Critical Thinking and Leadership Analysis - Essay Example

Section A - Critical Thinking. Critical analysis of "Strategy as Simple Rules" by Eisenhardt and Sull. Sooner or later any manager, either a president of worldwide corporation, or a head of department in a small firm, asks himself/herself - What is the secret of a great leader in There were a great number of publications relating strategy in recent time. It seems like there were only lazy, who have not spoke or written about strategy in business. Under such circumstances there come a lot of questions: Why there are so few companies that may serve as example of an efficient strategy Is their experience worth of taking If yes, what we should pay special attention at As a matter of fact, it seems that we devote to much time to strategy working-out basing on the examples of the West. We attempt to work out increasingly more and more advanced strategies, using increasingly more and more modern approaches and methods. Herewith we often overlook that not everything that works in the West, will work in Europe same efficiently and successfully. We have different markets, different management, and other mentality. In Europe we should concentrate on a little bit more simple strategies, because first of all any strategy should be understood by everybody, and in first instance by customers. Therefore let us consider some simple rules, which are effective in dynamic markets because they partially guide actions and yet also enable the flexibility of real-time, improvisational response to meet the demands of a changing environment (Brown & Eisenhardt, 1997; Miner et al., 2001). In January 2001 Harvard Business Review article, "Strategy as Simple Rules," Kathleen Eisenhardt and Donald Sull argued that the secret of success in rapidly shifting markets lies in strategy as simple rules. The authors discover that the success of companies such as Yahoo!, eBay, Google can not be interpreted by using traditional approaches to competitive strategy. There two approaches to competitive strategies that are represented in the literature. The first one is resource based view, which is in concentrating on how resources can be leveraged to gain sustainable competitive advantage (Barney, 1991; Grant, 1991). Resource based view focuses on a few critical dimensions of resources: Valuable, Rare, Inimitable, Nonsubstitutable (Barney, 1991; Peteraf, 1993). They are enable sustainable competitive advantage both in current markets and through leverage into new ones, and superior performance (Amit & Schoemaker, 1993). The second approach is strategic positioning. According to this approach managers of firms strive to occupy a defensible position in their respective industries aiming to reach a sustainable competitive advantage and superior performance (Porter, 1980; 1991). To the extent that this configuration and its related activity systems are difficult, slow or costly to achieve, incumbent firms are secure in their current competitive advantages (Caves & Porter, 1977). It should be mentioned that these approaches are effective enough in a stable market environment. Strategy as simple rules set this competitive advantage in an unpredictable environment full of "sudden-death threats" and "golden opportunities". According to Sull (2005), companies in unpredictable environments compete in their ability to respond to sudden-death threats, or to minimize their potential impact, on the one hand, and on the other one in the ability to seize potential golden opportunities. Instead of using approaches of competitive advantages, the above mentioned companies have excelled at changing in order to act and develop in accordance with the demands of constantly changing environment. These companies preferred not to survive in markets that were previously regarded as difficult, but let their strategies to evolve at every turn. Eisenhardt and Sull (2001) discovered that the most successful companies use key strategic processes in order to identify areas, in which concentration of potential opportunities is the greatest. Simple rules are useful for stabilization of company's operating and are to assist managers as they pursue these opportunities. It should be mentioned that in order to work out an efficient company's strategy as simple rules effectively, it is very important to understand what those rules are. Eisenhardt and Sull (2001) don't claim that strategy as simple rules is the best approach in all situations. It's the most fitting approach in complex business environments buffeted by rapid change. But we should not forget that variety of companies operate in multiple business environment where both stabile and growth conditions are present. Thus using a simple strategy might help to manage the growth, but they need the complex approach as well, in order to be able to manage the stable business and get a possibility to finance the growth. A positioning approach to strategy, whose goal is profitability, works best in slowly changing and well-structured markets, and can produce an enduring advantage. A resource-based approach, aiming to have a long-term dominance, is the most efficient in moderately changing, well-structured