2022/3/3 Five overarching learning objectives for CPAs ① ② ③ 01 An introduction to strategy and leadership ④ ⑤ technically skilled and solution driven strategic leaders and business partners in a global environment aware of the social impacts of accounting and business adaptable to change able to communicate and collaborate effectively 主讲：东北财经大学 耿玮 Why we should learn this subject ? • The aim of this subject is to link the knowledge expected of the future finance professional to the concepts of strategy and leadership • The future finance professional is expected to use a range of technical information to make decisions for the future of the business within an ethical framework of operation. • This subject demonstrates that accounting information, ethics, strategy and leadership are applicable to finance professionals, in a global context and in diverse organisational settings General Objectives ① understand the role of the accountant in the development and implementation of strategy ② use analytical tools and models to analyse the industry and the market in which an organisation operates ③ use analytical tools and models to understand and measure the performance of the organisation ④ use business information for decision-making from an organisational perspective Subject Aims • Understanding of the concepts and principles that underpin the practices of strategy and leadership in the global economy, and the ability to apply these concepts to real life business cases. • Consolidate the knowledge from their study of the other three compulsory subjects: Ethics and Governance, Financial Reporting and Strategic Management Accounting. General Objectives ⑤ identify and explain the key challenges faced in the implementation of strategy and the role of the accountant in the implementation and leadership functions ⑥ consolidate the understanding of strategy and leadership concepts through the use of real world examples integrated throughout the material, and apply these concepts to business case scenarios through the use of case studies ⑦ apply skills in thinking strategically and formulating broad strategies for consideration and application in their organisational environment. 1 2022/3/3 Topic 1 Introducing strategy and leadership 2 3 The strategy process Gaining competitive advantage Topic 4 5 Organisational The global context of context for business strategy 6 7 8 9 Introduction Leadershi The role of to leadership p styles leaders in The role of the CPA in strategy and leadership strategy Learning objectives ① ② ③ explain the evolution of the practices of strategy and leadership appraise the key concepts and practices applicable to the strategy process in the contemporary business environment appraise how the roles of management and leadership drive organisational strategy in the contemporary business environment. Modern business environment • • • • Globalisation Rapid technological development Digital disruption The pace of change and increasing and Interrelated levels of business complexity • International relationship PART 1 Introducing strategy and leadership Strategy • ‘Strategy’ comes from the Greek word strategos, meaning the art of planning and conducting a war. • The term is now used to cover both the political and business arenas. • Strategy has evolved into civil, social and corporate life and is now often associated with business objectives, efficiencies and outcomes. • Strategy provides methods and tools for analysing, managing and communicating the relationship between an organisation and its environment. 2 2022/3/3 Definition of Strategy The evolution of strategy • According to Hubbard et al. (2019), strategy is: • those decisions that have high medium-term to long-term impact on the activities of the organisation, including analysis leading to the resourcing and implementation of those decisions, to create value for key stakeholders and to outperform competitors. • From the 1960s, the concepts and practices of corporate strategy have become central to the leadership task of unlocking and directing the potential of organisational performance. • In the 1980s Michael Porter argued that a firm's profitability was determined by the characteristics of its industry and by its position in that industry. • Mintzberg (1978) believes strategy should be flexible, develop continuously and emerge from 'intuition and creativity'. The evolution of strategy • Organisations today cannot assume that business conditions and the competitive landscape will change in an orderly or incremental fashion. • Organisations need the capability and capacity to understand and deal with rapid technological advances and market disruptions. • Integrating data and analytics with strategy provides opportunities to enhance performance and represents a major development in the evolution of strategy. The strategy process PART 2 The strategy process The strategy process （1）understanding and analysing the external environment outside the organisation; （2）understanding and analysing the internal environment inside the organisation; （3）analysing and determining the most appropriate method of growth for the organisation; （4）determining the purpose of the organisation; 3 2022/3/3 The strategy process Approach to strategy （5）developing the chosen growth strategy aligned with the purpose of the organisation; • The rational approach to strategy is based on a linear and mechanistic model, in which the conception and execution of strategy are treated as discrete, sequential activities. （6）implementing the strategy and understanding the importance of change management; （7）having an effective leader to lead this process from beginning to end. • The rational approach to strategy provides a logical process of analysis and evaluation. • It provides a way of talking, analysing and organising a complex set of issues • It is a means of communication and legitimisation to stakeholders • It is useful as an organising framework to analyse and plan strategy. PART 3 Gaining competitive advantage Competitive advantage Reshaping the value proposition • Competitive advantage is the ability of an organisation to outperform its competitors and make more profits than its competitors do from an equivalent set of activities. • The challenge for organisations is gaining and maintaining a competitive advantage in an increasingly complex global economy. • Value proposition describes the target customer, the problem that is solved for the customer and why what is being offered is distinctly better than available alternatives. • Creating a robust value proposition involves understanding customer wants and needs and matching that to products and services that the organisation develops to create value for the customer. 