LEADERSHIP & DIRECTION SETTING

1. Strategic Management LEADERSHIP & DIRECTION SETTING Dr. Payne (3)

2. Leadership is the process of transforming organizations from what they are to what the leader would have them become. This implies: Dissatisfaction with the status quo A vision of what should be done (the “content”) A process for bringing about change (the “process”) Leadership

3. Leaders determine the direction, mission, values…the future! Leaders do the right things! Managers follow direction, and do things right. Leaders ensure management does things right through organizational design, cultural development, and developing a “learning” organization. Leadership is Different than Management!

4. Leadership vs Management Leadership & management are distinct, yet complementary systems of action Effective leadership produces useful change Effective management controls complexity effective leadership + effective management = effective organizations

5. Designing the Organization Determining a Direction Nurturing a Culture Dedicated to Excellence and Ethical Behavior Three Interdependent Activities of Leadership Integrate knowledge into a “vision” of what the organization could or should become. “Leaders are change agents whose success is measured by how effectively they implement a strategic vision and mission.”

6. Future Focused. Provides the “big picture” and clearly describes what your organization will be like in several years. Directional. Serves as guide to organizational plans and strategies. Specific. Clear and focused enough to shape decision-making. Relevant and Purpose-Driven. Reflects the company’s response to the challenges of the day. Values-Based. Implies the set of values that are required to support the organization. Challenging. Inspires members of the organization to do great things and achieve a higher level of standards. Unique and Memorable. Highlights what makes the organization different and why it matters. Inspiring. Appealing and engages people to commit to a cause. Strategic Direction Setting: Vision

7. IKEA: To create a better every-day life for many people. Disneyland: To be the happiest place on earth. San Diego Zoo: To become a world leader at connecting people to wildlife and conservation. Examples: Strategic Visions • Boy Scouts of America: To prepare every eligible youth in America to become a responsible, participating citizen and leader who is guided by the Scout Oath and Law.

8. Mission statements • Purpose of the company • Basis of competition and competitive advantages • More specific than vision • Focused on the means by which the firm will compete • Establishes the scope of the business. Strategic Direction Setting: Mission

9. Definitions: Broad - Narrow Scope • Broad Definition • Beverages • Children’s products • Furniture • Global mail delivery • Travel & tourism • Narrow Definition • Soft drinks • Toys • Wrought iron lawn furniture • Overnight package delivery • Ship cruises in the Caribbean

10. FedEx: To produce superior financial returns for our shareholders as we serve our customers with the highest quality transportation, logistics, and e-commerce. Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Paypal: To build the Web’s most convenient, secure, cost-effective payment solution. Examples: Mission

12. Company vision Mission statements Strategic objectives • Operationalize the mission statement • Provide guidance on how the organization can fulfill or move toward the mission/vision. • More specific • Cover a more well-defined time frame Strategic Direction Setting: Objectives Strategic objectives NOTE: Strategic “goals” are often used synonymously with objectives, but are generally less specific.

13. Establishing Objectives • Follows Vision & Mission to more specifically establish direction and goals for the organization: • Represent commitment to achieve specific performance targetsby a certain time. • Must be stated in quantifiableterms and contain a deadlinefor achievement. • Spell-out how muchof what kindof performance by when.

14. Types of Objectives Required Financial Objectives Strategic Objectives Outcomes focused on improving a firm’s financial performance. Outcomes focused on improving a firm’s competitiveness and its long-term business position. Every company needs both strategic and financial objectives!

15. Examples: Financial Objectives • Increase sales growth 6 to 8 percent and accelerate core net earnings per share growth to 13 to 15 percent in each of the next five years (Procter & Gamble) • Generate Internet-related revenue of $1.5 billion. (Automation) • Increase the contribution of Banking Group earnings from investments, brokerage and insurance from 16 percent to 25 percent (Wells Fargo) • Cut corporate overhead costs by $30 million per year (Fortune brands)

16. Examples: Strategic (Non-financial) Objectives • Capitalize on e-commerce (Federal Express) • We want a majority of our customers,when surveyed, to say they consider Wells Fargo the best financial institution in the community (Wells Fargo) • We want to operate 6,000 stores by 2010—up from 3000 in the year 2000 (Walgreen’s) • Develop a smart card strategy that will help us play a key role in shaping online payments (American Express) • Reduce greenhouse gases by 10 percent (from a 1990 base) by 2010 (BP Amoco)

17. Strategic or Financial Objectives -Which Takes Precedence? • Pressures for better short-term financialperformancebecome pronounced when • Firm is struggling financially • Resource commitments for new strategic initiatives may hurt bottom-line for several years • Proposed strategic moves are risky • A firm that consistently passes up opportunities to strengthen its long-term competitive position • Risks diluting its competitiveness • Risks losing momentum in its markets • Can hurt its ability to fend off rivals’ challenges

18. Short-Range and Long-Range Objectives • Short-Range objectives: • Targets to be achieved soon (~ 1 year) • Serve as stair stepsfor reaching long-range performance • Long-Range objectives • Targets to be achieved within 3 to 5 years • Prompt actions now that will permit reaching targeted long-range performance later

19. Objectives Are Needed at All Levels Process istop-down, not bottom-up! 1.First, establish organization-wide objectives 2.Next, set business and product lineobjectives 3.Then, establish functionaland departmental objectives 4. Individual objectives come last Objective-setting needs to be more of a top-down than a bottom-up process in order to guide lower-level managers and organizational units toward outcomes that support the achievement of overall business and company objectives.

20. FINANCIAL “To succeed financially, how should we appear to our shareholders?” CUSTOMER INTERNAL BUSINESS PROCESSES “To achieve our vision, how should we appear to our customers?” “To satisfy our shareholders and customers, what business processes must we excel at?” Objectives Objectives Objectives Objectives Measures Measures Measures Measures Targets Targets Targets Targets Initiatives Initiatives Initiatives Initiatives Vision & Strategy INNOVATION AND LEARNING “To achieve our vision, how will we sustain our ability to change and improve?” The Balanced Scorecard Lagging Hard Leading Soft

21. Applying the Balanced Scorecard