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Abilities for Strategis Leadership and its Application

Executive Summary

Recent years has witnessed the huge changes of economic development. Especially during the age of economic globalization and integration, how to get strong competitive advantages has become the popular topic for most companies. Among these topics, one of the compelling topic is about top leaders’ strategic leadership, because whether it is efficient or not has profound effect on the development of company. For having a more accurate assessment of strategic leadership, this paper summarizes five aspects based on McKinsey’s 7s model about strategic management. Since Jeff Bezos, the CEO of Amazon.com, was ranked as the best-performing CEO in the world (Ignatius, 2014), the paper will take Jeff Bezos as an example and explore Bezos’s strategic leadership from integrated five aspects: the ability to create organizational vision, organizational structure, strategic path, the ability to balance stakeholders’ interests and the ability to design the sustainable development for the company. According to the examples and professionals’ reviews, Bezos is proved to have strong strategic leadership because he has excellent ability in terms of the five aspects. For example, Amazon’s organizational vision given by Bezos has positive effect on the company in the long term. Based on the created vision, Bezos designs flexible and effective organizational structure to achieve the vision. The strategic path created by Bezos can cost less time and cost to achieve the organizational vision. With respect of stakeholders’ interests, Bezos focuses on the long-term development and chooses to pay attention on customers’ benefits first. Although Amazon generates thin revenue at the end of most years, the company will have strong potential to experience a sustainable development in the future. In conclusion, Bezos sets a typical example for most top leaders about what the effective strategic leadership looks like. In addition, how to create and achieve an appropriate organizational vision deserves all top managers to ponder.

Abstract

The purpose of this paper is to summarize typical characteristics of effective strategic leadership and explore the application of strategic leadership. Since Jeff Bezos, the CEO of Amazon, is the best-performing CEO in the world (Ignatius, 2014), this paper will take Bezos as an example and explain what the effective strategic leadership looks like. Based on McKinsey’s 7s Model of strategic management, the paper will analyze the effective strategic leadership from five integrated aspects. Each aspect represents an ability to form the effective strategic leadership. The five aspects are the ability to create and achieve the vision, design organizational structure, optimize strategic path, balance the stakeholders’ interests, and make sustainable development for the company. After analyzing the Bezos’s strategic leadership from the five aspects based on several examples, the author hopes top leaders can create their own type of strategic leadership.

Key words: Effective strategic leadership, Jeff Bezos, organizational vision

Table of Contents

Executive Summary

Abstract

Table of Contents

List of Figures

Introduction

Methology

Organizational Vision

Organizational Structure

Strategic Path

Balance of Interests

Sustainable Development

Conclusion

References

List of Figures

Figure 1 McKinsey’s 7s Model of strategic management.

Introduction

According to Strategic Management (2015), strategic leadership refers to the ability to “anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary”. As people know, different strategy brings different strategic changes due to different condition. In general, strategic leadership is related to the entire organization rather than a single department. If the business of the organization spreads out across the globe, the uncertainty of strategic changes will be enlarged because of the global economy’s complexity. At this time, it is meaningful for the organization’s top leader to learn effective strategic leadership, because the leader should have strategic foresight for future, and make effective effect on other members’ behaviors, thoughts, and decisions in organization. However, finding and generating effective leadership is not a simple task. It is sensible for leaders to summarize and improve common characteristics of effective strategic leadership from the successful leader. Take Jeff Bezos and his Amazon Empire as an example. As people know, Bezos has been the richest person in the world since 2017. He is the first person who has “a net worth surpassing $150 billion in the 3 decades that Forbes has tracked the richest Americans” (Forbes, 2018). Under Bezos’s charismatic leadership, Amazon.com has become “the largest Internet retailer in the world” now, which is diversified to sell furniture, food, jewelry, electronics and so on. In fact, Amazon.com was founded just as an online bookstore in 1994. Obviously, one of the most crucial reason of Amazon’s success is Jeff Bezos’s effectively strategic leadership.

 

Methology

Based on McKinsey’s 7s model which is introduced by the famous consultant company McKinsey, whether the company’s strategic management generated by strategic leadership is effective is mainly reflected from 7 areas: strategy, structure, systems, shared values, style, staff and skills model (Mohammad, 2015).

Figure 1 McKinsey’s 7s Model of strategic management. Adapted from “Analyzing Organizational Structure Based on 7s Model of McKinsey,” (2015). Global Journal of Management and Business Research: An Administration and Management. Retrieved from https://pdfs.semanticscholar.org/9fd1/4d415ed96b1dcafa9d84ddde97ecabe5dbda.pdf

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The core of the strategic management is shared values which gives the right direction of development in long term for the organization. Strategy is adjusted periodically due to the changes in external and internal condition. Generally, strategy can be broadly defined as strategic objective and strategic path. If the company wants to achieve the finally strategic objective, it is better to divide the objective into several small goals first, and then gradually achieve each small goal. Different goals at distinct levels or in diverse types can form different structure. After establishing strategic structure, organization can define which skills and what kind of staff are needed to achieve the final objective. Next, the main responsibility of strategic management is to control the operating direction and add incentives, which will generate organizational culture. During the process of designing and implementing strategy, organization will develop a specific organizational system which is composed of different terms summarized by the experience of success and failure. Although system can improve the efficiency of management in a short-term period, it might also cause a deactivation procedure in the long term. Thus, the primary responsibility of strategic leaders is to design, operate and optimize the strategic system. Correspondingly, strategic leadership is the ability to design, operate and optimize the strategic system.

