2005 Volume 8 Issue 2

The Leader’s Role in Strategy

The Leader’s Role in Strategy

Leadership is critical to forming and implementing strategy and without it, good strategy does not happen.

Examining strategy through the lens of leadership focuses the topic on the critical tasks that a leader must undertake to create and execute strategy. In choosing this focal point, managers may find that some strategic activities such as industry analysis, competitive analysis, and internal analysis become their second priority because it is not as important for the leader to do them as it is to make sure such activities get done. This article specifically examines what the business leader does in the five major phases of the strategy-making/strategy-executing process: developing a vision and mission, setting goals and objectives, crafting a strategy, executing the strategy, and evaluating performance. We conclude with what is required in a leader’s character in order to exercise good leadership.

Photo: Simon Cataudo

Developing a Strategic Vision and Mission

Vision is the core of leadership and is at the heart of strategy. The leader’s job is to create the vision for the enterprise in a way that will engage both the imagination and the energies of its people. “An effective leader knows that the ultimate task of leadership is to create human energies and human vision,” succinctly notes Peter Drucker.[1] The vision must be tied to what the firm values, and the leader must make this connection in a way that the organization can understand, grasp, and support. Vision moves the enterprise; values stabilize the enterprise. Vision looks to the future, values to the past.

The vision and value statements need not be complicated. Howard Schultz earns high marks for bringing Starbucks to where it is today: a vibrant, growing, hugely profitable company with global brand recognition. He has developed and promoted a strategic vision from the beginning: to make Starbucks “the most respected brand name in coffee and for the company to be admired for its corporate responsibility.”[2] Two key values that supported this vision were “to build a company with a soul” and to pursue “the perfect cup of coffee.” Simple phrases, but they have given direction to a highly successful enterprise!

The leader distinguishes between vision, which describes where the enterprise is headed, and mission, which articulates why the enterprise exists. A good mission statement encapsulates a firm’s purpose with its unique contribution. For example, Disney’s mission may be stated simply as, “To make people happy.”[3] A good leader understands the difference between vision and mission and makes sure that the organization does, too.

Setting Goals and Objectives

Good visions do not become reality by magic. The process of realizing the vision—strategy—is just as important to the firm as having the foresight and the commitment to achieve the vision. Somewhere just beyond the horizon of vision and before the hard edge of strategy kicks in begins the leader’s work of setting strategic goals and objectives for the organization. This activity calls for disciplined thinking to narrow the organization’s focus.

Jim Collins, who presented the traits of eleven outstanding companies in his book Good to Great, maintains that focused, disciplined thought is a common element of good-to-great leaders and their companies.[4] Great leaders focus their firms on a single, organizing idea that unifies and guides all decisions. They boil down complexities into simple ideas that answer three questions: (1) What can we do best? (2) What is the economic denominator that drives our business? (3) What do our core people care passionately about? It is the leader’s job to ask these questions, even if others produce the answers.

The leader sets measurable goals and objectives for the organization. A goal or objective for which attainment cannot be measured is worthless. The leader makes measurable goals effective by building in incentives for attainment, what Jim Collins describes as “catalytic mechanisms.”[5] These incentives reward goal-attaining behavior, discourage the opposite, and thus make strategy “happen” by virtue of their self-enforcement power, but they must be created to fit the organization. Consider Granite Rock’s short pay policy: every invoice that the gravel company issues includes a statement that if the customer is not satisfied for any reason, they simply do not pay for the line item and they do not need to return it. It is easy to imagine how a “short paid” invoice provides enormous incentive to fix quality or delivery problems immediately, thus moving Granite Rock toward its goal of customer satisfaction. Granite Rock’s short pay policy, 3M’s 15 percent discretionary time, and Nucor Steel’s production bonus system, all mechanisms designed to incentivize desired behavior, were developed to work within their respective organizations. When the leaders establish goals and build in incentives that reward attainment, the organization moves to achieve them.

Crafting a Strategy

The leader must now ask the question, “How are we as a firm going to employ our resources to achieve our goals?” Taking a strategic position means accepting that there will be trade-offs with other positions. It also means choosing what not to do, as well as what to do, because no company can compete successfully in every business segment featuring every variation of product or service. “The essence of strategy is choosing what not to do,” says Michael Porter, groundbreaking author of Competitive Strategy and creator of the “five forces” model of competition.[6] Tough choices must be made, and the leader must be the one to force the issue.

But crafting strategy is not all top-down. Gary Hamel asserts that “revolutionary” strategy-making involves getting to the “revolutionaries” who are embedded in every organization and involving them in the strategy-making process.[7] He advocates taking a “diagonal slice” through the organization to pick up these revolutionaries who exist at every level and across every function. Furthermore, the leader should make sure that three kinds of people participate in strategy-making: the young, those who are new to the firm, and those on the “periphery,” that is, the geographic boundaries of the business. Why these people? Because they are the ones—together with those picked up in the diagonal slice—who are certain to have the most revolutionary ideas for the company. They are the ones most likely to challenge the assumptions that the senior managers have all been taught to share. They are the most likely to redefine the industry by challenging its accepted beliefs. Such challenges require an attitude of humility and openness from the leader who crafts strategy for the firm.

