Vision v profit making: when leadership meets strategy

If there was any doubt that CEOs and leaders have a significant impact on the strategy of the firms they run, new research on the success of the Spanish banking sector provides evidence once and for all that they do.

by Notes on globalisation and strategy, IESE
Last Updated: 23 Jul 2013

Research from business school IESE analysed the extraordinary transformation of the sector in the last 20 years and found that the vision of leading banks' CEOs inspired corporate strategy and culture. Their vision was defined by a set of individual beliefs and opinions, derived from experience, knowledge and other professional factors.

Kimio Kase, professor of management, and Pilar García, researcher, identified two main mindsets amongst Spanish banking CEOs: a) the CEO who has a firm idea of what the essence of the company is or should be, and manages accordingly (Proto-Image of the Firm – PIF); b) the CEO who acts according to his knowledge of the business and moves in order to make profits (Profit-Arithmetic – PA).

'PIF' CEOs have an abstract conception of their company and reason in terms of image. Opportunities are seized if they comply with the leader's long-term vision of the firm, whether they lead to short-term profits or not. 'PA' CEOs on the other hand will use fine-tuned business knowledge and technical expertise to determine the value - profitability - of an opportunity in the short-term.

This distinction does not imply that PIF CEOs are unaware of short-term goals, nor that PA types don't understand the importance of corporate image. Rather it highlights different approaches which suit different situations, and can produce excellent results given the right context.

Amongst Spanish banks, it emerged, the PA mentality dominates, and accounts for a large part the success of Spanish financial institutions. The economic conditions in the 1980s, combined with the deregulation of the banking sector, spurred an intense dynamic of change, much more suitable to short-term goals and profits than long-term vision.

But if conditions stabilise, PIF-type decision-making will become more appropriate, and a combination of PIF CEO and PA chief operating officer might be an even better combination.

When the CEO sets the company apart
Kimio Kase and Pilar García
Notes on globalisation and strategy, IESE

Review by Emilie Filou

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