markets. When external conditions are confusing and changeable, complex strategies will be too slow and it can be too difficult to quickly alter position or build new resources. Yet we should realize that a complete absence of strategic guidance will quickly lead to failure. Companies following a simple-rules strategy may appear to have no strategy at all. That's because it's harder to see the underlying logic. If a disciplined strategy really is missing, the company is almost certainly going to be paralyzed by chaos and uncertainty. The companies highlighted by Eisenhardt and Sull (2001) thrive on uncertainty and confusion on the part of competitors, but only by imposing just enough order on themselves. They operate within key processes, which could be product innovation, partnering, or spinout creation, place the enterprise where the opportunities are richest. What are these simple rules Based on their study of numerous companies in turbulent and uncertain markets, Eisenhardt and Sull discovered that simple rules-which grow out of experience-come in five complementary forms, each helping executives deal with different aspects of opportunities: how-to rules, boundary rules, priority rules, timing rules, and exit rules. How-to rules regulate the managing of company's key features operation. Akamai's rules for the customer service process, for example, require every question to be answered the first time around, and require R&D staff to put time into customer service. Boundary rules assist corporation in defining the circle of the most perspective areas, which should be investigated in the first instance. Cisco's early acquisition rule specified the maximum size of an acquisition target and the minimum percentage of employees who had to be engineers. Priority rules give company opportunities to analyze and to identify the priorities of development. For instance, Intel's allocates manufacturing capacity based on a product's gross margin. Timing rules determine preparedness of the company to will-timed taking measures aiming to keep the pace of development. Exit rules ensure the mechanism of pulling out of fading opportunities. Sound simple rules are not usually produced by clever thinking, according to Eisenhardt and Sull (2001), but are more often the result of experience, especially mistakes. Although not typically produced by a conscious plan, simple rules must be inspected and refined to ensure that they are not broad, vague, mindless, or stale. The most effective simple rules are tailored to a single process rather than applying broadly. They must provide clear guidance and not be vague. If no reasonable person could argue the opposite of the rule, then it's too vague to provide real guidance. To avoid mindless rules, Eisenhardt and Sull (2001) advise you to reverse engineer your processes to determine your implicit simple rules, and then throw out the ones that are embarrassing. Rules quickly go out of date in rapidly-evolving markets. If growth is slowing or stock price is weakening relative to that of competitors, it's probably time to revisit your rules. The point about staleness is not an easy one to heed. Eisenhardt and Sull (2001) also declare that companies with simple-rules strategies must follow the rules reliably and avoid the temptation to change them too frequently. A consistent strategy helps managers filter opportunities and gain short-term advantage by exploiting the attractive ones. Just as you shouldn't have too many metrics to measure corporate performance, you shouldn't have too many-or too few-simple rules. In order to make a conclusion let us claim that having the right rules is not enough. It's just as important to have the optimal number of rules. Eisenhardt and Sull (2001) suggest that the right number is usually between two and seven. Young companies usually have too few rules, while old companies usually have too many. If Eisenhardt and Sull (2001) had presented their view of strategy as simple rules as the whole of strategy, they would have gone seriously astray. That argument may be approved by the fact that author's appraisals on Enron has appeared to be unwarrantable. Let us remember the case of Enron scandal, which broke out late 2001, so after this paper was written. It could serve the point criticizing the author's point of view. There were three broad strokes of Enron: 1. Collapsed on December 2, 2001 and destroyed over $60 billion in market value; 2. Accounting fraud was massive. Reasonable men and women might quibble over some of the finer points in accounting, but in FY 2000, 96 percent of Enron's reported net income and 105 percent of its reported funds flow were attributed to accounting violations; 3. Enron's debt was underestimated by one half: $10 billion reported versus $22 billion actual debt (Lagace, 2004). As a matter of fact these factors were caused by bad strategy and management. Yet the company had some simple rules on business strategies but it should have had some rules on the accounting practices as well. Enron lost money because its management made some disastrous decisions. Typically these disastrous decisions were from over-and-unjustified confidence in their ability to