Growth Strategies: Growth Drivers - Entrepreneurship and Leadership


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This is the 6th part of the undergraduate course in Growth Strategies: Growth Drivers - Entrepreneurship and Leadership. Read by Pavel Luksha

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Growth Strategies: Growth Drivers - Entrepreneurship and Leadership

  1. 1. GROWTH STRATEGIES Growth Drivers: Entrepreneurship and Leadership Pavel Olegovich Luksha [email_address]
  2. 2. Entrepreneurs and entrepreneurial capabilities <ul><li>Entrepreneurs: individuals, acting independently or as part of an organization, who create a new venture or develop an innovation and take risks entering it into the marketplace. </li></ul><ul><li>Entrepreneurs seek (or create) new opportunities and reduce uncertainty of unknown possibilities. They, therefore, are engaged in ‘creative destruction’ that disrupts economic equilibrium through innovations </li></ul>
  3. 3. Entrepreneurs and entrepreneurial capabilities <ul><li>Top-level managers should try to establish an entrepreneurial culture that inspires individuals and groups to engage in corporate entrepreneurship </li></ul><ul><li>To enhance the entrepreneurial competence of the firm, knowledge must be transferred to others in the organization. Transferring knowledge can be difficult, because the receiving party must have adequate absorptive capacity. Building on the current knowledge base of the firm’s workforce while incrementally expanding that knowledge </li></ul>
  4. 4. Cerner Bridge Medical: entrepreneurial solution <ul><li>Cerner: leader in medical information solutions </li></ul><ul><li>Cerner's Bridge Medical POC patient safety software uses bar code scanning, expert clinical knowledge bases, wireless networking and innovative integration capabilities to help nurses intercept potential clinical errors at the patient bedside. </li></ul><ul><li>Innovative venture launched as the subsidiary of Cerner </li></ul>
  5. 5. New star in the Cognac business <ul><li>French entrepreneurs, Jean Dominique Andreu and Alexandre Gabriel, bought out Pierre Ferrand ‘niche’ cognac distillery and established a new fast-growing world brand </li></ul><ul><li>Promoted it through influential restaurants and distributors, and achieved success in penetrating international retail networks. From 2002 to 2005, sales doubled to around $30 mln, and kept growing. </li></ul><ul><li>‘ Other side of the coin’: criticisms for depleting quality </li></ul>
  6. 6. Three models of entrepreneurship <ul><li>Entrepreneurial leader : top-down view entrepreneur as a corporate leader and/or organization creator </li></ul><ul><li>Corporate entrepreneurship : entrepreneurial activity is channeled through ventures and pilot projects </li></ul><ul><li>Entrepreneurial culture : learning organization where opportunity-seeking dominates and innovations are stirred on every level </li></ul>
  7. 7. Internal venturing and entrepreneurship <ul><li>Internal entrepreneurs are managers prepared to work in high autonomy and high risk conditions </li></ul><ul><li>Internal entrepreneurs are the source of strategic initiatives </li></ul><ul><li>Internal entrepreneurs compete for corporate resources (also, can deploy unknown and forgotten resources) </li></ul><ul><li>Internal entrepreneurs are change agents, that can spread their project success over the whole organization </li></ul>
  8. 8. Pilot project at Shell Chemicals <ul><li>Shell Chemicals innovation : mixing detergents and fabric softeners in supermarkets and sell in multi-use bottles . </li></ul><ul><li>Planned to launch large scale production and grab an empty market. </li></ul><ul><li>Pilot testing in several supermarkets in the UK, the US, and China </li></ul><ul><li>Test results : (1) US users do not care about multi-use package , (2) flow of consumers in China is insufficient , (3) branding is an issue in all countries </li></ul><ul><li>Cheap test help to refine the business model without a massive failure. </li></ul>
  9. 9. Dow Chemicals’ e-epoxy <ul><li>Dow Chemicals: a leading manufacturer of chemical products </li></ul><ul><li>Ian Telford, commercial director for European epoxy division, recognized potential of its epoxy products for small customers and spot market customers (consumer group that Dow never targeted) </li></ul><ul><li>Telford developed and launched website to purchase epoxy from Dow at low prices </li></ul><ul><li>Project was a success and the company has built on its experience to launch other e-channels </li></ul>
