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W. Glenn Rowe
The University of Western Ontario
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Creating wealth in
organizations: The role of
strategic leadership
W. Glenn Rowe
Executive Overview
Wealth creation in entrepreneurial and established orgcrnfzafion.i is a complex,
challenging task in today's global and technologically advancing business
environment. Strategic leadership enhances the wealth-creation process in
enfrepreneuriai and established organizations, and leads to above-average returns.
On the other hand, managerial leadership will likely lead to average returns at best,
but is most likely to achieve below-average returns and destroy wealth. Organizations
led by visionaries who are not properly supported by strong managerial leadership
may destroy wealth even more quickly than organizations led by managerial leaders.
This article defines strategic leadership, differentiates among the concepts of
strategic, visionary, and managerial leadership, and examines the differential links
between the three types of leadership and wealth creation. When organizations
restore strategic control and allow the development of a critical mass of strategic
leaders, these leaders will be a source of above-average returns. The result will be
wealth creation for the employees, customers, suppliers, and shareholders of
entrepreneurial and established organizations.
Without effective strategic leadership, the but are still impressive, with sales and profits
probability that a firm can achieve superior or increasing 29 percent and 50 percent, respec-
even satisfactory performance when confront- tively, from 1998 to 1999, Schultz's philosophies
ing the challenges of the global economy will exemplify those of a strategic leader. His number
be greatly reduced. one priority is to take care of his employees,
^R. Duane Ireland and Michael A. Hitt' since they are responsible for communicating
passion to Starbucks' customers. He believes
As the entrepreneurial CEO of Starbucks, that if his employees do this well, Starbucks will
Howard Schultz's strategic choices have com- accomplish its mission of educating consumers
pletely changed the gourmet coffee market in everywhere about fine coffee and creating an
which Starbucks operates.^ When he bought atmosphere that will draw people into their
Starbucks from its original owners in 1987. there stores and "give them a sense of wonder and
were six stores and 100 employees. By 1996, Star- romance in the midst of a harried life."^ In addi-
bucks had grown to 1,300 stores and 25,000 em- tion, the firm will provide long-term growth in
ployees, and was operating in North America shareholder value. From 1992, the year Starbucks
and Japan. By the end of fiscal year 1999, Star- went public, to 1998, its market value added
bucks had 2,498 stores (363 were licensed stores (MVA) grew from $0.41 billion to $4.26 billion—an
and the rest company-owned) and 35,620 employ- increase in shareholder wealth of $3.85 billion.'*
ees, with operations expanded into Canada and Such growth exemplifies a firm with a strategic
the United Kingdom. Sales and profits grew by leader.
more than 50 percent per year for six consecutive Strategic leadership is the ability to influence oth-
years, and stock price rose tenfold from 1992 to ers to voluntarily make day-to-day decisions that
1997. These growth rates have slowed since 1997, enhance the long-ierm .viability of the organization.
81
82 Academy of Managemenl Executive February
while at the same time maintaining its short-term Bill Gates^ and Jack Welch are strategic leaders, and
financial stability. Visionary leadership is future- that the late Robert Goizueta'^ was a strategic leader.
