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Learning Objectives
LO 2-1 Explain the role of strategic leaders and what they do.
LO 2-2 Outline how you can become a strategic leader.
LO 2-3 Describe the roles of corporate, business, and functional managers in strategy formulation and implementation.
LO 2-4 Evaluate top-down strategic planning, scenario planning, and strategy as planned emergence.
LO 2-5 Assess the relationship between stakeholder strategy and sustainable competitive advantage.
LO 2-6 Conduct a stakeholder impact analysis.
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What Do Strategic Leaders Do?
Exhibit 2.1
- Pursuing an organization’s goals
- Directing the activities of others
- Successful use of power and influence
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CEOs spend most of their time “interacting—talking, cajoling, soothing, selling, listening, and nodding—with a wide array of parties inside and outside the organization.” Surprisingly given the advances in information technology, CEOs today spend most of their time in face-to-face meetings. They consider face-to-face meetings most effective in getting their message across and obtaining the information they need.
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Why Study Top Management: Upper Echelon’s Theory
Values of the top management team
Organizational outcomes
(strategic choices and performance)
Age
Education
Experience
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Level-5 Leadership Pyramid
Based on the bestseller Good to Great by Jim Collins
Explored over 1,000 good companies to find 11 great ones (stock returns seven times the average market over a prolonged period)
Progression: Each level builds upon the previous one: Prior levels must be mastered before moving on
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In the bestseller Good to Great, Jim Collins explored over 1,000 good companies to find 11 great ones. Collins found consistent patterns of leadership among the top companies, as pictured in the Level-5 leadership pyramid. Collins found that all the companies he identified as great were led by Level-5 executives. So if you are interested in becoming an ethical and strategic leader, the leadership pyramid suggests the areas of growth required.
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Exhibit 2.3 Strategy Formulation and Implementation Across Levels
Jump to Appendix 3 long image description
SBU: Stand-alone division with a profit-and-loss responsibility
Accounting, Finance, Marketing, R &D, HR, Manufacturing, etc.
Creating synergies across SBUs
Decide whether to enter or exit industries and markets
Set strategic objectives and monitor performance
Allocate scare resources among SBUs
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1st of 3 Process Approaches: Top-down Strategic Planning
Top management attempts to program future through detailed analysis, five-year plans, correlated budgets, and performance monitoring
Rational, data-driven strategy process
Potential shortcomings:
May not adapt well to change
Formulation separate from implementation
Information flows top-down (one-way)
The leaders’ future vision can be wrong
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2nd of 3 Process Approaches: Scenario Planning
Top management envisions optimistic and pessimistic “what if” scenarios and derives strategic responses
New laws, demographic shifts, changing economic conditions, technological advances, etc.
Black swan (high impact highly improbable) events
Create multiple detailed and executable strategic plans.
What resources and capabilities do we need to compete successfully in each scenario?
What strategic initiatives should we put in place to respond to each scenario?
How can we shape our expected future environment?
Exh 2.5
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3rd of 3 Approaches: Strategy as Planned Emergence
Unplanned but still evaluated and coordinated by mgmt.
Relies on personal experience, deep domain expertise, and front-line employee insights
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Exhibit 2.6. This figure illustrates how parts of a firm’s intended strategy are likely to fall by the wayside because of unpredictable events and turn into unrealized strategy.
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Strategy Highlight 2.2: Frappuccino
Diana – Starbucks manager in California
Received requests for iced beverage
Tried the beverage, and liked it
Requested Starbucks HQ offer the drink
Request denied
She did it anyway
Sales skyrocketed
Was eventually adopted by Starbucks Execs
This is now the Starbucks Frappuccino: At one point, was 20% of Starbucks revenues
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Internal and External Stakeholders in an Exchange Relationship with the Firm
Exhibit 2.8
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If any stakeholder withholds participation in the firm’s exchange relationships, it can negatively affect firm performance. The aerospace company Boeing, for example, has a long history of acrimonious labor relations, leading to walk-outs and strikes. This in turn has not only delayed production of airplanes but also raised costs. Borrowers who purchased subprime mortgages are stakeholders (in this case, customers) of financial institutions. When they defaulted in large numbers, they threatened the survival of these financial institutions and, ultimately, of the entire financial system.
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Stakeholder Impact Analysis
Exhibit 2.9
Power, Legitimacy, and Urgency
Three stakeholder attributes:
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Examples:
Boeing opened a new airplane factory in South Carolina to move production away from its traditional plant near Seattle, Washington. South Carolina is one of 28 states in the United States that falls under the right-to-work law in which employees in unionized workplaces are allowed to work without being required to join the union. In contrast to its work force in Washington state, the South Carolina plant is nonunionized, which should lead to fewer work interruptions due to strikes and Boeing hopes to higher productivity and improvements along other performance dimensions (like on-time delivery of new airplanes). In 2014, Boeing announced that its new 787 Dreamliner jet would be exclusively built in its nonunionized South Carolina factory.
Many companies incentivize top executives by paying part of their overall compensation with stock options. They also turn employees into shareholders through employee stock ownership plans (ESOPs). These plans allow employees to purchase stock at a discounted rate or use company stock as an investment vehicle for retirement savings. For example, Alphabet, Coca-Cola, Facebook, Microsoft, Southwest Airlines, Starbucks, Walmart, and Whole Foods all offer ESOPs
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The Pyramid of Corporate Social Responsibility
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Philanthropic responsibilities are often subsumed under the idea of corporate citizenship, reflecting the notion of voluntarily giving back to society. Over the years, Microsoft’s corporate philanthropy program has donated more than $3 billion in cash and software to people who can’t afford computer technology.
According to the CSR perspective, managers need to realize that society grants shareholders the right and privilege to create a publicly traded stock company. Therefore, the firm owes something to society. Moreover, CSR provides managers with a conceptual model that more completely describes a society’s expectations and can guide strategic decision making more effectively. For an insightful but critical treatment of this topic, see the 2003 Canadian documentary film The Corporation.
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