manage. They went into risky fields where they had no experience and failed, failed miserably. Under such circumstances, Eisenhardt and Sull (2001) wisely place this approach in the context of other types of competitive strategy and acknowledge that simple rules do not always fit the bill. There is no doubt that choosing good and/or simple strategy might be very efficient. But there are a lot of examples of companies working out such strategies, still only few of tem can actually follow the strategy. So we see that it is not enough to create the boundaries. You have to be stubborn and disciplined in order to manage to stay within those boundaries. There is no doubt that choosing good and/or simple strategy might be very efficient. But there are a lot of examples of companies working out such strategies, still only few of tem can actually follow the strategy. So we see that it is not enough to create the boundaries. You have to be stubborn and disciplined in order to manage to stay within those boundaries. Section B - Leadership. The main elements of effective leadership "Management works in a system. Leadership works on a system". - Stephen R. Covey What is effective leadership On defining what effective leadership is, the question of vital importance is to differentiate between the notions of "leadership", "leading", and "leader". The position of a leader is a role within a particular system. The person, who plays a role of a formal leader, is not necessary to possess the leading skills and ability to govern. Leadership is a notion related to personal charisma, talents and ability use power over the subordinates. It often may happen that leadership is belonging to a person, not staying in the position of pro forma leader. "Leading" is a result of combination of appropriate role and abilities to leadership, meaning proficiency to govern use power over the subordinates. So in the broad sense we may say that leadership is an ability to govern people in the direction of achievement of a particular goal. As it was mentioned above managers have to operate in an unpredictable environment. Although unpredictability is particular to many markets, much of modern neo-classical economic theory is based on the assumption that markets tend toward a stable equilibrium. As a result, it should be admitted that modern neo-classical economic theory is based on the assumption that markets tend toward a stable equilibrium. That is why the concept of unpredictability has received less critical attention. Joseph Schumpeter (1949) was the first economist to systematically analyze the role of permanent change in the process of economic development, which he argued was characterized by "spontaneous and discontinuous change . . . [which] forever alters and displaces the equilibrium state previously existing". In order identify the main elements of effective leadership lat us first observe the difference between leadership and management comparing their activities within the same functions. Function Manager Leader Direction Plans and Budgets Set a direction Resources Organizes and staffs Aligns people Coping Copes with complexity Copes with and promotes change Action Performs effective action Performs meaningful action Role Is a good soldier Is his/her own person Change Accept the status quo Challenges Focus Does things right Does the right things Creativity Imitates Originates People Controls and solves problems Motivates and inspires people As we defined the main differences between the leaders and managers now let us study the basic elements of effective leadership. The first element of effective leadership in contemporary world we may state the ability to manage in unpredictable environment with its large-scale sudden-death threats and golden opportunities. In contemporary business "value flows not from owning a valuable resource or staking out a defensible position, but rather from effectively managing the uncertainty inherent in trying something new" (Sull & Escobari, 2004). According to Sull (2005) executives in unpredictable markets must also master the leadership traits required to succeed in an uncertain world: Intellectual humility Tenacity Sang-froid The other element is leadership attributes, which are the inner or personal qualities that constitute effective leadership that include a variety of characteristics such as values, character, motives, habits, traits, competencies, motives, style, behaviours, and skills. Most of the leadership attributes cluster into four overarching categories of what you need to be, know, and do (Ulrich, Zenger.