oriented, concerned with risk-taking, and visionary I am not arguing that because they had stunning
leaders are not dependent on their organizations for MVAs they are strategic leaders. I hope to demon-
their sense of who they are. Under visionary leaders, strate that they had stunning MVAs because they
organizational control is maintained through social- were strategic leaders. The continued destruction of
ization and the sharing of, and compliance with, a shareholder wealth by organizations such as Gen-
commonly held set of norms, values, and shared be- eral Motors (MVA a negative $17.9 billion at the end
liefs. Managerial leadership involves stability and of 1998) and K-Mart (MVA a negative $1 billion at the
order, and the preservation of the existing order. end of 1998) suggests a lack of strategic leadership
Managerial leaders are more comfortable handling and, at best, the presence of only managerial lead-
day-to-day activities, and are short-term oriented. ership. The lack of strategic leadership and the prev-
(See Table 1.) alence of managerial leadership is one of the most
The stunning MVAs^ produced by Microsoft ($420 important issues facing organizations today. Unless
billion), GE ($360 billion) and Coca-Cola ($169 billion) board members, CEOs, and top management teams
from their inception until the end of 1998 suggest that understand this issue, and the differences among
Table 1
Strategic, Visionary, and Managerial Leadership
Strategic Leaders
V isynergistic combination of managerial and visionary leadership
y lemphasis on ethical behavior and value-based decisions
, oversee operating (day-to-day) and strategic (long-term) responsibilities
V formulate and implement strategies for immediate impact and preservation of long-term goals to enhance organizational
survival, growth, and long-term viability
y have strong, positive expectations of the performance they expect from their superiors, peers, subordinates, and themselves
y 'use strategic controls and financial controls, with emphasis on strategic controls
y use, and interchange, tacit and explicit knowledge on individual and organizational levels
V use linear and nonlinear thinking patterns
y believe in strategic choice, that is, their choices make a difference in their organizations and environment
managerial, visionary, and strategic leaders, the well as short-term financial stability? Relying on
problem will persist. managers and employees to voluntarily make de-
Leadership is a very broad topic, and has a cisions that benefit the organization means that
somewhat tarnished reputation in some constitu- senior management will not have to expend as
encies.^ However, some experts believe that lead- much effort on monitoring and controlling employ-
ers make a difference. Franco Bernabe, the CEO of ees, and will have more capacity to examine what
Eni, Italy's large integrated energy company, stat- the organization needs to do in both the short and
ed; "And I realized that leaders could make a dif- long terms. On the other hand, if managers and
ference. They could transform situations that employees do know the strategic direction of the
seemed impossible." And researchers Sayan Chat- organization, they may inadvertently make deci-
terjee, Michael Lubatkin, and William Schulze ar- sions that damage the organization. In addition, if
gue: "Our field's theory, research, and pedagogy they do know the strategic direction and want to do
are based on the intuition that management mat- damage to the organization in some small way,
ters: firms, through calculated actions, can protect they may voluntarily make decisions that hurt the
their earnings from market forces in ways that are organization. This requires a greater effort at mon-
valuable to investors."^ I believe that the type of itoring and controlling and less effort on what
leadership that can do this best is strategic lead- needs to be done for short- and long-term viability.
ership. Ireland and Hitt'° define strategic leader- Influencing employees to voluntarily make deci-
ship as the "ability to anticipate, envision, main- sions that enhance the organization is the most
tain flexibility, think strategically, and work with important part of strategic leadership. Tichy writes
others to initiate changes that will create a viable that "when you can't control, dictate or monitor, the
future for the organization." This article presents a only thing you can do is trust. And that means
different definition of strategic leadership. In ad- leaders have to be sure that the people they are
dition, it differentiates among the concepts of man- trusting have values that are going to elicit the
agerial leadership, visionary leadership, and stra- decisions and actions that they
tegic leadership. Further, some constraints on
strategic leadership are discussed. Finally, the im-
pact of managerial, visionary, and strategic lead-
ership on wealth creation is presented.
fnfluencing employees to voluntarily
make decisions that enhance the
organization is the most important part of
Strategic Leadership Defined strategic leadership.
The Greek word strategos means a general in com-
mand of an army. Strategy^the psychological and The definition of strategic leadership presented
behavioral skills with which a general functions— above presumes an ability to influence subordi-
came to mean the art of the general. By 450 B.C., the nates, peers, and superiors. It also presumes that
definition had evolved to include managerial the leader understands the emergent strategy pro-
skills, such as administration, leadership, oratory, cess that some authors consider more important
and power. And by 330 B.C., the word meant the than the intended strategic planning process for
ability to employ forces to defeat opposing forces organizational performance.'^ The decisions vol-
and to develop a unified system of global gover- untarily made and the actions voluntarily taken by
nance." In this article, strategic leadership is de- managers and employees on a day-to-day basis
fined as the ability to influence others to voluntar- eventually determine what strategy emerges. Stra-
ily make day-to-day decisions that enhance the tegic leaders understand and use this process to
long-term viability of the organization, while ensure the future viability of their organizations.