Through the analysis of McKinsey’s 7s model, the strategic leaders should have the following essential abilities: the ability to construct and develop organizational vision, the ability to create organizational structure and rationally allocate strategic resource for the organizational vision, the ability to optimize strategic path to achieve the company’s vision, the ability to balance different groups’ benefits to adapt to the changing condition, and the ability to help company have a sustainable development and sustain superior competitive performance.

Organizational Vision

The primary condition of getting effective leadership is having ability to create appropriate organizational vision, because an ideal vision is the foundation of the development of an organization and it can give an ideal description of the organization and clearly indicate the company’s future. According to Smith (2016), mission is to answer the question “Why do we exist?” and vision is to answer the question “What will the future look like as we fulfill our mission? What will be different?”.

When Amazon.com was founded in 1995, Bezos defined Amazon’s vision as “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices” (Amazon, n. d.). Although Amazon was just a small online retailer at the beginning and the primary operation of Amazon was only sold books at that time, Bezos never changed Amazon’s vision statement. In fact, it is precisely because of paying attention on customers, Amazon has become the largest Internet retailer in the world (Wikipedia, n. d.). Amazon has able to diversify its products such as selling media, consumer electronics, groceries, and provide diverse services which include “offering compute power, database storage, content delivery” (Amazon, n. d.). Customers can find almost everything that they want on Amazon website. In addition, obsessing with customer experience also places Amazon “at or near the top of the University of Michigan’s annual retail customer satisfaction survey” (Blazek, K., 2016). Forbes writer George Anders states that “Bezos is proving the potency of another model: coddling his 164 million customer, not his 56,000 employees” and that’s Bezos’s “No. 1 Leadership Secret” (Blazek, K., 2016).

Certainly, top leaders also can improve their abilities to develop organizational vision. For example, creating an effective vision should first focus on the values of individuals, organizational members and the whole organization. Then, top leaders gradually find and propose the core value of the organization and prompt it to become the basic principle of organizational development. In the meantime, leaders should unswervingly carry out the basic principle, create related organizational culture and achieve sustainable development in the future.

Organizational Structure

When a leader has confirmed the organization’s vision, the next step of developing valid strategic leadership is cultivating ability to correctly understand and take advantage of organizational structure and resource. For instance, based on the defined vision, the organization will assess all businesses to find its capabilities and create a priority for all businesses. The most competitive business will be paid more attention than other less competitive businesses for the company. It is possible that the company will integrate the first two competitive businesses to become the core business, which is to dramatically increase the company’s competitive advantages in the same industry. Also, the business with high priority should be allocated to more resources.

In terms of Amazon, Bezos’s innovative strategic leadership has huge effect on the company’s organizational structure. To achieve the vision of providing customers anything they want, Amazon must establish an efficient supply chain for customers. That will increase Amazon’s burden to operate, delivery and monitor its numerous products. It is also possible that Amazon will therefore reduce the customers satisfaction. However, Amazon becomes more efficient and flexible due to Bezos’ leadership. When it comes to Amazon, people tend to talk about Amazon’s “virtuous circle diagram – more volume, lower costs, lower prices, more customers and so more volume” (Evans, B., 2017). Differentiated with other company, Bezos limits the size of each team to complete project. Bezos thought that “every internal team should be small enough that it can be fed with two pizzas”, because a smaller team spends less time on “managing timetables and keeping people up to date, and more time doing what needs to be done” (Hern, A., 2018). Simultaneously, this optimized structure also has strong flexibility and increases the efficiency of supply chain. For example, employees are entitled to add new product line without having additional reports, meetings and process, which can save more time and cost. Thus, structural advantages of small teams can be multiplied in Amazon. Benedict Evans who worked in a venture capital firm concludes that that’s what causes Amazon to become “a machine that makes the machine” (Evans, B., 2017).

Strategic Path

How to design and optimize the strategic path to achieve organizational vision is also an essential ability to boost the strategic leadership for top leaders. As people know, distinct types of organizations have widely divergent strategic path. There are no two organizations that have the totally same strategy path. In terms of leaders, they are required to promptly update their knowledge, broaden their horizon and create strategy based on the changes of economic environment. With the growing trends toward economic globalization, organizations are confronted with more opportunities and challenges. If top leaders can adapt to the new economic environment, take advantage of innovative technology to get more information, and develop pluralistic strategy to combine different strategic advantages, the organization will have more possibility to succeed.