In the end, it is the leader’s job to define the company’s strategic position and make the trade-offs. Instead of broadening into every segment in which profits may be earned, the leader focuses the company on deepening its strategic position and communicates the strategy externally to customers who value it, as well as internally to the firm. Taking a strategic position that delivers value and communicating that value inside and out are the core leadership tasks in crafting strategy.

Executing the Strategy

Leaders have primary responsibility for implementing the chosen strategy. While an action plan involves many discrete tasks, at the core the leader must build an organization that can carry out the strategy. The leader builds both an organizational culture and an organizational capability for executing strategy.

Photo: Julie Elliott

The “Southwest Spirit”[8] is a positive, fun-loving, can-do approach to the job of flying passengers to their destinations. The company promotes two core values: LUV (love) and fun. LUV, the company’s ticker symbol, has to do with treating employees and customers with courtesy, caring, and respect. Former CEO Herb Kelleher took a different tack than most company executives do by insisting that the employees come first, the customer second. He reasoned that by treating employees well, they would be happier in their jobs and would in turn treat customers well.

However, it would be naïve to think that Southwest Airlines is successful solely because of a good company culture. Kelleher and his management team drove the company hard to squeeze cost out of every activity, from ticketing through baggage handling, and achieved distinctive capabilities that rivals have not been able to imitate. The Southwest Spirit undergirds this competitive capability with a company culture that, taken together, has made the airline consistently profitable.

Kathleen Eisenhardt, professor of strategy and organization at Stanford University, maintains that the leader must embed strategy in the organization: choose an excellent team, pick the right roles, and let the rest of the team make the strategic moves. The logic is that if you begin with the right people, you can more easily adapt to a fast-changing world because the right people already are adaptable and self-motivated. Indeed, picking the right people is one of the few things that leaders can directly control.[9]

In industries undergoing rapid change, the organization structure should be kept flexible so that modular business units can be “patched” onto specific market opportunities as they arise.[10] Good organizational patching requires committed “ego-less” leadership from the executive suite down to the business unit level and an organizational culture that encourages and rewards this behavior over empire-building, politics, and turf battles.

Concepts that provide a simple framework for the leader who would implement good strategy are: (1) embed strategy in the organization’s culture while focusing the organization on a few key strategic capabilities; (2) build a good team, and (3) remember that any strategy is temporary at best, so watch the environment and make adjustments in the organization as needed.

Evaluating Performance

How does the firm keep its strategy fresh? By keeping both the organization and its leadership agile. Gary Hamel and Liisa Vlikangas coined the term “strategic resilience” to describe the firm’s ability to continuously anticipate and adjust to trends that can permanently impair the earning power of the company. The goal is a resilient organization that is “constantly making its future rather than defending its past.”[11]

In the face of rapid change, the firm must conquer denial, nostalgia, and arrogance by cultivating good habits, such as visiting the places where change is taking place and getting to the real ideas and opinions of those who make change. The leader recognizes that even the best strategy decays with time and has to be renewed or altogether reinvented. Competitors, market forces, and technology changes cause such decay. Astute leaders must keep their eyes open in order to accurately and honestly appraise strategy decay as it occurs.

At the same time, the leader must see that there is an adequate supply of options that can be cultivated into full-fledged strategies to replace the decaying ones. These may start out as small stakes bets; the most promising ones are then selected and funded to full development. The more strategy options that are created in this fashion, the more resilient the firm will be in the face of change. The agile leader must nurture this process of renewal that replaces decay.

Donald Sull, who teaches at the London Business School, uses the term “active inertia” to describe an organization’s tendency to follow established patterns of behavior in response to a crisis. He maintains that “Success breeds active inertia, and active inertia breeds failure.”[12] Sull theorizes that active inertia is caused by what are essentially good traits that have become fossilized over time so that they no longer serve the company well.

Can active inertia be prevented? Yes! When a company finds itself challenged in the marketplace, instead of asking, “What should we do?” the leader should pause and ask, “What hinders us?” By reframing the question, the leader shifts focus to the strategic framework, activities, and patterns of behavior that by force of habit can channel energy in the wrong direction.

However, the leader should not try to change everything at once, since everything is probably not all bad. In trying to uproot everything, managers often destroy more than they create in crucial competencies and social relationships, thereby disorienting employees and alienating customers in the process. As Sull suggests, leaders “should build on the foundation of the past even as they teach employees that old strategic frames, processes, relationships, and values need to be recast to meet new challenges.”[13] The word “recast” sets the right tone for how change should be approached in an historically successful company in which the core values remain constant.