maintaining its short-term financial stability. Strategic leadership presumes a shared vision of
This definition is different from Ireland and Hitt's what an organization is to be, GO that the day-to-
in that it explicitly includes the concept of volun- day decision-making, or emergent strategy pro-
tary decision-making, and focuses on the present cess, is consistent with this vision. It presumes
as well as tho future. Managers and employees agreement among corporate and divisional senior
make decisions every day as they interact with managers on the opportunities that can be taken
each other and stakeholders, especially customers, advantage of, and the threats that can be neutral-
suppliers, and the communities in which they op- ized, given the resources and capabilities of the
erate. Are these decisions in accord with the stra- organization.^^ Strategic leadership presumes vi-
tegic direction of the organization? Will they en- sionary leadership on the part of those with a will-
hance the future viability of the organization as ingness to take risks. It presupposes managerial
84 of Management Executive February
leadership on the part of those with a rational way leaders may lack empathy. They may seek out
of looking at the world. Strategic leadership pre- involvement with others, but will maintain a low
sumes that visionary leadership and managerial level of emotional involvement in these relation-
leadership can coexist, and that strategic leader- ships. Managerial leaders need order, not the
ship synergistically combines the two. It pre- chaos potentially inherent in human relations.
sumes a belief in the ability of strategic leaders to They see themselves as regulators and conserva-
change their organizations so that the environment tors of the current state of their organization's af-
in which their organizations operate will also fairs, and personally identify with this existing
change.'^ In the next two sections, the concepts of order. Strengthening and perpetuating their exist-
managerial and visionary leadership are dis- ing institutions enhances the self-worth of these
cussed. A major portion of this discussion is based managers. For example, if people feel that they are
on a classic article by Zaleznik.'^ members of an institution and contributing to that
institution's well-being, they may consider that a
mission in life has been fulfilled and may feel
Managerial Leadership rewarded for having measured up to an ideal. This
reward may far surpass material rewards and ful-
Most managers exercise managerial leadership. fill desires for personal credibility that is achieved
For several reasons, organizations implicitly and by identifying with existing organizations. If this is
explicitly train their people to be managerial true, managerial leaders in institutions in which
leaders. Diversified business organizations are they have devoted their careers may feel as if they
more likely to do this. Governments train their are being ripped apart after the organizations are
people to be managerial leaders even more than restructured.20
do business organizations, the result of public
accountability for every penny spent, the diver- Managerial leaders influence only the actions
sification of government, the political context of and decisions of those with whom they work.^'
reelections, and, for most governments, an enor- They are involved in situations and contexts char-
mous debt load.''^ These factors lead to the acteristic of day-to-day activities'^ and are con-
imposition of a financial control system that cerned with, and more comfortable in, functional
enhances the use of managerial leadership areas of responsibilities. They possess more exper-
and curtails strategic and visionary leadership. tise about their functional areas.^^ Managerial
There are people who can exercise strategic and leaders may make decisions that are not subject to
visionary leadership in such organizations, but value-based constraints.^'' This does not mean that
the nature of the organizations discourages the they are not moral, ethical people, but that, as
exercise of such leadership. managers, they may not include values in their
decision-making because of such pressures as be-
Managerial leaders adopt impersonal, passive ing financially controlled. These leaders engage
attitudes toward goals. Goals arise out of necessi- in, and support, short-term, least-cost behavior ac-
ties rather than desires and dreams, are based on tivities, to enhance financial performance figures
where the organization has come from, and are in the short term.^^ They focus on managing the
deeply embedded in the history and culture of the exchange and combination of explicit knowledge
organization.'^ Jack Welch and the late Roberto and on ensuring compliance to standard operating
Goizueta argued that there has to be insensitivity procedures.^^ They use a linear thought process.
to the past.'^ Managerial leaders are sensitive to Finally, managerial leaders believe in deter-
the past. minism—what they do is determined by their or-
ganization's internal and external environments.^''
Managerial leadership is similar in some ways to
Managerial leaders are sensitive to the transactional leadership.^^
past.