  10. 10. RediClinic: Wal-Mart pilot project <ul><li>Wal-Mart launched a walk-in clinics called RediClinic in its shops </li></ul><ul><li>Staffed with nursery practitioners licensed to prescribe medicine </li></ul><ul><li>Notably cheaper than a regular MD visit , convenient locations and working hours </li></ul><ul><li>Project launched in 2005, successful model replicated since 2007 ( +500 clinics planned in 2009 alone ) </li></ul>
  11. 11. Entrepreneurship and leadership <ul><li>Entrepreneurial leadership : </li></ul><ul><ul><li>company founder </li></ul></ul><ul><ul><li>CEO of the own business </li></ul></ul><ul><ul><li>innovative business leader </li></ul></ul><ul><li>Key features </li></ul><ul><ul><li>independent </li></ul></ul><ul><ul><li>prepared to risk </li></ul></ul><ul><ul><li>charismatic ( prepared to lead) </li></ul></ul><ul><li>Often: the role model for the society </li></ul>
  12. 12. Entrepreneurship vs management <ul><li>What resources do I control ? </li></ul><ul><li>How can minimize the impact of others over my own performance ? </li></ul><ul><li>What are the market advantages our company has ? </li></ul><ul><li>What opportunities should we pick ? </li></ul><ul><li>Where are the new opportunities ? </li></ul><ul><li>How can they be capitalized ? </li></ul><ul><li>What resources do I need ? How do I capture them ? </li></ul><ul><li>What market advantages should we have ? </li></ul>MANAGER ENTREPRENEUR
  13. 13. Virgin’s Richard Branson: model entrepreneur <ul><li>Worked in business since 15 y.o. </li></ul><ul><li>Developed Virgin – an umbrella brand for over 360 different businesses , incl . musical recording , airlines , biofuel , space tourism etc . </li></ul><ul><li>Ready to fail : a notable no of failures ( Virgin Railway, Virgin Cola, Virgin Vodka…) </li></ul><ul><li>Some thoughts </li></ul><ul><ul><li>There will always be another deal </li></ul></ul><ul><ul><li>If you want to invest – don’t hesitate, invest ! </li></ul></ul>
  14. 14. Donald Trump: model entrepreneur <ul><li>Famous NY developer </li></ul><ul><li>Main businesses : luxury real estate , luxury hospitality business , casino </li></ul><ul><li>Popular radio and TV showman , author of the ‘Apprentice’ show </li></ul><ul><li>Some thoughts </li></ul><ul><ul><li>Passion gives you energy . There is no great thing in this world that was done without passion. </li></ul></ul><ul><ul><li>Think big and live large </li></ul></ul>
  15. 15. Growth strategy of entrepreneurial organizations <ul><li>Strategy oriented towards the search and exploitation of opportunities: over 40% of the fastest growing US businesses do not have a formal business plan </li></ul><ul><li>Organization is focused on growth: business leaders define themselves as ‘empire builders’ </li></ul><ul><li>Strategy assumes swift decisions and frog-leaping under uncertainty </li></ul><ul><li>CEO / owner dominates as the leader </li></ul>
  16. 16. Strategic leadership <ul><li>Strategic leadership: the ability to anticipate trends, maintain flexibility and empower others to create strategic change </li></ul><ul><li>Managing human capital, knowledge and innovation in the company </li></ul><ul><li>Coping with uncertainty, global complexity and organizational inertia </li></ul><ul><li>Formulating and implementing strategies to achieve above-average returns </li></ul>
  17. 17. Leadership ‘perks’ <ul><li>Ambition </li></ul><ul><li>High intrinsic motivation , optimism </li></ul><ul><li>Commitment </li></ul><ul><li>High standards </li></ul><ul><li>Urge to convince </li></ul><ul><li>Preparedness to talk </li></ul><ul><li>Preparedness to fail </li></ul>
  18. 18. Bringing company back to the growth path: Carl Ghosn <ul><li>Nissan trouble: </li></ul><ul><ul><li>loss making (-$6 Bln in 2000, only 3 models of 50 are profitable) and facing bankruptcy. </li></ul></ul><ul><li>Carl Ghosn (Renault) </li></ul><ul><ul><li>Cut out half of vendors, standardized and gave more volume to the remaining </li></ul></ul><ul><ul><li>Closed five plants in Japan, eliminated 21,000 jobs </li></ul></ul><ul><ul><li>Developed new models that would be demanded by the market and would drive growth / profit </li></ul></ul><ul><ul><li>Restored profits already in 2002 and cut debt to $2 Bln by 2005 </li></ul></ul>
  19. 19. Finding new growth path: Louis Gerstner <ul><li>IBM trouble </li></ul><ul><ul><li>rigid organizational culture: prioritize engineers over clients </li></ul></ul><ul><ul><li>attached to old product (mainframes) and lost market to PC producers </li></ul></ul><ul><ul><li>low profitablity and calls for the division of business </li></ul></ul><ul><li>Louis Gerstner (new CEO) </li></ul><ul><ul><li>cheaper and client-customized mainframes </li></ul></ul><ul><ul><li>redefine value proposition: integration, not equipment </li></ul></ul><ul><ul><li>new growth platform: Internet solutions </li></ul></ul><ul><ul><li>organizational culture reform: meritocracy, motivation by sales </li></ul></ul>
