1.2 Leadership, Entrepreneurship, and Strategy

LeadershipThe act of influencing others toward a goal. is defined as the social and informal sources of influence individuals use to inspire the actions of others. Leadership involves actions taken to mobilize others to want to work toward a common goal. 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. More than ever before, competition among employers and countries for the best and brightest—coupled with increased labor mobility and the nature of global competition—puts pressure on firms to invest in present and future leadership capabilities.

General Electric exemplifies a corporation with an excellent reputation for developing leaders. In contrast to many companies, GE has always filled the CEO position with individuals who have been developed through their experience with the company. Whereas GE has been around for more than 100 years, another winning firm in terms of leadership—Google—has only been around since 1998. Both firms emphasize leadership in terms of being exceptional at developing people. Google has topped Fortune magazine’s “100 Best Companies to Work For” list several years in a row. 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. Google’s culture is unique in corporate America, and Google espouses the practice of putting employees first when it comes to daily life in all 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 quickly. 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 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.

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. An entrepreneurA person who engages in the process of entrepreneurship. is a person who engages in the process of entrepreneurship. Entrepreneurship is best understood 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.”

Entrepreneurs and their entrepreneurial activities are the catalysts for much 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.” In other words, bigger problems will often mean there will be a bigger market for the product or service that the entrepreneur creates. The problem-solving, opportunity-seeking nature of entrepreneurship is a fundamental building block for effective principles of management.

Strategy refers to the creation of an organization’s long-term purpose, articulated in clear goals and objectives that can be incorporated into a coherent plan of action. An organization has a good or even great strategy when this plan takes advantage of unique resources and capabilities that results in a firm that can perform well for years or even decades. StrategyThe central, integrated, externally-oriented concept of how an organization will achieve its objectives. refers to the central, integrated, externally-oriented concept of how an organization will achieve its objectives. Strategic managementExamines how actions and events involving top executives, firms, and industries influence a firm’s success or failure. is the body of knowledge that answers questions surrounding how firms differ, and how those differences impact firm performance over time.

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. An effective strategy helps managers and individuals answer difficult choices such as: What do I do today? What should my organization be doing? What should it stop doing? One example of a successful strategic decision is found in the case of Netflix. Threatened by the cable and streaming success of HBO and physical distribution and cost of Redbox, Netflix decided to engage in a major strategic change to create their own original content. Their gamble paid off with hits such as House of Cards, Daredevil, Orange is the New Black, and Unbreakable Kimmy Schmidt. So far, their decision to engage in a strategy of developing creative content rather than continuing to simply rely on distribution of existing movie and television offerings represents a major strategic change in direction that has paid off for Netflix and their subscribers.

Leadership, entrepreneurship, and strategy are the inspiration for important, valuable, and useful principles of management that relate to each other in meaningful ways. 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 using the critical characteristics of good leadership. 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. 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.