Strategy Formulation, Change Management, & its Unintended

Consequences

Dinesh IyerOhio University

Strategic Leadership

Sources of Variation in Business Unit Profitability

UnexplainedVariation 42.89%

Business Unit Effect31.71%

Industry Effect18.68%

Year Effect2.39%

CorporateParent Effect4.33%

From: Anita McGahan and Michael Porter, “How Much DoesIndustry Matter, Really?” Strategic Management Journal (1987).

This represents thevariation in profitabilityacross business units,across timethat cannot be accounted forby the identityof the business unit,its industry, its corporateparent, or the particularyear.

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

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!

• Closely knit teams of highly trained individuals

• Intrinsic satisfaction• Computer technology• Professional norms

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

Leadership framework

Leader characteristics

and traits

Leaderbehavior and

style

Internal andexternal

environment

Group membercharacteristics

Leadership effectiveness

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

• Unfreezing-Realizing change needs to occur

• Change/Transition-Making the changes happen

• Freezing-Changes become the norm

Lewin’s Freeze Phase

• Step 1- Create urgency– Everyone must want the changeto 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 thechanges 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 partof company’s core

Kotter’s 8 Step Model

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

Board of Directors

President Executive Committee

Financial Staff

Legal Department

General Advisory Staff

GM Acceptance Corporation

Chevrolet Division

SheridanDivision

Canadian Division

Oldsmobile Division

GM Truck Division

GM Export Company

Cadillac Division

Buick Division

Inter-company

Parts Division

Oakland Division

Samson Tractor Division

Scripps Booth Corp.

Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

General Motors’ Organization Structure, 1921

Board of Directors

President’s Council Corporate Functions

North American Operations

Delphi Automotive Systems

International Operations

GM Acceptance Corporation

Hughes Electronics

Midsize & Luxury Car Group

Small Car Group

GM Power Train Group

Vehicle Sales, & Marketing Group

Development & Technical Cooperation Group

GM Europe

Asian & Pacific Operations

Latin American, African, & Middle East Operation

General Motors’ Organization Structure, 1997

Corporate Executive OfficeChairman & CEO

Corporate Staff

Finance Business R&D Human LegalDevelopment Resources

GE AircraftEngines

GE Trans-portation

GEIndustrialSystems

GEPlastics

GEAppliances

GESupply

GE PowerSystems

GE MedicalSystems

GELighting

GE SpecialtyMaterials

NBC GE Capital

26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty EquipmentServices Financing Financing Insurance Management

Service Divisions

General Electric’s Organization Structure, 2002

Corporate Executive OfficeChairman & CEO

Corporate StaffBusiness Development LegalCommercial & Communications Global Research Corporate Initiatives Group Human Resources Finance International

TechnologyInfrastructure• Aviation• Enterprise

Solutions• Healthcare • Transportation

Industrial & Commercial• Appliances• Consumer

Electronics• Electrical

Distribution• Lighting

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

General Electric’s Organizational Structure, January 2009General Electric’s Organizational Structure, January 2009

12© 2010 Robert M. Grantwww.contemporarystrategyanalysis.com