lors mt CHAPTER OUTLINE Strategic . sila Leadership ea and Change Ses, ‘The Strategic Management Map ne Coking a Vio adie Seeman Seng Orrin! Ojecias Surg Foriaion Learning Outcomes Semegy Ean ‘After studying this chapter, you should be able to: Seregy Erin a Cer © Discuss the role of strategic leadership in the strategic Leading Change ‘management process p.399 Th Hed fe ange © aertity the five major decision catagories inthe seatege ihe Be stg odes ‘management process. p.402 is Ynapig Cae ° a the reltonship berween objectives and strategies. | una be © Describe the relevance of analyzing an organization’s bpbraaeneabiane incernal and external environment as parc of strategy ining estan wo Change formulation p. 405 © Explain the importance of strategy evaluation inthe strategic management process. pl © Describe the change management process using Kurt Lewin’ force-eld model of change. p. 13 @ Identify the major reasons for resisting change. p.414 © Discuss some ofthe recommendations for minimizing resistance to change.p.416 395 copra 01cm ane Akt oer yn cs i hepa De ss ge ey epee Co sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa396 PART 3 ORGANIZATIONAL LEADERSHIP Cee As chief executive officer, Larry Page is responsible for Google's product development and technology strat- my Sergey Brin co-founded Google Inc. with Larry Page in 1998. Today, he directs special projects. Eric Schmit, former CEO, is the executive chairman of the board. Together these three men provide strategic leadership at Google. ‘Google's mission is to organize the work's information and make it universally accessible and useful By providing the best user experience, Google and its leadership team believe that they can build a company that will create more value, not just for its users but ultimately for its share- holders. its business model is based on providing a free information search engine to millions of subscribers in ex- ‘change for the sale of ads that appear alongside its search ‘engine results. Google's advertising programs range from simple text ads to rich media ads that help businesses find customers and help publishers make money off of their content:The company also provides cloud computing tools for businesses that save money and help organizations be ‘more productive ‘Google has on its Web site a page tiled “Ten things we ow to be true'"The 10th item states, “Great just isnt good enough" This 10th item discusses Google's goal-setting strategy." We set ourselves goals we know we can't reach yet because we know that by stretching to meet them we ‘can get further than we expected." Google sets stretch oaks, a mark of strategic leaders whose vision stretches way beyond what others think is possible. Through innova- tion and iteration, Google aims to take things that work ‘well and improve upon them in unexpected ways "We try to anticipate needs not yet articulated by our global audi- fence, and meet them with products and services that set ‘new standards This is the essence of strategic leadership — anticipating customer needs and then designing innovative products/services that will satisfy those needs The strate- ic management process is about having the right vision, setting challenging objectives, and formulating the right strategies to achieve these objectives and keep mov- ing toward the vision. Google is certainly pursuing a dif- ferentiation strategy. Google is always looking for new ‘opportunities where it can make a difference. “Uttimately, ‘our constant dissatisfaction with the way things are becomes the driving force behind everything we do.” copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa UTEP Inother words, Google is a change-driven not a status-quo, organization ‘Google certainly strives for a strategy-culture fit. As Google's leadership sees it, great, creative things are more likely to happen with the right company cutture,At Google, there is an emphasis on team achievements and pride in indvidual accomplishments that contribute to its success. The company puts great stock in its employees who are described as energetic and passionate. Google strongly believes in diversity Its employees come from diverse backgrounds with creative approaches to work and play. ‘The company's culture is adaptive, yet casual and very iniormal This cuture type is key to Google's success as an immovator: Idea generation is the frst step to new product development. At Googe, itis not uncommon for a new idea to emerge in a café line, ata team meeting, or at the gym. What sets Google apart from its competitors is the Gizzying speed with which new ideas are traded, tested, ard put into practice. Google is one of the world’s most dominant com- panies. Google can be accessed in 120 languages and anailable in 50 countries worldwide. By any standard or metric, Google iso standout company, and perhaps the main reason for ts superiority is its remarkable style of leadership, Google's results speak for its performance. The com- pany reached $1 billion in revenue in six years, ten years faster than Microsoft. The Google brand is valued at $100 billion, making it the world’s frst “one-hundred bition” brand. OPENING CASE QUESTIONS: |. How effective has the executive leadership team of Schmidt, Page, and Brin been in providing the kind of strategic leadership that Google has seen so far? 2. Critique Google's mission statement. 3. How well do Google’s long-term objectives balance with the interests of its stakeholders? 4. Describe Google's business environment. How ‘well is Google adapting to it? 5. What type of strategy is Google pursuing, and why do you think the leadership team has cho- sen such a course rather than the alternatives?CHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT 397 6. What are some of the factors contributing to Can you answer ary of these questions? Youll find an- Google’s effective strategy implementation? swers to these questions and learn more about Google 7. Why have Schmidt, Page, and Brin encountered 2" its leadership throughout the chapter leas resistance in Bringing about changes at To learn more about Google and its leadership team, (aSaajal aah essex conrad Sathag vist the company’s Web site at httpilwww.google.com, Strategic Leadership In the past two decades, the spread of globalization and the Internet have generated un precedented changes in ways organizations are managed. These changes have produced new requirements for competition and forced a new emphasis on strategic thinking and leadership.! Although there are varying definitions of the concept of strategic leadership, they all seem to revolve around the same themes: vision, change, people, and performance. Strate sc leadership is the responsbility of the CEO and top management. Top management will include the vice presidents of divisions or strategic business units. They take the lead in crating the organization's vision, mission, core values, objectives, and strategies. Strategic leaders are responsible for the organization's near-term performance, as well as for creat- {ng conditions that will ensure the organization's long-term competitiveness.” There is am- ple evidence supporting the hypothesis that strategic leaders have positive effects on firm performance because of their leading role in planning and executing firm strategies.