  20. 20. Leadership in growth strategies ROLES OF THE LEADER Vision Resource mobilization Implementation <ul><li>rational analysis </li></ul><ul><li>intuition of the leader / the team </li></ul><ul><li>team </li></ul><ul><li>partners </li></ul><ul><li>capital </li></ul><ul><li>target setting </li></ul><ul><li>incentive structure </li></ul><ul><li>control and administration </li></ul>
  21. 21. Vision: Sam Walton & Wal-Mart <ul><li>Founded the now-world largest retailer, Wal-Mart, in 1962 </li></ul><ul><li>Revolutionized retail – wide assortment & low prices as the business model for village convenience </li></ul><ul><li>Some thoughts: </li></ul><ul><ul><li>Capital isn’t scarce, vision is </li></ul></ul><ul><ul><li>Setting high expectations is the key to everything </li></ul></ul>
  22. 22. Resource mobilization: Sergei Brin <ul><li>Access to venture capital </li></ul><ul><li>Team player: Larry Page and others </li></ul><ul><li>Stands behind the corporate culture of Google </li></ul><ul><li>Further projects alternative energy, Tesla Motors, Space Adventures </li></ul><ul><li>Some quotes: </li></ul><ul><ul><li>Tough times bring out the best parts of Silicon Valley </li></ul></ul><ul><ul><li>Technology is an inherent democratizer. </li></ul></ul>
  23. 23. Implementation: facilitating integration and innovation <ul><li>Shared values and strategic leadership are important to achieve cross-functional integration and implement innovation </li></ul><ul><li>Leaders set the goals and allocate resources to integrate development and commercialization of new products </li></ul><ul><li>Effective strategic leaders also ensure a high-quality communication system to spread knowledge among team members </li></ul>
  24. 24. Implementation: Tony Fernandez & AirAsia <ul><li>‘ Now everyone can fly’: driven by idea that Malaysians love to travel but don’t have money </li></ul><ul><li>Bought AA for 26 cents and 11 Mil USD of debt </li></ul><ul><li>Turned into a profitable company in one year – now dominant in South-Eastern no-frills airway market (84 aircrafts, 66 routes) </li></ul><ul><li>Used to be an accountant turned music trader (Warner Music) turned entrepreneur </li></ul><ul><li>Doing it differently </li></ul><ul><li>AirAsia has been profitable for all but the second half of 2008, when Mr Fernandes decided to unwind fuel hedges before most other airlines took the plunge. After taking an initial hit, AirAsia is now getting the full benefit of oil at $40 a barrel while some rivals are still paying $100. That decision is typical of Mr Fernandes’s willingness to break ranks. When other airlines slashed advertising during the SARS scare in 2003, AirAsia tripled its spending. </li></ul><ul><li>Mr Fernandes says that he came to the industry with no preconceptions, but found it rigidly compartmentalised and dysfunctional. He wanted AirAsia to reflect his own unstuffy, open and cheerful personality. He is rarely seen without his baseball cap, open-neck shirt and jeans, and he is proud that the firm’s lack of hierarchy (very unusual in Asia) means anyone can rise to do anyone else’s job. AirAsia employs pilots who started out as baggage handlers and stewards; for his part, Mr Fernandes also practises what he preaches. Every month he spends a day as a baggage-handler; every two months, a day as cabin crew; every three months, a day as a check-in clerk. He has even established a “culture department” to “pass the message and hold parties”. </li></ul>
  25. 25. Vision to implementation: Howard Schultz and Starbucks <ul><li>Joined Starbucks company (coffee beans and coffee machine trading ) in 1982 as the Director for Marketing </li></ul><ul><li>Tried to convince owners to establish Italian-like cafes . Launched his own café and bought Starbucks retail in 1987 </li></ul><ul><li>Aggressively grew the network to 16 thousand cafes by 2008 ( present in 44 countries ) </li></ul><ul><li>Recovered the CEO position after a eight-year break in early 2008 </li></ul>
  26. 26. Strategic leaders as an organizational resource <ul><li>Leaders can be a source of competitive advantage when their work is valuable, rare, costly to imitate and nonsubstitutable </li></ul><ul><li>Strategic leaders determine new strategic initiatives, develop the appropriate organizational structures, devise reward systems and shape a firm’s culture </li></ul><ul><li>Use their discretion (or latitude for action) when making strategic decisions </li></ul>
  27. 27. Before we proceed… The group project Is there a secret of growth for ‘model entrepreneurs’?