It needs to be emphasized that being a mana-
gerial leader is not bad and that organizations
Managerial leaders view work as a process that need managerial leadership. However, it is pos-
enables some combination of ideas and people to sible that too many organizations are led by
interact to establish strategies and make deci- managerial leaders and that managerial leaders
sions. In this process, they negotiate, bargain, and do not create wealth. They will at best maintain
use rewards, punishment, or other forms of coer- wealth that has been created, and may even be a
cion. Managerial leaders relate to people accord- source of wealth-destruction in the long term if
ing to their roles in the decision-making process. they are the predominant leadership type in their
They relate to how things get done. Managerial organization.
2001 Rowe 85
DIA
Visionary Neither Managerial
Leadership <r Leadership
FIGURE 1
Zaleznik's Single Continuum of Visionary and Managerial Leadership
Visionary Neither
leadership visionary nor
capability managerial
Managerial leader
Low
Low High
types will create the most wealth for their organi- istence. They guide the organizational knowledge-
zations. (See Figure 3.) creation process by encouraging the organization's
Strategic leaders emphasize ethical behavior.'*'' capability to combine individual, group, and orga-
They are very rare in most organizations.''^ They nizational tacit and explicit knowledge to generate
oversee day-to-day operating and long-term stra- the organizational and technological innovations^^
tegic responsibilities.-*^ Strategic leaders formulate required for enhanced future performance.
and implement strategies for immediate impact Organizations need to let a critical mass of man-
and the preservation of long-term goals to enhance agers develop the skills and abilities required to
organizational growth, survival, and viability. exercise strategic leadership.^'' This means that
They use strategic controls and financial controls, managerial leaders need to bear with those who
with emphasis on the former.^o Strategic leaders are visionary leaders and strategic leaders as they
have strong, positive expectations of the perfor- create chaos, destroy order, take risks, and maybe
mance that they expect from their superiors, peers, destroy a part of the organization that is important
subordinates, and themselves. They utilize and in- to them. This does not mean throwing out mana-
terchange tacit and explicit knowledge on both the gerial leadership; it means including visionary
individual and organizational levels,^' and they and managerial leadership to enhance long-term
use both linear and nonlinear thinking patterns. viability and short-term financial stability. In fact,
Finally, they believe in strategic choice—that their strategic leaders need to understand what mana-
choices make a difference in what their organiza- gerial and visionary leaders bring to the organiza-
tions do, and that this will affect their organiza- tion, and utilize the skills, knowledge, and abilities
tions' internal and external environments.^^ of both.
standard of living from year to year.^^ Certainly, place. Communications go up the hierarchy
we do attribute some credit or some blame to our from officer to manager to director to assis-
government if our state, province, or country's stan- tant deputy minister to deputy minister, and
dard of living increases or decreases. This implies possibly to the minister, and down the hierar-
that we use our standard of living as a measure of chy in a reverse chain. Much gets lost or re-
wealth creation. interpreted along the way, and it is often a
Looking at governments with knowledge that slow process. Not surprisingly, the public and
comes from studying business organizations, it the business community who deal with gov-
seems that some of the principles that affect ernment as "clients," often complain about
businesses also affect governments. Govern- "red tape" and "bureaucracy."