“ In their study involving more than 20,000 executives, Shoemaker, Krupp, and Howland identified six skills that, when mastered and used in concert, allow leaders to think strategically and navigate the unknown effectively. They are the abilities to anticipate, challenge, interpret, decide, align, and learn.’ Along with these abilities, the effective strategic leader must be capable of the following + Anticipating and forecasting events in the external environment that have the potential to impact business performance—they observe from the outside in. + Finding and sustaining competitive advantage by building core competencies and selecting the right entrepreneurial opportunities to pursue” + Evaluating strategy implementation and results systematically, and making strategic adjustments. + Building a highly effective, efficient, and motivated team of employees* + Selecting, developing, and mentoring a talented team of top leaders who can sense, capture, and shape market opportunities for firm growth? + Deciding on appropriate zoals and priorities. + Communicating effectively ‘Therefore, we define strategic leadership as a leader's ability to anticipate, envision, ‘maintain flexibility, think strategically, and work with others to initiate changes that will create a viable future for an organization." It is a process of providing the leadership and inspiration necessary tc create and implement a firm's vision, mission, and strategies to achieve organizational objectives." ‘The focus of this chapter is on strategic leadership and the strategic management pro- cess, and change management. However, before delving into these topics, we will briefly explore two related topics: globalization and environmental sustainability. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa398 PART 3 ORGANIZATIONAL LEADERSHIP Ea Strategic Leadershi Identify each of the 16 statements according to how accurately it describes you. Place a number from | to 5 on the line before each starement. 5-4-3 2-1 ‘Moree me — Less he me Not me at ll —— |. Ihave a tendency to plan ahead instead of ‘waiting until the last minute before acting on issuevproblems. —— 2. lama very flexible person when it comes +o dealing with people or issues. —— 3. Asa student. | often find mysetf playing the role ofa leader rather than a follower _—— 4. When the stakes are high | a comfortable being the one to make the final decision, 5. lam very good at setting personal goals and prioritizing events in my lie. — 6.1 tend to consider the longterm conse- quences of my decisions and actions today rather than just the immediate consequences. —— 7. When | contact businesspeople who can help me praise their accomplishments —— 8. | am the type that likes to sit back and by ‘0 endsion my future to see where or what | wil be in ten years. —— 9. When it comes to working with others. | am more ofa team player than a loner. 0. | am the type that would want the ball with the play clock counting down to zero and the chance to make the winning basket II. lam the type that would be very comfort- able mentoring training, and motivating oth- ers to meet team goals ——I2 When it comes to interacting with people, Iican communicate effectively with all kinds of peopke 13. When it comes to solving problems or completing group projects | will describe ‘myself as more analytical than most of my pees 4. like to keep things the way they are (espe- cialy if they are working just fine) rather ‘than trying fo change them. ——I5.| have a strong desre to one day become the CEO of an organization ——I6.| am a very ethical person when it comes +o dealing wth others oracting according to accepted norms ‘Add up your score and place it here and on the continuum below. a — 70 — 6 — so — 4 — 29 — 16 ‘Song Stotepe Leadership ‘Weak SrotapleLeaereip Patent Poteet This self-assessment exercise is similar to the first one in Chapter | except this focuses on your potential to lead from the top. Generally, the higher your score on the continuum above, the greater your potential for strategic leadership. However, the key to realizing your aspirations is education, hard work, and persistence, not simply potential.You can develop your strategic leadership ability through this course by spplying the principles and theories to your personal and professional life. rs CPR a 1. How effective has the executive leadership team of Schmidt, Page, and Brin been in providing ‘the kind of strategic leadership that Google has utilized so far? Together, this trio has created a profitable business model built around keyword advertising. Since going public in 2004, Google has exceeded analysts estimates for its financial performance in all but one quarter: Google's stock is currently trading at over $1,200 per share. The trio of strategic leaders is performing exceptionally well in all the areas ‘dentifed above. Evidence of this can be seen in the market standing ofthe company today. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faaCHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT 399 Globalization and Environmental Sustainability ‘One area in which change is unmistakable is the increasingly global competitive marketplace." Virtually every company, large or small, faces competition for critical resources and market opportunities, not just from competitors in the home market but also more and more from distant and often little-understood regions of the world.'*!* In his book The World Is Flat, Thomas Friedman eloquently makes the case that labor, jobs, information, knowledge, and capital readily move across borders with far less restr tions and at greater speed than was possible only a few years ago, a view that has been supported by many others."'