Unit 430: Leadership Topic 3: Leaders as strategists
In this section, we look at the traditional financial measures of organisational performance and consider their adequacy in the current economic environment.
An investor would probably start by scanning the previous year's financial reports to ascertain indicators of the organisation's success, including measures of:
* financial structure
* investment ratios
* market share.
Does this provide the investor with the complete picture of the organisation's overall performance? The short answer is, no. Considering the indicators listed above merely provides the investor with measures of the organisation's historical financial performance.
In 1992, Kaplan and Norton introduced the Balanced Scorecard approach to organisational performance measurement. This approach, which has been introduced in many organisations today, considers performance in terms of four parameters:
* Financial Performance (How does the organisation look to shareholders?)
* Customer Perspective (How do customers perceive the organisation?)
* Internal Business Perspective (What processes and competencies should the organisation excel at?)
* Innovation and Learning Perspective (Can the organisation continue to innovate, improve, grow and create value?).
Triple bottom line reporting was developed by John Elkington in 1994 who argued that businesses needed to measure their success in wider terms than just profit and financial performance. Elkington proposed that corporations report their results in the following three dimensions:
According to Elkington, a sustainable business should be able to report returns in all three dimensions which are sometimes referred to as 'people, planet and profit'.
Setting strategic direction - situation analysis
In this topic, we have chosen to adopt a strategic management process which is made up of
1. setting strategic direction
2. strategy development
3. strategy implementation.
Before leaders determine an organisation's strategic direction it is important that they spend some time getting to know the organisation and its current state. In this section we describe two common tools for conducting situation analyses prior to vision and strategy development. They are Porter's Five Competitive Forces and SWOT analysis.
Prior to creating a vision or formulating strategy, the organisation needs to determine its place in the industry, the position it occupies with respect to its competitors and where it can go.
Jain (1997) suggests that to use this framework to build a vision and create a strategy, leaders should:
1. diagnose the forces affecting competition in their organisation's industry
2. discover the underlying causes of the forces affecting competition in their organisation's industry
3. identify the organisation's own strengths and weaknesses relative to the industry.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT tool is particularly useful because it asks you to consider the organisation's current situation from two perspectives: internal and external.
Once each quadrant has been thoroughly considered, ask the following questions proposed by Kramar et al. (1997):
How do the organisation's internal strengths and weaknesses compare to the external opportunities and threats?
Can the organisation use its strengths to take advantage of the opportunities and minimise the impact of the threats on the business?
How can the effect of the organisation's weaknesses be reduced or removed?
Porter's Five Forces approach to situation analysis is best suited to top level leaders. This is because, generally speaking, only top level leaders have access to the required types and volume of information for the Five Forces approach to give meaningful results. SWOT analysis, on the other hand, is suited to leaders at all levels of the organisation because it relies on more readily attainable information. In addition, SWOT analysis is a simple and
intuitive tool to use.
All leaders need to conduct situation analyses to fully comprehend the status quo of the organisation and to be able to envision future prospects which assist with vision creation.
Setting strategic direction—vision, mission, values
A 'vision' is a dream, picture or view of the future. A vision describes something not yet real; it is a picture of what the organisation could and should look like in the future ...vision has become one of the most overused and least understood words in the language, conjuring up different images for different people. (Collins & Porras,1996: 66)
In the organisational context, the term 'vision' is definitely one of the buzzwords of our time. Few people in business would be able to say that they have never heard of it. However, fewer still actually know how to create a vision and deploy it. (Thornberry, 1997 in Rosenbach & Taylor, 2006). Organisational visions should be designed to stretch current capabilities and encourage a better way of doing things.
This vision statement should contain a number of key elements to make it well articulated, according to Nanus (1995). It is:
1. Realistic: Ford was equipped with the expertise and skills to build a car
2. Credible: Those around him believed he could build such a car
3. Attractive: If the vision was achieved everyone would be able to afford a car and the transport industry would be transformed
4. Future-oriented: the vision statement expressed a change from the current state and showed a desired future.
The statement is also innovative, memorable, inspiring and brief.
Collins and Porras (1996) provide a prescriptive framework to assist leaders in developing vision statements. They suggest that an effectively constructed vision will be made up of core ideology and envisioned future. The first component, core ideology, comprises the organisation's intrinsic and underlying
principles, values and code of beliefs.
Core ideology provides the glue that holds an organization together as it grows, decentralizes, diversifies, expands globally, and develops workplace diversity. (Collins & Porras, 1996: 66)
Collins and Porras divide core ideology into:
1. Core values—the unique set of guiding principles that epitomise the organisation's standards of behaviour and accepted norms
2. Core purpose—why the organisation exists, and what need it fulfils.
The second component of an effective vision, envisioned future consists of: ... a 10-to-30-year audacious goal plus vivid descriptions of what it will be like to achieve the goal. (Collins & Porras, 1996: 73)
The best way to clear up the confusion between the terms is to consider the time element. A vision is a view of the organisation in the future, whereas a mission describes the present condition of the organisation. The mission contains information about what the organisation does, for whom and to what standard.
Strategy development and implementation
The quality of the journey in this context is how well the leader can follow through and implement the strategy. Without the strategy implementation phase being executed successfully, achieving the vision will be extremely difficult. Daft (2008: 405) defines strategy implementation as "putting strategy into action by adjusting various parts of the organization and directing resources to accomplish strategic goals".
Strategy implementation involves:
1. Aligning employee expectations with the strategic goals.
2. Aligning the organisation's design (structure, culture, processes, etc.) in such a way as to facilitate the achievement of the strategic goals.
3. Ensuring the organisation is equipped to either hire new employees or develop existing employee skills.
4. Align the organisation's performance management tools with the strategy.
5. Ensuring all staff, technology, systems and finance are in place to accommodate the strategy.
Measuring strategic performance
According to Jain (1997), there are three steps involved in creating a strategic performance measurement system:
1. select appropriate performance measures
2. set performance standards
3. design reports.
Strategic performance measures have two dimensions:
—Monitoring key program implementation to ensure that the necessary elements of strategy are being provided.
—Monitoring results to ensure that the programs are having the desired effects.
(O'Connor cited in Jain, 1997: 280)
Developing strategy skills
The question is, can the ability to be visionary or to think strategically be taught? Thornberry (1997) argues that certain aspects of visionary ability can be taught but, there are two elements which:
... probably can't be taught. The first is conceptual ability and the second is courage. Conceptual ability is critical because it allows the individual to
conceive of the future: to think in conceptual terms and to see the interrelationships between concepts, such as purpose, mission, and values...
Courage is about deciding where you want to go and then committing to it...Any leader who is unwilling to put his or her stake into the ground is not really a leader. This kind of courage is not easily taught. (Thornberry in Rosenbach & Taylor, 2006: 37)
Ellen Goldman, on the other hand, claims that strategic thinking can be developed, provided certain types of experiences occur. The general consensus is that strategic leadership skills need to be developed, practiced and fine-tuned over time.