4 2022/3/3 Value Proposition Canvas Productivity frontier Source: M Porter, 1996, ‘What is strategy?’, Harvard Business Review, vol. 74, no. 6, pp. 61–78. Reproduced by permission of Harvard Business Review. Copyright © 1996 by Harvard Business Publishing. All rights reserved. Source: A Osterwalder, Y Pigneur, G Bernarda & A Smith, 2014, Value Proposition Design, Wiley, Hoboken. Productivity frontier Differentiating strategy from tactics • Productivity frontier represents the ‘maximum value a company can deliver at a given cost, given the best available technology, skills and management techniques’ (Porter 1996, p. 1). • Being at the productivity frontier means that organisations are operating efficiently and effectively. • Most organisations sit below the ‘productivity frontier’ and strive to improve the efficiency and effectiveness of what they do with the resources they have available. • It is important to differentiate strategy from the focus on improving dayto-day activities or operations. • Improving operational effectiveness or increasing efficiency is important, but it is not the same as a true competitive strategy. • Strategy is the ‘bigger picture’; strategy is about thinking outside the inner sphere and branching into new territory. Strategic fit and strategic stretch • Strategic fit involves matching the organisation’s goals, values, assets and capabilities, structures and systems to the external environment and market needs. • Strategic stretch is resource-led and based on leaders and managers challenging how organisational resources and capabilities can be leveraged (‘stretched’) to create new opportunities. • Strategic stretch encourages leaders and managers to ‘think outside the box’ PART 4 Organisational context for strategy 5 2022/3/3 Industry and organisational maturity Industry and organisational maturity • Organisations operate within industries that differ according to the maturity of the industry and its stage in the industry lifecycle. • Organisations within a given industry can also vary in terms of the stage of the organisational lifecycle and organisational maturity. Organisational maturity and the capability maturity model • The Capability Maturity Model (CMM) evolved to become a useful tool in describing the overall capability and maturity of an organisation according to five levels. • Level 1: Initial • Level 2: Repeatable • Level 3: Defined • Level 4: Managed • Level 5: Optimised Source: Adapted from G Hubbard & P Beamish, 2011, Strategic Management: Thinking, Analysis, Action, 4th edn, Pearson, Sydney, p. 89 and RM Grant, 2018, Contemporary Strategy Analysis, 10th edn, John Wiley & Sons Inc., Hoboken. Levels of strategy ① ② ③ Corporate strategy pertains to that of the organisation and its businesses overall; Business strategy is for individual businesses or each area of business into which the organisation has diversified (the focus of this course); and Functional strategy pertains to each of the functions in an organisation, such as marketing, production and human resources, the strategies for which have to be consistent with the overall business and/or corporate strategy. Corporate strategy Corporate strategy • Corporate strategy embraces all of a diversified organisation’s businesses and determines how the scope of these businesses are managed and coordinated to contribute to corporate performance • Initiatives of corporate strategy（Thompson & Strickland et al. 2007) • establish business positions across a number of industries • boost the combined performance of the businesses and improve competitive position • capture and use the synergy among the businesses to improve competitive advantage • effectively allocate corporate resources, prioritising growth businesses within the portfolio 6 2022/3/3 Business strategy Typical corporate structure • Business strategy aims to build and strengthen the long-term competitive position in the market • Initiatives of business strategy • Decide in what market competitive advantage can be achieved • Determine what product or service attributes will distinguish the business from its rivals • Counter the moves of competitors Functional strategy Functional strategy • Functional strategy operates at the level of the department or functional activity in the business and adds detail to the overall business strategy • Initiatives of functional strategy • coordinate their respective functional strategies so that they are working together to achieve the goals set out in the business strategy • ensure coordination and reduce conflict between the departments or functions, so that their combined efforts provide the optimum contribution to business strategy Core business type ① A customer relationship business — finding customers, building relationships with them and keeping them as customers. • Hagel and Singer (2000) propose that there are three core business types that co-exist within a single organisation. ② A product innovation business — coming up with new product and service ideas and bringing them to market. ③ An infrastructure business— building and managing facilities for high volume, efficient transactions, such as physical assets, systems, processes and logistics. 7 2022/3/3 Vision, Mission, Values and Goals Business models • Business models explain how a businesses work and the economic logic behind them. • Johnson et al (2008) proposed that a business model should include three key components. 1. Customer value proposition: that helps customers perform a specific ‘job’ that alternative offerings don’t address. 2. Profit formula: how value is generated through factors such as revenue model, cost structure, margins, and inventory turnover. 3. Key resources and processes: what costs with regard people, technology, products, facilities, equipment, and brand are required to deliver the value proposition to the target customers. Drivers of globalisation PART 5 The global context of business Competitive Technological Social Political 1 2 3 4 8 2022/3/3 Challenges of globalization Competition Distribution Benefits of globalisation Macroeconomic Socioeconomic Financial Legal Physical Political Sociocultural Labour Technological Localisation Cost Timing Learning Arbitrage The role of leadership PART 6 Introduction to leadership Levels of leadership • Leadership is commonly observed at five levels in an organisation: 1. the Board 2. the CEO 3. senior management 4. general management 5. project management. • Leadership is defined as ‘the skill of motivating, guiding, and empowering a team towards a socially responsible vision’ (LIHC 2008). • The fundamental basis of leadership is to bring about positive change in people, allowing them to follow wherever the leader needs them to go. • Effective managers may also have to develop their leadership skills in order to fulfil their roles more effectively. Leadership theories The traits approach The behavioural approach • suggests that leaders are born with certain traits and qualities that will make them successful leaders • argues that great leadership qualities can be taught and developed The contingency approach • suggests matching the leadership style to the situation. 