*" How successful a company is at exploiting emerging ‘opportunities and dealing with associated threats depends crucially on leadership's abil- ity to cultivate a global mind-set among managers and their followers.” International experience is now considered key for anyone aspiring to top leadership in many organi zations. There isa renewed interest in the development of global leadership and intercul- tural competency?! Beginning in the later part of the 20th century, there has been increasing atten- tion paid to the idea of environmental sustainability? There seems to be emerging a collective understanding that the natural environment (which includes physical re- sources, wildlife, and climate) cannot sustain itself if human behavior toward the air, water, land, natural resources, flora, and fauna does not change.”* Leaders today have a responsibility to ensure that they reduce side effects such as pollution, deforesta- tion, and greenhouse gas emissions. Sustainability is about conservation of natural re- sources and minimization of waste in operations through actions such as recycling. ‘The common phrase used nowadays to refer to this trend is “going green."™* Companies are increasingly seeking ta develop and market environmentally friendly products.*> Stakeholder groups (customers, shareholders, activists, and policymakers) are increas- ingly demanding improved environmental performance from firms globally. As such, organizations are paying greater attention to the environmental impact of their bu: ness activities. This has led to calls for strategic leaders to formulate strategies that will help sustain the environment. Top management's active involvement and support are needed for environmental sustainability initiatives to succeed.*” The extent to which firms are willing to compromise on short-term profit maximization for the larger good of society is directly tied to the vision and commitment of top management.”* Environ- ‘mental sustainability isa part of the broader concept of corporate social responsibility (CSR). CSRs about the ethical and discretionary responsibilities an organization owes its stakeholders.” Being pro-environmentiis also financially good for business. It’s called “green mar- keting” and more companies are doing well selling products that are environmentally friendly like cars (Tesla Motors and Toyota), packaging for consumer goods (Procter & Gamble and General Mills), and shoes (Nike). The importance of environmental sus ability can be seen in the growing number of higher education programs focused on sus- tainability." In fact, there is now an Association for the Advancement of Sustainability in Higher Education. Although itis still the goal of strategic leaders to develop and grow their businesses, there is now talk of sustainable development—development that caters to the needs of today’s generation without shortchanging the ability of future generations to meet their own needs.” tte Discuss the role of strategic leadership in the strategic management process. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa400 PART 3 ORGANIZATIONAL LEADERSHIP Strategic Leadership and the Strategic Management Process ‘The link between leadership and strategy was firmly established in the early 1960s with the application of strategy to business planning, However, by the mid-1960s, there were ‘attempts to separate the two as some dismissed the role of leadership in strategic plan- ning in favor of objective analyses of the external environment that eliminated any need for leadership skills, judgment, values, or intuition.”* Today, the reverse is taking place. More and more, there is the realization that leadership and the strategic management process are interconnected.™ You need an experienced strategist to lead the process and ‘when this has happened, the outcome has been positive for the organization." The leader ‘makes a difference by maintaining a strong sense of purpose, refocusing the organization ‘when it starts to stray off track, and repositioning it when its original vision has run its course and a new vision is warranted.** We should note that the leader's role in leading the strategic management process applies to for-profit as well as not-for-profit organiza- tions.” Some of the key questions requiring top management input and leadership during the strategic management process include the following* + What's our vision? + What’ our mission? + What are our objectives—short and long term? Is there company-wide clarity about our objectives? * Who is our customer(s) and what are their needs? * Do we havea viable and competitive business model? * What are the changes/trends taking place in our industry and broader environment and. why? oie mana hat tae ‘changes will take the market (and us)? * Who are our competitors (direct and indirect) and how do they rank against us? * Doe understand our competitors’ strategies? Can we find ways to outcompete them? + What is our core strategy? Are we innovative and bold with our strategy? Are we taking appropriate risks? Do we understand what needs to be done and who will be account- able for specific parts of the plan’ © As we get to the execution phase of our strategy, do we have the right people to execute the strategy? Do we have the right kinds and level of resources to execute our strategy? What is our compensation structure? What are the performance targets for tracking success?” * Interms of our positioning, how are we different? What's our culture and is it strong or weak? * How does our overall strategic road map look? Do all the parts fit together? Will it satisfy our stakeholders? Are we on the right track to realizing our vision? * What contingeney plans do we have ifthe bets we make prove unsuccessful?! ‘Taking the leading role in addressing these and other questions is what strategic lead- ‘ership is about. ' Some describe it as strategic thinking.“?“" These questions provide content for the strategic management framework, which consists of five key decision ‘categories (see Exhibit 11.1): Crafting a strategic vision and niission statement, setting “objectives, strategy formulation, strategy execution, and strategy evaluation and control. An effective strategic leader seeks the participation of a broad coalition of employees throughout the strategic management process because followers who participate in the process take ownership in it and are more committed to its success.“ We now turn our attention to the strategic management process. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faaCHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT 401 Stare Identify the five major decision categories in the strategic management process. The Strategic Management Process ‘The strategic management process consists of the set of decisions and actions used to formulate and implement specific strategies that are aligned with the organization's capabilities and its environment, to achieve organizational goals."® Formulating and executing strategy is the central theme of strategic leadership in any organization. How to perform this task proficiently is what distinguishes effective from ineffective strate- gic leaders.6 As mentioned earlier, the strategic management process consists of five key decision areas: craft a strategic vision and mission statement, set objectives, formulate, execute, and evaluate and control strategy (see Exhibit 11.1), We examine each of these decision categories, focusing on the role of the strategic leader in bringing together every- ‘one to participate in filling in the details and thus putting in place a strategic road map for the entire organization. ® ‘The Strategic Management Process Step I: Crafting a Strategic Vision and Mission Statement What is our long-term direction? (Where are we going and why!) Whats our present business and purpose? (Who are we and what do we do?) ‘Who is our customer(s) and what are their needs! Do we have a viable and competitine business model? ‘What values and principles should govern our behavior? Step 2:Setting Objectives * What are our strategc and financial objectivesioutcomes—short and long term? Is there company-wide darty about our objectives! + Does every department and manager understand what cbjectives/outcomes they are responsible for and their accountability? Step 3:Strategy Formulation ‘What are the changeu/trends taking place in our industry and broader environment and why? Do we understand were these changes wil take the market (and us)? * Who are our competitors (drect and incirect) and how do they rank against us? * Do we understand ther strategies? Can we find ways to outcompete them? What is our core strategy Are we innovative and bold with our strategy? © Is it the right strategy for capturing emerging opportunities, meeting our customers’ needs, and defending =ganst cur competitors! Are we taking appropriate risks? Step 4: Strategy Execution © AS we get to the execution phase of our strategy, do we have the right people to ‘execute the strategy? Do we have the right kinds and level of resources to execute our strategy? What is our compensation structure? Is there a strategy-resource ft! What are the performance targets for racking success? Scope copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa402. PART 3 ORGANIZATIONAL LEADERSHIP ® The Strategic Management Process (continued) + In terms of our positioning how are we diferent? What's our culture and is it strang or weak? I there a strategy-culture fit! Do we have the appropriate structure for executing ‘our strategy? Is there a strategy-structure fi2 ‘Step 5: Strategy Evaluation & Control "© How does our overall strategie road map look! Do all the parts ft together? Mill it satisfy our stakeholders? Are we on the right track to realizing our vision? © How well did our strategy perform this quarter? Did we meet our quarterly milestone? "© What corrective actions do we need to take to address weaknesses in our strategy? An important part of strategic leadership and management is creating the business model ‘of how the business competes. Tre University of Miami Online High School (UMOHS) is in partnership with the University of Miami, UMOHS is for young athletes and performers (grades 8-12) who are too busy to attend traditional classes it gives thern more time to train and to travel to compete/perform. It wants to become the establishment schoo! in ‘the sports and performing world, UMOHS also accepts international students who want ‘an American diploma. Some argue that online high school deprives a child of a traditional ‘education and prevents a kid from being a kid and enjoying childhood. |. How do you feel about high school students enrolling in an online school and missing the experience of attending traditional classes? Do you agree with the mission of UMOHS? 2. [sit ethical and socially responsible to offer an online high school for athletes and performers? Strategic Leadership and Management Crafting a Vision and Mission Statement Strategic leadership starts with communicating what direction the organization wants to {g0. It is generally believed that a leader's inspiring vision motivates followers to focus on reaching a desirable future state thet is better than the present state. ‘A mission statement on the other hand specifies an organization's present purpose— its market niche (customers), product/service offerings, operating principles, and busi- ness model, So, a vision statement represents @ future aspiration, whereas the mission statement represents the enduring purpose of the organization in the present. The job of strategic leadership is to ensure that the best vision and mission statements are put forth and that they are widely shared and embraced by members of the organization. Mission and vision statements provide identity and a road map of the future for an organization.” Getting the behaviors of diverse workers to coalesce around a common purpose and future path is a major challenge for top management. The values espoused as part of the mission and vision can act as a powerful force in bringing people together to perform effectively. So, let's focus on crafting a strategic vision, mission, and values statements. Crafting a Strategic Vision Astrategic vision is defined as ar ambitious view of the future that everyone inthe orga- nization can believe in and that is not readily attainable, yet offers a future that is better in copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faaCHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT 403 WORK ‘Apphton | ‘ren eorg aoe noes Gree ithe company ae, ere you nay citer rath Ein ty youtwt hasan Rosato appa — WORK Aepleation HI ‘rte an ring mss state or rape aoe oe ihe company ore you apse areek ees econ visa ore purpose mason Sateen important ways than what row exists. It is important for the CEO to convey a vision of the organization's future and to do it in such a way that followers accept it as their vision as well The leader