  28. 28. Money isn’t scarce, vision is <ul><li>If you have a vision, you won’t forget it </li></ul><ul><li>How to manage through vision : </li></ul><ul><ul><li>leader has to have a clear view of the future </li></ul></ul><ul><ul><li>vision is an attractive goal, a future state of organization </li></ul></ul><ul><ul><li>vision comes through inspiration, not analysis </li></ul></ul><ul><ul><li>by managing through vision, the leader drives on emotional and spiritual resources of organization </li></ul></ul>
  29. 29. Problems with scaling entrepreneurial leaders <ul><li>Loyalty to friends & relatives: unwillingness to admit failures of friends / relatives , personal priorities coming above business interests </li></ul><ul><li>Short-term tasking: attention to details , lack of strategic vision </li></ul><ul><li>Uniformity of opinions : lack of opportunities to express alternative points of view </li></ul><ul><li>Work in isolation : habit of individual creative work </li></ul>
  30. 30. Steve Jobs and Apple <ul><li>Apple (197 6 ) : the PC in garage </li></ul><ul><li>Fired from Apple in 1985 </li></ul><ul><li>Created Pixar and NeXT </li></ul><ul><li>Returned to the position of Apple CEO after NeXT was bought in 1996 </li></ul><ul><li>Stands behind the key Apple innovations (iMac, iPod, iTunes, iPhone) that were created under his tight supervision </li></ul><ul><li>The problem of succession due to his sick leave in 2009 </li></ul>
  31. 31. Succession and family business: Salvatore Ferragamo <ul><li>Company owned by descendants of the founder (5 children and 37 grandchildren ), notable role of Wanda Ferragamo ( widow of the founder ) </li></ul><ul><li>Family members get senior roles only after they receive proper business education and management experience in other companies (no less than 10 years) </li></ul><ul><li>First senior ‘outsider’ : CEO Michele Norsa , former CEO of Valentino </li></ul><ul><li>Planned to become publically owned ( postponed due to financial market instability ) </li></ul>
  32. 32. Succession in family business <ul><li>70% of family businesses go bankrupt during second gen of owners, 88% during the third gen, and 97% during the fourth gen </li></ul><ul><li>Secrets of durability : </li></ul><ul><ul><li>commit to professionalism and meritocracy </li></ul></ul><ul><ul><li>commit to high-productivity culture and constant performance improvement </li></ul></ul><ul><ul><li>strong Boards with a good share of independent directors </li></ul></ul><ul><ul><li>diversification as the way to survive through cycles </li></ul></ul>
  33. 33. Leadership is not only at the top <ul><li>Leadership is required on different levels of the hierarchy, everywhere the responsible decisions have to be made and novelty needs to managed </li></ul><ul><li>Situations when leadership of the middle management and employees is necessary </li></ul><ul><ul><li>sales system creation ( e.g. in financial companies ) </li></ul></ul><ul><ul><li>performance improvement that take the significant number of incremental innovations </li></ul></ul><ul><ul><li>project-based organizations ( e.g. consulting companies ) </li></ul></ul>
  34. 34. Sufficient number of leaders <ul><li>Successful growth requires strong leadership team : </li></ul><ul><ul><li>no less than 3-5% of employees on each level of organizational hierarchy </li></ul></ul><ul><ul><li>leaders with focused knowledge of the segment / the region </li></ul></ul><ul><li>Leadership team creation </li></ul><ul><ul><li>identification of employees with strong leadership potential, who share company values </li></ul></ul><ul><ul><li>leadership succession program ( coaching, training ) in 1-2 years for functional management , in 3-4 years for general management and breakthroughs </li></ul></ul>
  35. 35. Growing leaders at GE China <ul><li>Efforts to make promising employees feel stimulated, recognized, and nurtured </li></ul><ul><li>GE has opened a large research and training facility in Shanghai </li></ul><ul><li>Working in spots like Japan and America, receiving leadership training and getting promotions (also – heading national divisions of business) </li></ul><ul><li>Increased R&D in China to drive ‘innovative spirit’: GE Healthcare produces portable ECG designed in China; GE Energy produces Chinese-designed wind turbines </li></ul>
  36. 36. Leadership succession at 3M <ul><li>Systematically engages in succession planning since 1990s </li></ul><ul><li>Developed the global framework of leadership competencies specific to 3M’s business, vision & values </li></ul><ul><li>Performance examined against the competency model (based on objective monitoring) to understand the manager’s potential and areas for improvement: communicated by senior managers and serves as the basis for appointment decisions </li></ul>