& Smallwood; 1999): Demonstrate personal character Set directions Mobilize individual commitment, and Engender organizational capability. The next important element of effective leadership is working out an appropriate company's culture, including correspondence of company's goals, leader's vision, strategies, mission, organizational effectiveness, desirable image, formal management system, culture of employees etc. It is obvious, that in contemporary business environment, a company's corporate culture is a very important means to attract not only customers and clients, by also same-oriented partners. The company's culture should be performed by both employees and especially leaders. One of the most influential factors for workers is to observe an example of an appropriate culture and behaviour shown by their leadership. According to Ed Rose (1998) there are five behaviours that are able to lead to effective leadership: Adaptable: Leaders must be adaptable to change. Trustworthy: Leaders must earn the trust of their people by doing what they say they'll do and by being fair. Resourceful: Leaders should provide the required training to assure that their followers are prepared for their jobs and responsibilities. Optimistic: Leaders must provide a positive vision of the future. Considerate: As the leader, you must consider your task carefully, but you can no longer think in terms of 'the end justifies the means.' One more important element of an effective leadership is well-organized communication and information flows. One of the most important elements of leadership is a system of communication. Managers from all departments must have all necessary company related information. Working out of such a system demands an appropriate climate, which is profitable for free, and easy information spread and exchange. To be effective, leaders and managers need to communicate in ways which are able to make a positive effect, and they must be aware of the various systems of communication and use them to the best advantage. According to Silva (n.d.) being a sensitive communicator, giving information and receiving feedback is an essential attribute of an effective manager. It should be noted that there are a lot of points of view relating main elements of effective leadership. Moreover there is a difference in perceiving this notion by managers from different countries. For example, in research conducted by The Centre for Creative Leadership (CCL), an educational institution that specializes in leadership development in Europe, Asia and the Americas, has identified similarities and differences in the ways US managers and managers from European Union countries. Nearly 2,000 middle- to upper-level managers in the EU countries and in the US surveyed perceive effective leaders to value personal influence over the group, co-operation among the work group members, and acceptance of the rules and procedures set up by authorities external to the work group. They differ in that efficiency and strong, impartial management is more highly valued among British managers, while teamwork and collaboration on the part of leaders is more highly valued among French, Spanish and US managers. These findings underscore both the universal and unique aspects of leadership. When managers were asked about their perceptions of effective team leadership versus team membership, some differences were found as well. The first one is in the perceptions of dominance. US managers value dominance or active involvement of team members more so than they do of team leaders. This US-European difference suggests a belief in less hierarchical models of working relationships among US managers (Leslie & Velsor, n.d.). In order to complete I would like to admit that to be an effective leader is not necessary means to be a leader in a long established meaning of this word. For example, one can not say that Harry Truman has had some particular charisma, but that fact has not got in his road to become one of the most effective presidents in the history of USA. There a lot of efficient corporations' leaders, who are out of character of stereotypical leader. The secret of their effectiveness lies in knowing following main elements of effective leadership. List of References: 1. Amit, R., & Schoemaker, P. J. H. 1993. Strategic Assets and Organizational Rents. Strategic Management Journal, 14: 33-46. 2. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99-120. 3. Brown, S. L., & Eisenhardt, K. M. 1997. The Art of Continuous Change: Linking Complexity Theory and Time-paced Evolution in Relentlessly Shifting Organizations. Administrative Science Quarterly, 42: 1-34. 4. Caves, R. E., & Porter, M. E. 1977. From entry barriers to mobility barriers: Conjectural decisions and contrived deterrence to new competition. Quarterly Journal of Economics, 91: 241-262. 5. Eisenhardt, K. & Sull, D. (2001). "Strategy as simple rules", Harvard Business Review, January, pp. 107-116. 6. Grant, R. M. 1991. The Resource-Based Theory of Competitive Advantage. California Management. Review, 33(3): 114-135. 7. Lagace, M. (2004) Enron's Lessons for Managers. Retrieved 10, Dec, 2006 from http://hbswk.hbs.edu/item/4253.html 8. Leslie, J.B. & Velsor, E.V. (2002) Defining effective leadership. Retrieved 9, Dec, 2006 from http://www.publicservice.co.uk/pdf/europe/autumn2002/p130.pdf 9. Miner, A., Bassoff, P., & Moorman, C. 2001. Organizational Improvisation and Learning: A Field Study. Administrative Science Quarterly, 46: 304-337. 10. Peteraf, M. A. 1993. The Cornerstones of Competitive Advantage: A Resource-based View. Strategic Management Journal, 14: 179-191. 11. Porter, M. E. 1980. Competitive Strategy. New York: Free Press. Porter, M. E. 1991. Towards a Dynamic Theory of Strategy. 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