must have a clear idea of where he or she wants to take the organiza- tion and the strength to persist even in the face of setbacks and even failures. John F. Kennedy demonstrated vision when he promised that an American would land ‘on the moon during the 1960s, because at the time of his announcement, NASA was in its infancy and the state-of-the-art technology for space exploration was Sputnik. ‘To be motivating, a vision must be expressed in ideological terms, not just in economic terms, to help people develop a personal connection with the organization To be widely accepted, vision creation should be a shared experience. The role of the leader in bringing together all the key players to the visioning process is critical. To make a difference, a vision must be based on the input of employees representing different functional units or divisions and levels ofthe organizational hierarchy. Other stakeholder ‘groups such as the shareholders, customers, suppliers, and the board of directors should also be represented. A well-crafted vision is one that is the result of a broad consensus. It should be simple enough to be understood, appealing enough to energize and garner commitment, and credible enough to be accepted as realistic and attainable. During a period of crisis or transformation, a vision statement helps to provide direction. Some examples of compenies with simple, yet inspiring, vision statements include the following: + Google: To organize the world’ information and make it universally accessible and useful. + Komatsu: “Encircle Caterpillar” + Pepsi: “To put into action through programs and a focus on environmental stewardship, activities to benefit society, and a commitment to build shareholder value by making, PepsiCo a truly sustainable company.” + American Express: “To be the world’s most respected service brand” Crafting a Mission Statement ‘A mission statement is en enduring statement of purpose that distinguishes one orga- nization from other similar enterprises. Itis the organization's core purpose and reason for existence.® It answers the question “What business are we in?” It is in a company’s ‘mission statement that its business model (or at least part of it) is revealed. A business ‘model specifies an organization’s customer value proposition and its profit formula, In other words, what is the company proposing to offer its customers and can it earn a reasonable return or profit in the process? The customer value proposition doesn't just describe goods and services; it describes the broad needs (immediate and anticipated) of the people served by the organization's products or services. This is very much the purpose of the organization The job of the strategic leader is to ensure that the company hasa sound and sustainable business mission, Examples abound of organizations that have been adversely affected by poorly crafted ‘mission statements, The railroad industry almost brought about its own demise by defin- ing its mission as being in te railroad business rather than the transportation business. ‘The March of Dimes’ original mission was “to cure polio,” until a cure was discovered and the organization found itself without a purpose. Today, its mission is to advance human health, ‘The mission should be broad but not so broad that it does not distinguish the organi- zation from its competitors. It should be specific but not so specific that it creates rigidity and resistance to new ideas.” It is generally believed that mission-driven organizations copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa404 PART 3 ORGANIZATIONAL LEADERSHIP stand a better chance of succeeding and thus creating long-term shareholder value than those that are not mission driven. Studies that have examined the relationship between mission statements and performance found that organizations with well-crafted mission statements showed higher returns cn certain financial measures than companies that did not have well-crafted mission statements. ‘A.well-crafted mission statement can provide other benefits to an organization, in- i 3. How well do Google's long-term objectives balance the interests of its stakeholders? Google's executive leadership team under CEO Larry Page believes that in the long term, Google's obligation is to maxi- rmize shareholder and customer value by providing the best user experience. Google is a company that has remained relentlessly focused on the end user by continuously improving on the quality of its search results. To accomplish this, Google has brought together a highly talented and motivated workforce. The media has regularly featured stories tout- ing Google's generous incentives and compensation package for its employees. The focus on quality has brought in more Users and consequently more advertising revenues and profits. Google's philanthropic causes include disease prediction and prevention and improvement of public services by informing and empowering people: These examples ilustrate how stakeholder centric Google isin its business strategy. PEE Ye Describe the relevance of anclyzing an organization's internal and external orn environment as part of stratezy formulation. Strategy Formulation Strategy formulation is aboxt selecting appropriate strategies for achieving an organiza- tion's objectives. Therefore, strategies are the means to the ends (objectives). Simply put, a strategy is an organization's chosen plan of action for outperforming its competitors and ‘achieving superior outcomes. Before formulating a core strategy, an organization must first complete an analysis of its environment, also called a situation analysis. Thus, let's start with a discussion of what it entails. Environmental or Situation Analysis A situation analysis focuses on an organization's internal environment (for its strengths and ‘weaknesses) and its external environment (for opportunities and threats). The external envi- ronment focuses on the industry and general environments. They determine the attractive- ness or unattractiveness of the industry or competitive environment. Awareness ofthe trends taking place in the economic. political, technological, sociocultural, industry and competitive sectors provides critical input for selecting an appropriate strategy or strategies. As one author puts, every leader needs tocultivate a triad of awareness, in abundance and in the proper balance, because a failure to focus inward leaves one rudderless, a failure to focus on others renders one clueless, and a failure to focus outward may cause one to be blindsided. A good strategist knows where the organization is headed (vision), knows what the competitors are doing or plan to do (competitor intelligence), and is aware and prepared for newly emerging ‘opportunities and threats before competitors. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa406 PART 3 ORGANIZATIONAL LEADERSHIP ‘The combined analysis ofthe external and internal environment is commonly referred to as SWOT (strengths, weaknesses, opportunities, and threats) analysis. The effective- ness of an organization's strategies is influenced by the degree of fit or alignment between the organization's internal capabilities/resources (strengths) and its opportunities.®° The ‘outcome of an environmental analysis can also lead to a fine-tuning of the strategic vision and long-term objectives. ea ee 4. Describe Google's business environment. How well is Google adapting to it? ‘Google operates in a high-tech environment, a sector that is undergoing significant transformations every day The compe- tition between Google, Facebook Yahoo! and Microsoft for supremacy is intense. The technologies for serving user needs in the industry are constantly changing, Major demographic charges are taking place among the user market. The worlds ‘economy is now one boundary-less global market with as much universality as diversity in customer needs. Google has adapted wel to this turbulent business environment. Their focus on technological innovation and operating efficiency has ‘created a search engine that is currently number one in its industry. EEE Selecting from Alternative Strategies An organization's core strategy is the source of its competitive advantage and is how the ‘organization differentiates itself from its competitors, There are three generic core strate- ‘gies that strategic leaders can select from:** + Broad or Niche Differentiation Strategy: Develop innovative products or exceptional services ahead of your competitors that are difficult to imitate or copy (think Apple, Google, Facebook, 3M, Nike, BMW, etc) * Broad or Niche Low-Cost Strategy (Operational efficiency): Gain a cost advantage through relentless attention to productivity improvement and cost management (think Wal-Mart, SW Airlines, Costco, Dollar General, ete.) + Best-Cost or Value-Based Strategy: This strategy aims to satisfy the value-conscious, ‘customer who desires upscale products and services, though not as high as those of the . InBex:We are focused on developing unique, high-cualty products that meet our customers! needs — 0. Avon Cosmetics'To give united opportunity to women. Strategy Execution Strategy execution is the primary domain of operational leaders—those who are in charge ‘of functional departments such as marketing, production, finance, human resources, and R&D. They provide the leadership necessary to convert plans into actions. An excellent strategy that is poorly executed will yield the same poor results as a bad strategy.” Therefore, careful consideration must be paid not just to strategy formulation but to its implementation as well." Strategy implementation takes place through the basic organizational architecture (structure, culture, policies, procedures, systems, incentives, and governance) that makes things happen. Strategy execution has been described as the ‘most important and most difficult step of the strategic management process. ‘As mentioned, there are a number of factors that need to be present for strategy ‘execution to progress successfully. They include having the right front-line leadership and skilled employees to execute the strategy, creating a strategy-supportive organiza- tional structure, provide adequate resources and capabilities, institute the right policies and procedures, create appropriate reward and incentive package, adopt best practices, and instill a culture that supports good strategy execution. A few of these are highlighted below: Strong Leadership and Competent Managers Strong leadership is a critical requirement for successful strategy implementation. A strong leadership team and an abundance of skilled and well trained operational leaders/managers make a difference. An internal study at Google identified eight quali- ties of leaders/managers (listed in the order of importance) that contribute to successful strategy execution. They are: |. Be a good coach. . Empower your team and don't micromanage. 3. Express interest in your team members’ success and well-being Be productive and results-oriented. Be a good communicator and listen to your team, Help your employees with career development. . Have a clear vision and strategy for the team. 3. Have technical skills so you can advise the team. ‘These qualities are not unique to Google. They are applicable to any organization that aims for effective strategy execution. Successful strategy execution requires galvanizing the “organization's employees and managers at all levels to turn formulated strategies into action, Appropriate Policies and Procedure Policies provide guidance for employees in the workplace. The policies and procedures of an organization regulate behavior and help set the tone of the work climate. They copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faaCHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT 409 WORK Aepletion A identify core competence ofan ‘orgimiation you work for worked for Explain Faw it rent the ergmition rom its competion, contribute to an understanding of “how we do things around here” mentality. Policies and procedures insure consistency in how employees do their jobs because they standard- ize the way specific strategy-execution tasks are performed. This insures the quality and reliability of the strategy execution process.” With a new strategy, there is often a need to review existing policies and procedures to make sure they are supportive of the strategy. Adequate Organizational Capabilities Resources are the foundation of a company’s capabilities and core competencies. Building ‘a company’s capabilities into core competencies and further into distinctive core compe- tencies isa key responsiblit” of strategic leadership. Strategies that are based on a compa- ny’s unique or distinctive core competencies are hard to copy and not easily substitutable, and as such have a better chance of sustaining the company’s competitive advantage.” Therefore, a distinctive core competence is a capability that allows an organization to perform extremely well in comparison