Bezos sets a good example in this respect. To become the “most customer-centric company”, Bezos decided to become the “largest bookstore on the planet” first (Wiki, n. d.). Considering the current competitive environment, Bezos adapted “a large-scale expansion strategy to exchange large losses for business scale” (Wiki, n. d.). Although it is difficult to earn more revenue at the beginning, fast running helped Amazon find a place in book selling industry. For example, Amazon was founded in 1995, but the revenue of Amazon in 1996 was 16 million (Pandey, E., n. d.). In 1997, Bezos started to develop Amazon’s that is not limited to sell books (Wiki, n. d.). Compared to physical stores, Bezos found that online retail could provide more choices of products and Internet just started to become popular at that time. Since it is a fast-cycle market for retail industry and new entrants can quickly imitate the operating model, Bezos decided to rapidly form the economies of scale by integrating e-commerce and expanding the category of products on website to increase the barrier for new entrants and other small competitors. Now, the fact proves that Bezos made a correct decision about strategic path. An effective strategic path should consider numerous factors such as economic factor and technological factor.

Balance of Interests

Top leaders who have strategic leadership usually can maintain a healthy development for an organization. An organization is a community of interest in nature. Thus, leaders should first consider stakeholders’ interests, especially the interests from crucial stakeholders, before deciding. In other words, the positive development of an organization requires top leaders to have ability to find a balance point that not only can maximize crucial stakeholders’ benefits but also create new opportunities of development for the organization. Generally, there have been two school of thought for for-profit company to choose: shareholder capitalism and stakeholder capitalism (Gobry, P., 2017). According to Gobry (2017), shareholder capitalism refers to maximize shareholder’s value and stakeholder capitalism is defined to “balance the interests of their various stakeholders”.

Differentiated with these two thoughts, Bezos creates a unique thought which is only focus on one thing: customers. Summarized from each letter Bezos wrote to shareholders, he clearly stated that he would pay more attention on customers rather than shareholders, just like the commitment stated in Amazon’s vision. Each new project in Amazon should be started from customers’ point of view. For instance, Bezos always remains an empty chair at the conference table, because he wants to let the attendees know customers are always the most important people in the room (Thompson, 2016). To increase customer satisfaction and attract more customers, Bezos tries to keep the products on Amazon having the least market price. Furthermore, focusing on customers also a way to maximize shareholders’ interests. Although Amazon cannot generate too much profit at the end of each year, shareholders must admit that “Amazon’s stock has been one of the best performing in history” (Gobry, 2017). Also, this benefit will good for shareholders or employees over the long run.

Sustainable Development

As a top leader, he or she cannot just focus on the current development of the organization. Strategic leadership requires top leaders to take a long-term view on the development of an organization, although it is possible that the specific strategy will bring much benefit in the short term. It might cause a harmful influence on the subsequent transactions in the future. Take price war as an example. Organization might attract more customers over a brief period due to the lower price of products, however, customers are difficult to be loyal to the organization in the long term. As soon as the price picks up, the organization will lose them again.

Since Amazon keeps the lower price of most their products, the company in fact earns less profit in the end of each year. Under this circumstance, people may be curious the reason why Amazon loses money in most years but becomes the largest Internet retailer in the world. Bezos had provided the answer to this question in the letter he wrote to other Amazon’s shareholders. He said that Amazon’s ultimate financial measure, and the one Amazon “want to drive over the long-term, is free cash flow per share” (Amazon’s annual report, 2004). Theoretically speaking, “net income is the end game for any for-profit company” in the long run, but “operating cash flow is often viewed as a better ongoing measure of a company’s financial health” (Kokemuller, n. d.). Free cash flow is “the main driver of the sustainability and growth of dividends” (Strauss, 2016). According to Harvard Business Review (2014), Bezos was regarded to invent a new philosophy for running a business. Ignatius reviewed that “even as Amazon grows, he’s reinvesting to make it even bigger” (2014). As people see, although Amazon lays emphasis on customers, shareholders and other employees do not therefore lose their benefit. Bezos’s ability to focus on the long-term development of the company help Amazon be more successful.

Conclusion

Strategic leadership is the essential ability for each top leader. An effective strategic leadership can help a company create appropriate organizational vision, construct reasonable organizational structure, optimize strategic path, balance the stakeholders’ interests and achieve the sustainable development. In terms of all top leaders, no one can deny that Jeff Bezos, the CEO and shareholder of Amazon, is one of the most prominent top leaders in the world. He experienced and witnessed the huge changes of Amazon, and one of the most crucial reason to the success of Amazon is Bezos’ s unique strategic leadership. Due to Bezos’s management, Amazon has become the largest Internet retailer rather than a small retailer who only sold books in 1995. As far as the development process of Amazon, the company has gradually established a mature strategic system to adapt to changes. Although today’s success of Amazon depends on all stakeholders’ endeavor, people cannot ignore that if Bezos does not set such a clear and far-sighted vision, people may not witness the rise of the giant Amazon. Therefore, creating and promoting an appropriate organizational vision are both the most important abilities of strategic leadership for top leaders. During the inception of the company, organizational vision will give the right direction of the development of company. An effective strategic leadership will also help the company make the correct strategies to achieve the vision in the subsequent development.

References


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