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Principles of Management, v. 1.0

by Mason Carpenter, Talya Bauer, and Berrin Erdogan

1.2 Leadership, Entrepreneurship, and Strategy

Learning Objectives

  1. Know the roles and importance of leadership, entrepreneurship, and strategy in principles of management.
  2. Understand how leadership, entrepreneurship, and strategy are interrelated.

The principles of management are drawn from a number of academic fields, principally, the fields of leadership, entrepreneurship, and strategy.

Leadership

If management is defined as getting things done through others, then leadershipThe act of influencing others toward a goal. should be defined as the social and informal sources of influence that you use to inspire action taken by others. It means mobilizing others to want to struggle toward a common goal. Great leaders help build an organization’s human capital, then motivate individuals to take concerted action. Leadership also includes an understanding of when, where, and how to use more formal sources of authority and power, such as position or ownership. Increasingly, we live in a world where good management requires good leaders and leadership. While these views about the importance of leadership are not new (see “Views on Managers Versus Leaders”), competition among employers and countries for the best and brightest, increased labor mobility (think “war for talent” here), and hypercompetition puts pressure on firms to invest in present and future leadership capabilities.

P&G provides a very current example of this shift in emphasis to leadership as a key principle of management. For example, P&G recruits and promotes those individuals who demonstrate success through influence rather than direct or coercive authority. Internally, there has been a change from managers being outspoken and needing to direct their staff, to being individuals who electrify and inspire those around them. Good leaders and leadership at P&G used to imply having followers, whereas in today’s society, good leadership means followership and bringing out the best in your peers. This is one of the key reasons that P&G has been consistently ranked among the top ten most admired companies in the United States for the last three years, according to Fortune magazine.Ranking of Most Admired Firms for 2006, 2007, 2008. http://www.fortune.com (accessed October 15, 2008).

Whereas P&G has been around for some 170 years, another winning firm in terms of leadership is Google, which has only been around for little more than a decade. Both firms emphasize leadership in terms of being exceptional at developing people. Google has topped Fortune’s 100 Best Companies to Work for the past two years. Google’s founders, Sergey Brin and Larry Page, built a company around the idea that work should be challenging and the challenge should be fun.http://www.google.com/intl/en/corporate/tenthings.html (accessed October 15, 2008). Google’s culture is probably unlike any in corporate America, and it’s not because of the ubiquitous lava lamps throughout the company’s headquarters or that the company’s chef used to cook for the Grateful Dead. In the same way Google puts users first when it comes to online service, Google espouses that it puts employees first when it comes to daily life in all of its offices. There is an emphasis on team achievements and pride in individual accomplishments that contribute to the company’s overall success. Ideas are traded, tested, and put into practice with a swiftness that can be dizzying. Observers and employees note that meetings that would take hours elsewhere are frequently little more than a conversation in line for lunch and few walls separate those who write the code from those who write the checks. This highly communicative environment fosters a productivity and camaraderie fueled by the realization that millions of people rely on Google results. Leadership at Google amounts to a deep belief that if you give the proper tools to a group of people who like to make a difference, they will.

Figure 1.5

Leaders inspire the collective action of others toward a shared goal.

Views on Managers Versus Leaders

My definition of a leader…is a man who can persuade people to do what they don’t want to do, or do what they’re too lazy to do, and like it.

Harry S. Truman (1884–1972), 33rd president of the United States

You cannot manage men into battle. You manage things; you lead people.

Grace Hopper (1906–1992), Admiral, U.S. Navy

Managers have subordinates—leaders have followers.

Chester Bernard (1886–1961), former executive and author of Functions of the Executive

The first job of a leader is to define a vision for the organization…Leadership is the capacity to translate vision into reality.

Warren Bennis (1925–), author and leadership scholar

A manager takes people where they want to go. A great leader takes people where they don’t necessarily want to go but ought to.

Rosalynn Carter (1927–), First Lady of the United States, 1977–1981

Entrepreneurship

It’s fitting that this section on entrepreneurship follows the discussion of Google. EntrepreneurshipThe recognition of opportunities (needs, wants, problems, and challenges) and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures. is defined as the recognition of opportunities (needs, wants, problems, and challenges) and the use or creation of resources to implement innovative ideas for new, thoughtfully planned ventures. Perhaps this is obvious, but an entrepreneurA person who engages in the process of entrepreneurship. is a person who engages in the process of entrepreneurship. We describe entrepreneurship as a process because it often involves more than simply coming up with a good idea—someone also has to convert that idea into action. As an example of both, Google’s leaders suggest that its point of distinction “is anticipating needs not yet articulated by our global audience, then meeting them with products and services that set new standards. This constant dissatisfaction with the way things are is ultimately the driving force behind the world’s best search engine.” http://www.google.com/intl/en/corporate/tenthings.html (accessed October 15, 2008).

Entrepreneurs and entrepreneurship are the catalysts for value creation. They identify and create new markets, as well as foster change in existing ones. However, such value creation first requires an opportunity. Indeed, the opportunity-driven nature of entrepreneurship is critical. Opportunities are typically characterized as problems in search of solutions, and the best opportunities are big problems in search of big solutions. “The greater the inconsistencies in existing service and quality, in lead times and in lag times, the greater the vacuums and gaps in information and knowledge, the greater the opportunities.” J. Timmons, The Entrepreneurial Process (New York: McGraw-Hill, 1999), 39. In other words, bigger problems will often mean there will be a bigger market for the product or service that the entrepreneur creates. We hope you can see why the problem-solving, opportunity-seeking nature of entrepreneurship is a fundamental building block for effective principles of management.

