People in Strategic Management

Sydney FinkelsteinSteven Roth Professor of Management Associate Dean for Executive Education

Tuck School of Business at Dartmouth College

sydney.finkelstein@dartmouth.edutwitter: @sydfinkelstein

The Sales Manager, the Doctor, and the CEO

A Simple Model of Strategy

StrategyStrategy ImplementationImplementation PerformancePerformanceContextContext

A Simple Model of Strategy: Now with the Strategists

StrategyStrategy ImplementationImplementation PerformancePerformance

CEOsTMTs

Boards of DirectorsGeneral Managers

CEOsTMTs

Boards of DirectorsGeneral Managers

ContextContext

Thinking you’re right, when you are very wrongThinking you’re right, when you are very wrong

Adaptation precludes adaptabilityAdaptation precludes adaptability

Intellectual honesty is an underappreciated capability for CEOs and TMTs

Intellectual honesty is an underappreciated capability for CEOs and TMTs

Three Points on How and Why People are Central to Research and Practice

in Strategic Management

1. Lessons from history.

1. Illustrations of some interesting ideas about people in strategic management.

1. Stories of people in action, or inaction.

First, Some History

General Petraeus Has Company

• Mark Hurd, former CEO, H-P• Brian Dunn, former CEO, Best Buy• Gary Friedman, former CEO, Restoration

Hardware• Kenneth Melani, former CEO, Highmark• Chris Kubasik, former President and incoming

CEO, Lockheed Martin

Survey of "Friends and Family"• Identify one or two articles on the general topic

of "people in strategic management" that you have found particularly interesting.

• Interesting = valuable, insightful, helpful for your own research.

• Response rate = 60%• # Respondents = 15• Most Common Responses– # people citing books: 12– # people citing articles: 10– # people citing both: 7

Chester Barnard

Chester Barnard: The Functions of the Executive (1938)

• Cited > 11,000x

• Organizations die young• Effectiveness: accomplish goals• Efficiency: satisfy motives of individuals

• Zone of Indifference: Subordinates enable, rather than submit to, executive authority

• Therefore, subordinates must be induced to cooperate• incentives and persuasion

• Organizations are cooperative systems• Managers must create a common purpose

Garbage Trucks, Oracle, and Agency Theory

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Highly non-linear compensation

Larkin, Ian. “The Cost of High-Powered Incentive Systems: Gaming Behavior in Enterprise Software Sales,” Working Paper, 2006.

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WeekNotes: Week 14 is the last business day of the quarter. There were 1,924 deals closed on the last business day; these were deliberately cut off to emphasize deal flow in the other periods. Week 13 is the 4 business days preceding the last business day of the quarter.

Larkin, Ian. “The Cost of High-Powered Incentive Systems: Gaming Behavior in Enterprise Software Sales,” Working Paper, 2006.

Herbert Simon

Herbert Simon: Administrative Behavior (1947)

• Cited > 15,000x

• “Administrative Man” vs.” Economic Man”• People (managers) satisfice, not optimize• Bounded rationality

• “Decision-making is the heart of administration; the vocabulary of administrative theory must be derived from the logic and psychology of human choice.”

• “Of course I built squarely on Barnard, and have always felt deeply indebted to him.”

Philip Selznick

Selznick: Leadership in Administration (1957)

• Cited > 5,000x

• What do top managers do?• Mission: Why does an organization exist?• "Distinctive Competence": What is unique, and

valuable, about an organization?• Institutional Leadership

• Organizations as Institutions: Survival requires more than efficiency; it requires creation of administrative ideology that enables adaptation. Survival requires legitimacy.

Managers are central, but limited• Organizations cannot survive without managers– Create common purpose– Create legitimacy– Create balance of inducements and contributions

• But managerial discretion is constrained– Environment, organization and individual

• Managers can create value, and destroy value• Decision-making is core to managerial behavior– Bounded rationality– Cognitive limits and deficits– Emotions– Personal interests

CEOs and Executives

• Narcissism and other fine personality attributes• Kets de Vries and Miller (1984); Hayward and Hambrick (1997);

Chatterjee and Hambrick (2007) – Prominence of CEO’s photo in firm’s annual report– Prevalence of CEO’s name in firm’s press releases– Relative use of “I” vs. “We” in interviews– Relative compensation

• The power of experience• Hambrick and Mason (1984)

• The risk of experience• The case of Captain Sullenberger

Captain Chesley Sullenberger

US Airways Flight 1549

US Airways Flight 1549

Top Management Teams

• Power in top management teams• The dead end of research on heterogeneity

and homogeneity• Team of rivals (on Lincoln) – Doris Kearns

Goodwin• Fragmentation• Executive succession

Boards of Directors• What is board vigilance?– The problem of “potential” vigilance vs. “actual”

vigilance– Boards are groups of individuals

• What about advice and counsel? (Westphal et al.) – Social ties with board promote collaboration– External social networks used for confirmatory

counsel when firm performance is low– Board monitoring increases CEO advice-seeking from

non-confirmatory networks– Moves toward greater board vigilance increase CEO

ingratiation and persuasion behaviors• Boards and executive compensation

Can an Organization Survive Forever?

• Tiny Fey, 30 Rock • Larry David, Seinfeld• Albert Brooks, Looking for Comedy • Billy Crystal, 76th Academy of Awards• Adam Sandler, The Waterboy• Mike Judge, King of the Hill• Greg Daniels, The Simpsons• Rich Blomquist, Daily Show with Jon Stewart • John Bowman, Murphy Brown• Vanessa Middleton, Cosby• Dan Aykroyd, Blues Brothers• Greg Daniels, The Office

All worked for Lorne Michaels, SNL

Leading Writers/Producers in Comedy

Leading Executives in the Casual Restaurant Industry

• Richard Rivera, CEO, Longhorn Steaks• Tim Gannon, SVP, Outback• Rick Federico, CEO, P. F. Chang’s • Wally Doolin, CEO, Buca di Beppo • Mike Jenkins, Vicorp• Jeff Shearer, Boston Market• Bob Bashan, Outback• Hal Smith, Chi-Chi’s• George Biel, Houston’s Restaurants• Richard Frank, Chuck E. Cheese• Lou Neeb, Mexican Restaurants, Inc.

All worked for Norman Brinker

Some of the Super-Spawners

Norman Brinker

People in Strategic Management

Sydney FinkelsteinSteven Roth Professor of Management Associate Dean for Executive Education

Tuck School of Business at Dartmouth College

sydney.finkelstein@dartmouth.edutwitter: @sydfinkelstein