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
Industry Effect
2.39%
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
Leadership framework
Leader
characteristics
and traits
Internal and
external
environment
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 (technologybased, 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
GM Acceptance
Corporation
Financial
Staff
Chevrolet
Division
Sheridan
Division
GM Truck
Division
Canadian
Division
Samson
Tractor
Division
Executive Committee
Legal
Department
Oldsmobile
Division
General Advisory
Staff
Buick
Division
Oakland
Division
Cadillac
Division
Intercompany
Parts
Division
Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.
GM Export
Company
Scripps
Booth Corp.
General Motors’ Organization Structure, 1997
Board of Directors
President’s Council
North
American
Operations
Delphi
Automotive
Systems
GM
Acceptance
Corporation
Corporate Functions
International
Operations
Hughes
Electronics
GM Europe
Midsize
&
Luxury
Car
Group
Small
Car
Group
GM
Power
Train
Group
Vehicle
Sales, &
Marketing
Group
Development
& Technical
Cooperation
Group
Asian &
Pacific
Operations
Latin
American,
African, &
Middle East
Operation
Corporate Executive Office
Chairman & CEO
Service Divisions
GE Aircraft
Engines
GE Power
Systems
Finance
GE
Industrial
Systems
GE Transportation
GE Medical
Systems
GE
Lighting
Corporate Staff
Business
R&D
Development
GE
Plastics
GE
Specialty
Materials
Human
Legal
Resources
GE
Appliances
NBC
26 businesses organized into 5 segments:
Consumer Mid-market Specialized Specialty
Services
Financing Financing
Insurance
General Electric’s Organization Structure, 2002
GE
Supply
GE
Capital
Equipment
Management
General Electric’s Organizational Structure, January 2009
Corporate Executive Office
Chairman & CEO
Corporate Staff
Business Development
Commercial & Communications
Corporate Initiatives Group
Finance
Legal
Global Research
Human Resources
International
Technology
Infrastructure
Industrial &
Commercial
Energy
Infrastructure
GE
Capital
NBC Universal
• Aviation
• Appliances
• Energy
• Consumer
Electronics
• Oil & Gas
• Film
• Enterprise
Solutions
• Aviation Financial
Services
• Healthcare
• Electrical
Distribution
• Transportation
• Lighting
• Water &
Process
Technologies
• Commercial
Finance
• Energy Financial
Services
• Cable
• International
Network
• Sports &
Olympics
• GE Money
• Treasury
© 2010 Robert M. Grant
www.contemporarystrategyanalysis.com
12