Strategy Formulation, Change Management, & its Unintended Consequences Dinesh Iyer Ohio University

Strategic Leadership

Sources of Variation in Business Unit Profitability

This represents the variation in profitability across business units, across time that cannot be accounted for by the identity of the business unit, its industry, its corporate parent, or the particular year.

Unexplained Variation 42.89% Year Effect 2.39% Industry Effect 18.68% Corporate Parent Effect 4.33% Business Unit Effect 31.71% From: Anita McGahan and Michael Porter, “How Much Does Industry Matter, Really?”

Strategic Management Journal

(1987).

What about Leadership?

• Leadership Makes a difference!!!

– Analysis of 200 management techniques employed by 150 companies over ten years: • CEO’s influence 15 percent of the total variance in a company’s profitability or total return to shareholders.

• Also, found that the industry in which a company operates accounts for 15 percent of the variance in profitability.

What about Leadership?

• Formal leadership does not make a difference!!!

– Three major arguments • Substitutes for leadership • Leadership irrelevance • Complexity theory

Substitutes for leadership

• • • • Closely knit teams of highly trained individuals Intrinsic satisfaction Computer technology Professional norms Substitutes for leadership and leadership function Recent research suggests that the theory of substitutes for leadership may be flawed and found that “leadership matters”. Specifically, they found that the likeability of the leader and whether the leader provides rewards for performance were found to be major correlates of performance!

Research on leadership…

• Leadership irrelevance – Pfeffer argues that factors outside the leader’s control have a larger impact on business outcomes that do leadership actions.

– High-level leaders have unilateral control over only a few resources. And this control is limited by obligations to stakeholders.

• Firms tend to choose new organizational leaders whose values are compatible with those of the firm.

– Collins suggests that corporate leaders are slaves of much larger organizational forces.

• It is not the leaders personality that makes a difference; more important is the organization’s personality.

– Above arguments have been recast as a leader constraint theory i.e. leaders are constrained in what they can do but still have plenty of room to influence others!!!

Research on leadership…

• Complexity theory – Organizations are complex systems that cannot be explained by the usual rules of nature.

– Managers cannot predict which business strategies or product mixes will survive. – Ultimately, all companies will die but at different times, because it is the system, not the leadership and management, that dominates!

Research on Leadership…

• Transactional (routine) and Charismatic (inspirational) leadership – Transactional leadership was not significantly related to performance.

– Charismatic leadership showed a slight positive relationship with performance.

– When the environment is uncertain, CL is more strongly related to performance.

A framework for understanding leadership

• L = f (l, gm, s) – Leader – Group members – Situational factors

Internal and external environment

Leadership framework

Leader characteristics and traits Leader behavior and style Leadership effectiveness Group member characteristics Managing Today! By Stephen P Robbins 1997

Leadership or Management

• What’s the difference?

– Management • Planning, Organizing, Leading, Controlling etc.

• Management produces order, consistency, and predictability.

– Leadership • Deals with change, inspiration, motivation, influence etc.

• Leadership produces change and adaptability.

Leadership and Management!

• • • A leader creates a vision (Lofty goal!?!) to direct the organization. In contrast, the key function of the manager is to implement the vision. The manager and his/her team thus choose the means to achieve the end that the leader formulates.

But, remember…

•

The difference between leadership and management is one of emphasis: Effective leaders also manage, and effective managers also lead.

Strategic Leadership

Lewin’s Freeze Phase

• Unfreezing-Realizing change needs to occur • Change/Transition-Making the changes happen • Freezing-Changes become the norm

Kotter’s 8 Step Model

• Step 1- Create urgency – Everyone must want the change to occur • Step 2-Form a powerful coalition – Managers must convince everyone • Step 3-Create vision for change – Easier for company to grasp • Step 4-Communicate the vision – Ensure the company is on track

Kotter’s 8 Step Model

• • • • Step 5-Remove obstacles – Fix anything that could prevent change from happening Step 6- Create short term wins – Showed how profitable the changes were Step 7-Building on change – Provide more products to become more successful Step 8- Anchor the changes in corporate culture – It should then become part of company’s core

MCKINSEY

’

S 7S FRAMEWORK

Saturn: A different Kind of Company

• • • • • What are Saturn’s key resources and capabilities (technology based, knowledge-based, market-based, etc.)? How do these resources and capabilities result in a sustainable competitive advantage for Saturn? What are the major strategic challenges facing Saturn?

What has been the relationship between Saturn’s strategy and General Motors’ strategy?

How does Saturn help create new capabilities for General Motors?

Saturn

• • • • • History – Spring Hill Manufacturing Ad – Alaska Ad Homecoming – Homecoming event – Homecoming based Ad Other – Other sad Ad Recent news link – Saturn-Penske Deal falls through 10/1/2009 – Chevrolet refund offer 7/11/12

General Motors ’ Organization Structure, 1921

Board of Directors President Executive Committee Financial Staff GM Acceptance Corporation Legal Department General Advisory Staff Chevrolet Division Sheridan Division Canadian Division Oldsmobile Division Buick Division Cadillac Division GM Export Company GM Truck Division Samson Tractor Division Oakland Division Inter company Parts Division Source: A.P. Sloan,

My Years with General Motors,

Orbit Publishing, 1972, p. 57.

Scripps Booth Corp.

General Motors ’ Organization Structure, 1997

Board of Directors President’s Council Corporate Functions North American Operations Midsize & Luxury Car Group Small Car Group Delphi Automotive Systems GM Power Train Group GM Acceptance Corporation Vehicle Sales, & Marketing Group International Operations Development & Technical Cooperation Group Hughes Electronics GM Europe Asian & Pacific Operations Latin American, African, & Middle East Operation

Corporate Executive Office Chairman & CEO

Service Divisions

Finance

Corporate Staff

Business Development R&D Human Resources Legal GE Aircraft Engines GE Trans portation GE Industrial Systems GE Plastics GE Power Systems GE Medical Systems GE Lighting GE Specialty Materials GE Appliances NBC GE Supply GE Capital

26 businesses organized into 5 segments:

Consumer Mid-market Specialized Specialty Services Financing Financing Insurance Equipment Management General Electric’s Organization Structure, 2002

General Electric’s Organizational Structure, January 2009 Corporate Executive Office Chairman & CEO Business Development Corporate Staff Commercial & Communications Corporate Initiatives Group Finance Legal Global Research Human Resources International Technology Infrastructure • Aviation • Enterprise Solutions • Healthcare • Transportation Industrial & Commercial • Appliances • Consumer Electronics • Electrical Distribution • Lighting © 2010 Robert M. Grant www.contemporarystrategyanalysis.com

Energy Infrastructure • Energy • Oil & Gas • Water & Process Technologies GE Capital • Aviation Financial Services • Commercial Finance • Energy Financial Services • GE Money • Treasury NBC Universal • Cable • Film • International Network • Sports & Olympics 12