ments compete for resources just as other orga-
nizations do. Governments are sometimes Such a system is not well suited to dealing
thought of as monopolies with the power to im- with change. To the extent that change has to
pose their will on the people. But governments occur^—and able senior officials recognize
compete for human resources with other organi- that it does^they prefer that it take place at a
zations, with other governments for tax dollars modest pace under their control and direc-
from their constituents, and with other govern- tion. They are naturally skeptical about and
ments for new businesses to locate in their juris-
resistant to premiers, ministers, and other
dictions.^'' Unfortunately, some governments also
agencies that want to initiate a lot of chanqe
grow large and become diversified. This high
on a number of fronts within a short period of
level of diversification, plus the massive debt
time.
loads of many state, provincial, and national
governments, along with public accountability
for every penny spent and the political context of This system also tends to select out or mold
an election every four years, forces governments certain personality types for career success.
to use only financial controls and to curtail the The premium is on reliability, steadfastness,
use of strategic controls. and loyalty to the service rather than on cre-
ativity, innovation, and critical thinking. Peo-
This leads to managerial control and forces ple who do not fit the mold either stagnate,
those with the potential to be strategic leaders to leave, or are forced out of service. Creative
do one of three things: exercise managerial lead- individuals are usually damned with faint
ership only, leave the organization, or fight within praise in epithets such as "He's a smart guy
the system, which uses the strategic energy they
but he can't manage people" or "She's got
should be expending on leading and managing
some good ideas but she's a bit of a loose
their part of the organization. People who work for
cannon."
government do have the capability to be visionary
and strategic leaders, but the nature of govern-
ment precludes them from exercising such leader- Is strategic leadership possible in this type of
ship. organization? The answer is a qualified yes,
given two very hard-to-impose conditions. These
conditions are autonomy and protection.^^ If a
People who work for government do have corporate management team can give a division
the capability to be visionary and management team some autonomy, coupled
strategic leaders, but the nature of with protection from stringent bureaucratic and
financial controls, strategic leadership may be
government precludes them from possible. Unfortunately, as this smaller part of
exercising such leadership, an organization becomes more successful and
achieves visibility because it is taking risks and
A sociologist who served in a Canadian provin- bruising the bureaucracy, it is much more diffi-
cial government has this to say about what strate- cult to maintain this autonomy and protect it
gic and visionary leaders are up against in gov- from the managerial leadership of the organiza-
ernment:^^ tion. This is especially true when that manage-
rial leadership tends to control financially and
bureaucratically because the organization is un-
The organization of the Newfoundland and
relatedly diversified, has a massive debt load,
Labrador public service is very bureaucratic
operates in a political context, and must be pub-
and hierarchical. There is a place for every-
licly accountable for every dollar it spends.
one and everyone should know his or her
2001 Rowe 89
ANP
Visionary
leadership
Wealth capability
creation NP
BNP
Low High
Wealth Creation and Managerial, Visionary, and financially controlled by their publicly appointed
Strategic Leadership regulators, whose sole purpose is to ensure a pre-
scribed rate of return to keep revenues at an ap-
Wealth creation and managerial leadership propriate level to satisiy consumers. Some relat-
Managerial leaders will at best maintain the level edly diversified organizations develop only
ol wealth that has been created in the past, but managerial leadership or even bad leadership
over time may cause wealth to be slowly de- {low on both the managerial and visionary contin-
stroyed. This means that the stewards (board oi uums). Examples oi such companies are Kmart;
directors, CEO, top management team) oi produc- Apple Computer during Stephen Job's absence;
tive assets are only creating the wealth that the USX - U.S. Steel Group; and Digital Equipment
owners oi those assets expected them to create.^'^ Corp. From 1988 to 1997, Kmart's market value
In Figure 3, this is illustrated by the top oi the added (MVA) dropped from $0,837 billion to ($^.257)
arrow next to the managerial leaders ellipse. Un- billion—a destruction oi $3,094 billion of share-
iortunately, in managerially led organizations, holder wealth. Over the same period, Apple de-
only iinancial controls are exercised. This leads to stroyed $4.85 billion oi shareholder wealth, going
a stifling oi creativity and innovation and to be- irom an MVA oi $3,261 billion to minus $1,594
low-normal periormance in the long term. There billion.^'
are creative, innovative people in such organiza-
tions, but it is harder ior them to be creative and
innovative. This lower level of performance is il- Wealth creation and visionary leadership
lustrated by the bottom oi the arrow next to the Visionary leaders may or may not create value. Ii
managerial leader ellipse in Figure 3. they do, their style of leadership is rare and diifi-
This article has already suggested that unrelat- cult for other organizations to duplicate. Uniortu-
edly diversified organizations will be manageri- nately, some visionaries who are capable oi creat-
ally led and will achieve, at best, average returns ing value are not supported by their organizations
and only normal periormance. Uniortunately, other with appropriate structures, controls, and re-
business organizations, such as rate-regulated wards.^^ These visionaries probably do not have
monopolies and relatedly diversified organiza- strong managerial support, either because the or-
tions, may achieve only normal or below-normal ganization cannot supply it or because the vision-
periormance. Rate-regulated monopolies tend to ary will not allow it. These organizations are more
develop managerial leadership because they are likely to achieve below-normal periormance.