9 2022/3/3 Leadership Verses Management Leadership Verses Management • Management and leadership refer to two separate concepts and roles • Management involves planning, coordinating and organising • Leadership focus on influencing activity, rather than forcing action • If there is a clear distinction between the processes of managing and the process of leading it is between getting others to do— managing—and getting others to want to do—leading (Kouzes & Posner 2012, p. 228). Strategic thinking Strategy leadership • Strategic thinking is about linking concepts to operational practices. • Effective leaders should be able to conceptualise and articulate their organisation’s strategic position and direction. • This conceptualisation requires an understanding of two dynamics: ① The integration and alignment of the people and functions inside the organisation; and ② The relationship between the organisation and its environment • Strategic leadership encompasses the vision, mission, strategy and structure of an organisation. Transformational and transactional leadership PART 7 Leadership styles Transformational leaders have the ability to transform and lead major change. They are well suited to the start-up, growth and renewal stages of the organisational lifecycle. 10 2022/3/3 Transformational and transactional leadership Key phases of transformational leadership Transactional leaders are more concerned with maintenance of current activities and better suited to the maturity and decline stages of the organisational lifecycle. It is about setting the direction and moving the organisation forward in regard to the current activities, and about providing a long-term view to inspire employees. It is also about building their trust. Adapting leadership styles • Leadership styles may need to adapt to the organisation’s particular situation and context, such as: • The intensity of change • Team and individual developmental stages • Organisational lifecycle stage • Organisational culture Leadership styles • Blanchard and Zigarmi et al. (1985) describe four main leadership styles used when interacting with individuals in specific situations during strategy implementation. 11 2022/3/3 Organizational life cycle and strategic leadership Four styles of strategic leadership • Risktakers • They are often the founder of an organisation. • Their original vision makes the firm what it is today. • They are a good match with the start-up and growth phases of an organisation, but may not be appropriate during maturity. • Caretakers • help an organisation move from the growth phase into the maturity phase. Four styles of strategic leadership • Surgeons • ensure future success or to fight against current problems • they have an ability to prune or sever parts of the organisation that, although they may once have been valuable, have become a hindrance. • Undertakers • when an organisation has approached the end of its life, it is time to harvest or salvage what is viable and shut down the rest. • This style is required to prevent prolonging losses. PART 8 The role of leaders in strategy The importance of strategic leadership The role of leaders in strategy • Kotter’s (1995) minimum requirements for success: • establish a sense of urgency; • communicate the vision; • empower others to act; and • make new approaches ingrained in the organisation. • Leadership is required to develop an organisations strategy, drive change and align the organisation’s structure, resources and culture with the strategy. • This is achieved through: • communication • decision making • business ethics 12 2022/3/3 Leadership roles （Applebaum and Paese，2003) Key ways that leaders of an organization can make decisions • Brent Gleeson (2012), a former Navy SEAL and current CEO of Internet Marketing Inc., outlines four key ways that leaders of an organisation can make decisions: Classical view of ethics • Milton Friedman • The primary obligation of senior management is to provide a return on investment to the owners (shareholders) of the organisations for which they work. • The only social responsibility of an organisation is to utilise its resources and engage in profit-maximising activities, as long as those activities are conducted without fraud or deception. • Social responsibility and morality have no place in the job description of leaders and managers Navigator solving key problems and leveraging opportunities Strategist long-range vision Entrepreneur champions new products and services and identifies new markets Mobiliser aligns capabilities, resources and all stakeholders Talent advocate employs the right staff for the task ahead Captivator inspires passion, enthusiasm and commitment Global thinker develops diverse perspectives Change driver creates readiness for change Enterprise guardian makes courageous decisions that support enterprise Socioeconomic view of ethics • The leaders of organisations have a responsibility to the society that creates and sustains them • This responsibility goes beyond the profit imperative to include protecting and improving society’s welfare. • A leader should instil values in their organisation which ensure that it complies not only with the law, but also with the morality of society. • Social responsibility describes the behaviour of an organisation that pursues long-term goals for the betterment of society—goals that go beyond legal and economic imperatives The role of the CPA in strategy and leadership PART 9 The role of the CPA in strategy and leadership • CPAs are extending their responsibilities beyond traditional accounting functions to emerge as a future finance professional. • The CPA’s role in organisational strategy implementation includes: • aligning functional strategy with the organisation’s business strategy, • the re-allocation of resources and budgets to facilitate and fund the organisation’s strategic options, and • the development of key performance measures to monitor the organisation’s performance against its strategy. 13 2022/3/3 The role of the CPA in strategy and leadership • Globalisation has also seen a shift away from centralised accounting operations to decentralised arrangements in organisations. • The primary focus should be on accounting standards and regulations with the ideas and frameworks of strategic thinking guiding the peripheral and over-arching direction. 14