Strategy

When an organization has a long-term purpose, articulated in clear goals and objectives, and these goals and objectives can be rolled up into a coherent plan of action, then we would say that the organization has a strategy. It has a good or even great strategy when this plan also takes advantage of unique resources and capabilities to exploit a big and growing external opportunity. StrategyThe central, integrated, externally-oriented concept of how an organization will achieve its objectives. then, is the central, integrated, externally-oriented concept of how an organization will achieve its objectives.D. Hambrick and J. Fredrickson, “Are You Sure You Have a Strategy?” Academy of Management Executive 15, no. 4 (2001): 2. Strategic managementWhat an organization does to achieve its mission and vision. is the body of knowledge that answers questions about the development and implementation of good strategies.

Strategic management is important to all organizations because, when correctly formulated and communicated, strategy provides leaders and employees with a clear set of guidelines for their daily actions. This is why strategy is so critical to the principles of management you are learning about. Simply put, strategy is about making choices: What do I do today? What shouldn’t I be doing? What should my organization be doing? What should it stop doing?

Synchronizing Leadership, Entrepreneurship, and Strategy

You know that leadership, entrepreneurship, and strategy are the inspiration for important, valuable, and useful principles of management. Now you will want to understand how they might relate to one another. In terms of principles of management, you can think of leadership, entrepreneurship, and strategic management as answering questions about “who,” “what,” and “how.” Leadership helps you understand who helps lead the organization forward and what the critical characteristics of good leadership might be. Entrepreneurial firms and entrepreneurs in general are fanatical about identifying opportunities and solving problems—for any organization, entrepreneurship answers big questions about “what” an organization’s purpose might be. Finally, strategic management aims to make sure that the right choices are made—specifically, that a good strategy is in place—to exploit those big opportunities.

One way to see how leadership, entrepreneurship, and strategy come together for an organization—and for you—is through a recent (disguised) job posting from Craigslist. Look at the ideal candidate characteristics identified in the Help Wanted ad—you don’t have to look very closely to see that if you happen to be a recent business undergrad, then the organization depicted in the ad is looking for you. The posting identifies a number of areas of functional expertise for the target candidate. You can imagine that this new position is pretty critical for the success of the business. For that reason, we hope you are not surprised to see that, beyond functional expertise, this business seeks someone with leadership, entrepreneurial, and strategic orientation and skills. Now you have a better idea of what those key principles of management involve.

Help Wanted—Chief of Staff

We’re hiring a chief of staff to bring some order to the mayhem of our firm’s growth. You will touch everything at the company, from finance to sales, marketing to operations, recruiting to human resources, accounting to investor relations. You will report directly to the CEO.

Here’s what you’re going to be asked to do across a range of functional areas in the first ninety days, before your job evolves into a whole new set of responsibilities:

Marketing

  • Leverage our existing customer base using best-in-class direct marketing campaigns via e-mail, phone, Web, and print or mail communications.
  • Convert our current customer spreadsheet and database into a highly functional, lean customer relationship management (CRM) system—we need to build the infrastructure to service and reach out to customers for multiple users.
  • Be great at customer service personally—excelling in person and on the phone, and you will help us build a Ninja certification system for our employees and partners to be like you.
  • Build our Web-enabled direct sales force, requiring a lot of strategic work, sales-force incentive design and experimentation, and rollout of Web features to support the direct channel.

Sales

  • Be great at demonstrating our product in the showroom, as well as at your residence and in the field—plan to be one of the top sales reps on the team (and earn incremental variable compensation for your efforts).

Finance and Accounting

  • Build our financial and accounting structures and processes, take over QuickBooks, manage our team of accountants, hire additional resources as needed, and get that profit and loss statement (P&L) rocking.
  • Figure out when we should pay our bills and manage team members to get things paid on time and manage our working capital effectively.
  • Track our actual revenues and expenses against your own projection—you will be building and running our financial model.

Operations

  • We are building leading-edge capabilities on returns, exchanges, and shipping—you will help guide strategic thinking on operational solutions and will implement them with our operations manager.
  • We are looking for new headquarters, you may help identify, build out, and launch.

HR and Recruiting

  • We are recruiting a team of interns—you will take the lead on the program, and many or all of them will report to you; you will be an ombudsman of sorts for our summer program.
  • The company has a host of HR needs that are currently handled by the CEO and third parties; you will take over many of these.

Production and Product Development

  • The company is actively recruiting a production assistant/manager—in the meanwhile, there are a number of Web-facing and vendor-facing activities you will pitch in on.

The Ideal Candidate Is…

  • a few years out of college but is at least two or three years away from going to business or other graduate school;
  • charismatic and is instantly likeable to a wide variety of people, driven by sparkling wit, a high degree of extraversion, and a balanced mix of self-confidence and humility;
  • able to read people quickly and knows how to treat people accordingly;
  • naturally compassionate and demonstrates strong empathy, easily thinking of the world from the perspective of another person;
  • an active listener and leaves people with the sense that they are well heard;
  • exceptionally detail-oriented and has a memory like a steel trap—nothing falls through the cracks;
  • razor sharp analytically, aced the math section of their SAT test, and excels at analyzing and solving problems;
  • a perfectionist and keeps things in order with ease.

Key Takeaway

The principles of management are drawn from three specific areas—leadership, entrepreneurship, and strategic management. You learned that leadership helps you understand who helps lead the organization forward and what the critical characteristics of good leadership might be. Entrepreneurs are fanatical about identifying opportunities and solving problems—for any organization, entrepreneurship answers big questions about “what” an organization’s purpose might be. Finally, as you’ve already learned, strategic management aims to make sure that the right choices are made—specifically, that a good strategy is in place—to exploit those big opportunities.

Exercises

  1. How do you define leadership, and who would you identify as a great leader?
  2. What is entrepreneurship?
  3. What is strategy?
  4. What roles do leadership, entrepreneurship, and strategy play in good principles of management?