90 Academy oi Management Executive February
Visionary leadership is the hardest style oi lead- bureaucracy on creativity and innovation. Both
ership to assess regarding periormance. As illus- were internally focused and exhibited an insen-
trated in Figure 3, visionaries have the potential sitivity to the past in order to demonstrate proper
for a range oi periormance implications—from be- respect ior the future. They believed in revolu-
low normal to above normal. The bigger danger is tionary change and not evolutionary change.
that visionaries may achieve below-normal perfor- Most observers were surprised at how fast Jack
mance much more quickly than managerial lead- Welch changed GE. Welch expressed surprise at
ers. Stephen Jobs, the visionary founder of Apple, how long it took to change GE. His deep, abiding,
had to leave because oi poor periormance. Anita philosophical values are summed up in the iol-
Roddick, the long-time CEO oi The Body Shop, ii- lowing: get into the right businesses, those with
nally had to step down because her husband, Gor- growth potential, those which respond quickly to
don, the managerial leader, stepped back irom the change, and get as much as possible out oi the
organization; her visionary leadership alone could capital you employ. These values exemplify stra-
no longer sustain the level of performance that tegic leadership.s^
investors had come to expect. Michael Cowpland,
the CEO of Corel in Canada, has been described
as a visionary, and Corel has been experiencing Mosf observers were surprised at how
wealth creation problems for several years. Be- fast Jack Welch changed GE. Welch
cause of these problems, Cowpland stepped down
in August 2000. On the other hand, visionaries cou- expressed surprise at how long it took to
pled with managerial leaders may achieve above- change GE.
normal periormance. Two examples are Thomas
Watson, Jr. (the visionary) and Al Williams (the
managerial leader), his chief financial oiiicer at Strategic leadership is not just for professional
IBM from 1956 to managers appointed to the CEO position who did
not start or revitalize their companies in an entre-
preneurial manner. Consider two entrepreneurs
who made a diiierence to their iirms and their
Wealth creation and strategic leadership
industries. The first is Konosuke Matsushita,
Because strategic leaders are concerned with the founder and iormer CEO of Matsushita Electric. His
future viability and present financial stability oi revenue growth was the highest of any 20'^ century
their organizations, they make decisions that entrepreneur, at $49.5 billion. The next closest were
achieve above-average returns, and therefore cre- Soichiro Honda, at $35.5 billion, and Wal-Mart's
ate wealth ior their organizations. (See Figure 3.) Sam Walton, at $35 billion. Matsushita was a vi-
Throughout the decade of the 1990s, no two sionary who demanded revenue growth, but with
appointed CEOs have exemplified wealth cre- even more dramatic profit growth. He told his se-
ation on a consistent basis as well as Jack Welch nior managers that within five years he wanted
and Robert Goizueta. Either GE or Coca-Cola revenue growth to quadruple and profit to more
was ranked number one and two in MVA from than quadruple. These goals were achieved in iour
1992 to 1998.^'' Coke's return on capital was con- years.^^ He concentrated on creating products for
sistently 24 percent higher than its cost of capi- his customers that created value in their minds
tal. What characteristics did these two CEOs dis- that was greater than they expected. However, he
play during that period? Both reiocused their always wanted value created at a profit for his
companies to regain strategic control. Both be- company. His long-term vision was for the prod-
lieved that their actions affected their companies ucts his companies sold to create worldwide pros-
and determined what happened in the respective perity to such a degree that in several hundred
industries in which their companies operated. years there would be world peace.