A company’s strategic vision can shift in subtle ways over time, so the wise leader must consciously re-ask the questions, “What are we all about and where are we going?” and then, “Are we going where we need to go?”

The Character of the Leader

What makes a good leader? A leader is someone people follow, but because people follow does not mean that the leader is going in the right direction. History is filled with followers who were willingly led to destruction.

A good leader lays out a strategy that people will grasp and accept out of trust, then gets everyone working from top to bottom to achieve that strategy. A good leader builds long-term benefit for all of the firm’s stakeholders—customers, employees, and shareholders—not merely short-term “shareholder value.”[14] Good leadership coexists with good character—that is, with the congruence between word and deed we call integrity[15]. Fifty years ago, Peter Drucker wrote regarding integrity:

For it is character through which leadership is exercised, it is character that sets the example and is imitated in turn….The more successfully tomorrow’s manager does his work, the greater will be the integrity required of him….No matter what a man’s general education or his adult education for management, what will be decisive above all, in the future even more than in the past, is neither education nor skill; it is integrity of character.[16]

Much has changed in fifty years, but the integrity requirement remains constant for the business leader who would craft and implement good strategy.

[1] Drucker, Peter F., “Leadership: More Doing Than Dash,” Managing for the Future (Truman Talley Books/Dutton: 1992).

[2] Thompson, Arthur A. et al., “Starbucks in 2004: Driving for Global Dominance,” (University of Alabama: 2004).

[3] Collins, James C. and Porras, Jerry I., “Building Your Company’s Vision,” Harvard Business Review . September-October, 1996. (Also see Collins, James C. and Porras, Jerry. Built to Last, Harper Business, 1994.)

[4] Collins, Jim, “Good to Great,” Fast Company. October, 51 (2001): p. 90. (Also see: Jim Collins, Good to Great, (HarperCollins, 2001).

[5] Collins, Jim, “Turning Goals into Results: The Power of Catalytic Mechanisms,” Harvard Business Review (1999).

[6] Porter, Michael, “What Is Strategy?” Harvard Business Review. November-December, (1996).

[7] Hamel, Gary, “Strategy as Revolution,” Harvard Business Review. July-August, (1996).

[8] Thompson, Arthur A. and Gamble, John E., “Southwest Airlines – Culture, Values, and Operating Practices,” (University of Alabama, University of South Alabama: 2003).

[9] The authors recommend Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done (Crown Business: 2002), as an excellent source for an in-depth examination of executing strategy. See Chapter Five on the topic of selecting the right people for the right jobs.

[10] Eisenhardt, Kathleen M., “Has Strategy Changed?” MIT Sloan Management Review: Winter (2002).

[11] Hamel, Gary and Vlikangas, Liisa, “The Quest for Resilience,” Harvard Business Review: September (2003).

[12] Sull, Donald N., “Why Good Companies Go Bad,” Harvard Business Review: July-August (1999).

[13] Ibid, p. 52.

[14] For a fascinating discussion on the connection between the leader’s character and long-term market performance, see Jim Collins, Good to Great (HarperColllins: 2001), Chapter 2, “Level 5 Leadership.”

[15] Badaracco, Jr., Joseph L. and Ellsworth, Richard R., Leadership and the Quest for Integrity. (Boston: Harvard Business School Press: 1989): 98-99.

[16] Drucker, Peter, The Practice of Management. (Harper & Row: 1954): 157 and 378.

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Authors of the article
James N. Fuller, MBA
James N. Fuller, MBA, works as a software project manager in a financial services company specializing in eCommerce applications. He has over 20 years of IT operations and systems development experience as a line manager, systems engineer, consulting manager, and project manager. Prior to his current position, he has worked in defense and commercial aerospace, software consulting, and entertainment industries. Since 1991, Fuller has volunteered service to nonprofit schools in Los Angeles and northwestern Cambodia, focusing his efforts on development. Fuller graduated in December 2004 from the Graziadio School’s Fully Employed MBA program with an emphasis in Global Business.
Jack C. Green, PhD
Jack C. Green, PhD, is a professor of strategy and department chair of Strategy, Entrepreneurship, Information Systems & Technology Management at Pepperdine University’s Graziadio School of Business and Management. Prior to his transition to academia, he had 28 years of management experience at Weyerhaeuser Company, Pacific Enterprises, and Southern California Gas Company (a subsidiary of Pacific Enterprises). In 1995, he received his PhD from Claremont Graduate University in executive management with an emphasis in strategic management. He was a member of the Los Angeles County Quality and Productivity Commission for ten years and was its chairman for five. Dr. Green’s research focus is on governance of nonprofit organizations and on the use of simulations in MBA curricula. His consulting activity focuses on nonprofit organizations and for-profit businesses including the use of simulations for Management Training.
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