to competitors and is the basis for a competitive advantage, Arguably, the most distinctive and hard-to-imitate resource available to firms is knowledge, especially people-based knowledge. Unlike physical resources, which are depleted when used, core competencies increase (in terms of their efficient application) as they are used. Such employee-based competencies are what some have referred to as ‘human capital. Human cagital is among key organizational resources that are hard to imitate; therefore, maintaining and developing it is crucial for organizations to stay ahead of the competition.” Another resource that cen affect strategy execution is time. Time is of the essence in strategy execution. Being careful and rational during strategy formulation is important but not sufficient if manages are slow to initiate actions. Managers must avoid becoming ‘trapped in the vicious cycle of rigidity and inaction that prevents them from acting in a timely fashion. We cal it “paralysis by analysis?” Having the Right Corporate Culture An organization's culture is the ageregate of beliefs, norms, attitudes, values, assump- tions, and ways of doing things that is shared by memibers of an organization and taught to new menibers.”* The shared actions and interactions of employees across functional boundaries help create an organizational identity that differentiates the organization from rivals. A supportive organizational culture enhances the success of strategy execu- tion.” Organizational identity is the members’ consensual understanding of “who we ‘are as an organization” that emerges from that which is central, distinctive, and enduring to the organization as a whole. Organizations like Southwest Airlines, Nike, Walmart, Google, Facebook, and mary others are well known for fostering an identity and culture that separates them from their competitors. Appropriate Rewards and Incentives An appropriate reward structure must go hand in hand with a new strategy. Rewards and incentives are powerful motivating tools that can greatly enhance strategy execution, Rewards and other forms of compensation must be aligned with the objectives that employees are seeking to accomplish. The right package of financial and nonfinancial incentives will drive up employee commitment, hard work, speed, quality, and satisfac- tion, leading to greater output and profitabilit Underlining the discussion of successful strategy execution is the concept of “stra- tegic alignment” or “fit” with various components of a firm’s strategic framework.” Let's illustrate with an example, A company pursuing a strategy of differentiation through innovation in a bureaucratic and hierarchical structure will be an example of copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa410 PART 3 ORGANIZATIONAL LEADERSHIP ‘a misalignment or lack of fit between strategy and structure. A strategy of differen- tiation works best with an adaptive or flexible structure. However, a company pursu- ing a strategy of operational efficiency and stability, aimed at offering customers lower prices than competitors (low-cost leadership), is more likely to succeed with this type of centralized hierarchical structure because of its strict controls on cost containment. ‘Other strategic “fits” that can enhance firm performance are a strategy-culture fit, a strategy-capability fit, and a strategy-leadership fit.”"*" Assessing the extent to which stated goals or expectations have been achieved or not achieved after implementation is, strategy evaluation, CPN a 6. What are some of the factors contributing to Google's effective strategy execution? Granting employees the freedom to implement strategy is one part of Google's people-management system. The other is to provide the employees with a hassle-free ervironment so that they can concentrate ful on work In other words the ‘20a sto strip away everything that gets in the employees’ wayThe company provides a standard package of benefits to ‘employees that it tops up with a seemingly endless and hight enviable array of perks—just about anything a hardwork- ing employee might want to be taken care of while helshe is at wrk In fat, employees don't even have to worry much about getting dressed up, as Google's corporate vision includes such axioms as"“You can be serious without a suit” Lead- ‘ership’ policy of empowering and facilitating employees work hus led to a large number of innovations and, consequenthy, to the explosive growth of the company. Strategic Leadership Identiy in each statement if te view expressed is reflective of « sroteic leader or operational leaderimenager 2. strategic leader 1 operational leader/manager — |. My goalisto motivate and lead my tear to meet ou production quota every week and not worry about other separtments, 2. incur business the environment changes very icy Therefore, we have to constantly monitor it or emerging ‘opportunites and threats — 13. Itis my responsbilty to ensure that we have the right strategy to achieve our long-term objectives and mission, — 14. lam concerned that ou technology is not keeping up with the latest technological trends and our culture isnot aligned with strategy. — 15. lam not worried about the future because our current portfolio of products is meeting our customers’ present needs just fine. 16. I get paid to deliver resuits today, not to worry about the future — 17. My job isto motivate and challenge my tear to meet our monthly targets, — 18. Iwomy ifour strategy is bold and innovative relative to our competitors. — 19. We are not concerned about developing future capasities and other resources that we don't not need today. — 20. 