This beliei in strategic choice is exemplified by The second entrepreneur is Bob Kierlin,^' the
the following paraphrased comments irom Goi- CEO oi Fastenal, a company that sells nuts and
zueta: If you are number one or two in your in- bolts. His leadership style is characterized by
dustry, you can have a lot oi say in what the employee empowerment, participation, symbolic
future is going to be like by what you do; if you egalitarianism, wage compression {he pays him-
can take actions that create the future, or at least seli $120,000 a year), and promotion from within.^^
shape it, you can benefit from it; and belief in However, he strongly encourages profitable reve-
strategic choice is about creating what can be, nue growth. This has been very beneficial ior em-
as opposed to what is. Welch and Goizueta re- ployees, customers, and shareholders. In 1988, Fas-
lentlessly strove to reduce the stifling effect of tenal's MVA was £0.077 billion—it was $1,609
2001 Rowe 91
billion in 1996—an increase of $1.53 billion. Kierlin equipment, while ensuring that their organiza-
started Fastenal in 1967 because he was not happy tions were financially stable in the short term.
with the bureaucracy at IBM.
Two other interccting companies from a strate-
gic leadership perspective are Wal-Mart and Coke. These leaders managed the paradox of
From 1988 to 1992, Wal-Mart created $50 billion of investing strategically in their
wealth for shareholders under Sam Walton's lead- employees, in promotion through
ership. From 1992 to 1996, Wal-Mart destroyed $30 advertising, R&D, and capital equipment,
billion of wealth for shareholders under David while ensuring that their organizations
Glass's leadership. Wal-Mart did rebound from were financially stable in the short term.
1996 to 1997, and finished 1997 at an MVA of $69.7
billion. Thus irom 1992 to 1997, Wal-Mart created
wealth oi $5.7 billion, approximately one-tenth of The Paradox oi Leading and Managing
what Sam Walton created over a similar iive-year
period. However, Wal-Mart's MVA at the end oi Wealth creation for organizations where strategic
1998 was $213 billion. Wal-Mart had jumped to leadership is exercised is possible because these
third place in the MVA rankings, and irom 1992 to leaders make appropriate investments for future vi-
1998 had created $143 billion in MVA for its share- ability, while maintaining an appropriate level of
holders. financial stability in the present.'''^ They influence a
Is David Glass the strategic leader that Sam critical mass of managers and employees to volun-
tarily make decisions on a day-to-day basis that en-
Walton was? It may be too soon to tell. Certainly
hance future viability and current financial stability.
Walton's perspective was similar to Matsushi-
Under pure visionary leadership, there is a much
ta's. He wanted to improve the quality of liie oi wider range oi wealth creation possible as there may
customers and employees through iree enter- or may not be the constraining iniluence of a
prise practiced correctly and morally. He stated: managerial leader. Such leadership is riskier
"We've improved the standard of living of cus- than allowing the exercise of strategic leadership to
tomers, whom we've saved billions of dollars, permeate the organization. Under managerial lead-
and oi our associates, who have been able to ership, there is a wider range than under strategic
share proiits."^^ He wanted to market the highest leadership, but a narrower range than under vision-
quality goods at the lowest prices possible. Un- ary leadership, as wealth creation may range from
der Goizueta, Coke's rank in the MVA rankings normal performance to below-normal performance.
