competitive Aggressiveness • Innovativeness • Proactiveness • Risk-taking

20. Entrepreneurial Orientation • Autonomy • Generally refers to the freedom that individuals and groups/teams have to introduce and develop new ideas • Reflects a lack of hindrances associated with organizational bureaucracies • Structure is key • Competitive Aggressiveness • Tendency for a firm to intensely engage competitors rather than avoid them • Includes strategic ploys to gain favorable industry positions • Competitive action is powerful and executives must consider the short and long-run consequences

21. Entrepreneurial Orientation • Innovativeness • The tendency to pursue creativity and experimentation • Innovativeness is aimed at creating new products, services, processes, and/or skills to increase a firms advantage(s) • Innovations may build on an existing advantage or introduce a radically different advantage • Firms should assess how new innovations impact existing advantages (cannibalization) • Firms with strong innovative abilities tend to enjoy better firm performance than others

22. Entrepreneurial Orientation • Proactiveness • The tendency to anticipate and act on future needs rather than waiting to react • Adopts an opportunity-seeking perspective • Typically first or early to enter a market • Can often capitalize on first-mover advantages, but is also subject to first-mover disadvantages • Risk-taking • Tendency to engage in risky or bold actions as opposed to cautious • Different people perceive risk and uncertainty differently • Some industries reward/punish risk-taking differently

23. Building an Entrepreneurial Orientation • Steps can be taken to increase a firm’s EO • Executives should design an organization’s structure to promote and enhance the five dimensions of EO • Leverage power/influence • Ecological design • Additionally, executives should properly monitor the EO level of a firm • Gauge employee satisfaction • Examine key entrepreneurial performance measures • Slack capital/resources • R&D expenditures

24. Conclusions • Executives (namely the CEO) are responsible for establishing a firm’s mission, vision, and goals • They should also work to encourage the necessary culture to accomplish their objectives • Performance metrics and referents are important when determining a firm’s relative and absolute position, but must be chosen carefully • Executives should determine a firm’s appropriate level of EO and work to encourage responsible levels of EO