1am responsibe for setting the future drection for my company. copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faaCHAPTER II STRATEGIC LEADERSHIP AND CHANGE MANAGEMENT Il Stare Explain the importance of strategy evaluation in the strategic management process. Strategy Evaluation and Control Strategy evaluation and control is the last and final phase of the strategic management process. This phase compares actual results (outcomes) with expected results (stated objectives), which then provides feedback for necessary adjustments throughout the process. Its the primary means of determining the overall effectiveness or success of a strategy. Effective strategy evaluation is a three-step process: (1) reviewing internal and. external factors that are the bases for the current strategy, (2) measuring actual perfor- ‘mance against stated objectives, and (3) taking corrective action. When step two reveals that actual performance did not meet expected or set targets, itis the responsibility of strategic and operational lesders to take corrective actions. Another tool used to measure the effectiveness of executed strategies is the balance scorecard. The balance scorecard evaluates the company’ financial and strategic objectives." Feedback from strategy eval- uation should be shared throughout the organization and necessary changes acted upon. ‘We now turn our attention to leading and managing change. Leading Organizational Change Rapid environmental changes are causing fundamental dislocations that are having a dramatic impact on organizations and presenting new opportunities and threats for lead- ership. Organizational or institutional change is an alteration of not only structures, sys- tems, and processes but alsoa cognitive leadership reorientation. There i ittle doubt that implementing strategic change is an important responsibility of any strategic leader. Leaders must be ready and able to make necessary changes when conditions warrant such actions. Successful implementation of strategic change can re-energize a business, ‘whereas failure can lead to loss of confidence among employees. Organizational change can be transformational or incremental, and sometimes an incremental change can amplify into a much larger and radical change than was first anticipated. A transformational change can be as radical as changing an organization’s entire business model or as simple as changing a company policy. Our focus here is on organizational or institutional change—change that affects the entire organization. Ultimately, organizational change is about changes in human behavior. It is about people doing things differently—for example, re-engineering business practices, learn- ing new processes or systems, adopting new technologies, or acquiring new skills and capabilities. In this section, we discuss the need for organizational change, the role of strategic leaders in implementing change, the change management process, why people resist change, and strategies for minimizing resistance to change. 11.2 Change through Upgrading SAP is a leading software company in the world, headquartered in Germany. Fluor Corporation is one of the world’s largest publicly owned engineering, procurement, construction, and maintenance services organizations, Fluor and other businasses have accused SAP and other software companies of forcing ‘them to upgrade their software. Fluor claims that SAP upgrades are often minor and not copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa412. PART 3 ORGANIZATIONAL LEADERSHIP needed, yet Fluor is required to purchase the upgrades. In fact, Fluor dropped part ofthe products it had licensed from SAP and tried to take over its own software, hiring its own chief information officer (CIO) at a cost of about $13 milion, However, SAP told Fluor that it would have to install a new version or pay even higher annual fees to get updates, fixes for bugs, and access to SAPS techricians. |. Do you believe that comparies come out with upgrades just to make more money (cometimes called planned obsolescence), or do you believe companies are being honestly innovative and customers are just resistant to change? 2. As a sales rep, would you push selling an upgrade to a customer who doesn't really need one so that you can meke a commission? 3. What would you do if your boss pressured you to sell unneeded upgrades? 4, [sit ethical and socially respensible to "require" updates to continue using a product or service? The Need for Organizational Change ‘A key first step in managing change is for the leader to identify and explain to followers the need for change.**° The need for change may be triggered by weaknesses in an orga- nization’s internal environment or because of threats in its external environment. Externally, threats in the form of direct competition from key rivals, new technolo- ‘gies and innovations that render a company’s existing technologies or processes obsolete, weakness in the economy and consequent effects on an organization's performance, new regulations with strategic implications for an organization, or major changes in consumer attitudes and buying behavior that negatively affect demand for a company’s products! services. The need for change may also be triggered by emerging opportunities in the ‘external environment that a company is not prepared or capable of exploiting. Internally, the need for change may be triggered by a leadership change, such as when a long-time CEO retires and a new CEO is brought in or a current CEO is fired for poor per- formance. This in itself could then lead to many other internal change initiatives (uch as in personnel, culture, or strategy) by the new CEO."**” A company’s internal assessment may also reveal weaknesses in its capabilities or competencies that need to be addressed. ‘tis the leader's responsibility to communicate the need for change, especially when the ‘organization is in a crisis state. People need to know that change is needed—now—and why. The leader has to create a sense of urgency or what Edgar Schein—a leading scholar ‘on change management—referred to as “survival anxiety.” Survival anxiety is the feeling that unless an organization makes a change, itis going to be out of business or fail to achieve some important goals, However, Professor Schein cautions that even if survival anxiety increases acceptance of the need for change, another type of anxiety may be a counter force creating resistance to change. Change often requires new skills, capabilities, and knowledge. According to Professor Schein, the prospect of learning something new cre- ates “learning anxiety.” Therefore, communicating the urgency for change is critical, but leaders have to also acknowledge the anxiety that learning new skills and technologies can create. Left unmanaged, learning anxiety can create strong resistance even when the need to survive is high. The next section examines the role of leadership in managing change. The Role of Top Leaders in Managing Change Studies on institutional change have stressed the role of change agents (leaders) in ef- fectively managing the process, focusing on how they need to infuse new values, ex- pectations, and beliefs into the organization's social structure. The top leader's role is to copra 01cm nny Akt eer ee win ange De pce epee sual cert ot qe car aval a ops ape Loma oe oe Gea" eer ay faa