rose from seventh in 1988 to first in 1994, and
stayed at number one until 1996. In 1997, the year Uniortunately, large, unrelatedly diversiiied or-
Goizueta died, it dropped to second, and in 1998 ganizations implicitly and explicitly train their
people to be managerial leaders. This is not bad in
to ninth. Coke's absolute MVA was still improv-
and of itself, but when such leadership does not
ing under Doug Ivester, and was still much better
allow visionary and strategic leadership to flour-
than Pepsico, Coke's closest competitor. But ish, it is damaging for the organization in the long
Ivester was not able to create MVA ior Coke's term. The nature of some organizations precludes
shareholders at the same rate as Goizueta, Con- visionary and strategic leadership from even oc-
sequently, he stepped down as CEO in April curring. Hoskisson and Hitt'^ refer to this phenom-
enon as the loss of strategic control. This occurs in
These strategic leaders all believed that their governments, universities {whether state-spon-
decisions would affect their companies and their sored or not), and businesses that allow too much
environments. They put great emphasis on inappropriate diversification.
achieving their visions by influencing employ- A Canadian government study'^'' found that the two
ees and associates. They also ensured that their most important reasons ior the bankruptcies oi
visions were achieved in a way that was best for small-to-medium-sized firms are poor overall man-
their employees, customers, and shareholders." agement skills, such as lack oi knowledge, lack oi
However, their vision had to be achieved without vision, and poor use oi outside advisers; and imper-
destroying their organizations financially in the fect capital structures resulting from either institu-
^bort-term. Goizueta relentlessly pursued a re- tional constraints or managerial inexperience. The
turn on capital that exceeded Coke's cost of cap- study's authors argue that managers in small firms
ital. These leaders managed the paradox of in- need to be trained in general management anci
vesting strategically in their employees, in financial management skills, and that visionary an^ t
promotion through advertising, R&D, and capital managerial leadership is needed in small-to-
92 Academy o/ Management Executive February
medium-sized iirms just as it is in such large iirms as and above-normal performance whether an orga-
General Motors and IBM. DoUinger^^ argues that en- nization is entrepreneurial or established.
trepreneurs are the architects oi organizational pur-
pose and that business ventures are created to
Acknowledgments
achieve the visions of entrepreneurs. He says the
major problem ior entrepreneurs is to be managerial The author wishes to acknowledge the many students in his
and to write a business plan that details all the strategic leadership classes at Royal Roads University. Victo-
ria, BC. and Memorial University of Newfoundland. Canada.
business risks in the new venture. Based on his work, They helped forge the ideas presented in this article. In addi-
it could be argued that small firms suffer more irom tion, he acknowledges the many positive comments from prac-
a lack of managerial ability, while larger firms suffer titioners at the 1998 conference of the Newfoundland and La-
from a lack of visionary leadership, especially if they brador Employers' Council, the 1997 conference of the Atlantic
have lost strategic control because they have be- Provinces Economic Council, and the Senior Management
come too diversiiied. What is clear is that small, Group in 1999 of Xwave Solutions. Newfoundland Business Unit.
Finally, he would like to thank Fay Rowe, James O'Brien, and
medium, and large organizations need strategic the three anonymous reviewers and guest co-editors who pro-
leadership and need to pursue corporate strategies vided many thoughtful comments on this article.
that allow strategic leadership among a critical
mass of the senior management team and middle
and junior managers.''^ Endnotes
^ ^ , R, D. & Hitt, M. A. 1999, Achieving and maintaining
A strategic leader creates chaos, makes mis- strategic competitiveness in the 21st century: The role of strategic
takes, occasionally gets rapped on the knuckles by leadership. The Academy of Management Executive, 13(1), 43-57,
bosses and subordinates, and even occasionally ^ Mintzberg. H,, Ahlstrand, B. & Lampel. J. 1998, Strategy sa-
has to apologize to staff ior creating too much faii. New York: The Free Press. Schultz is being included on the
disorder before they were ready ior it. But the re- basis of Mintzberg et al.'s definition of an entrepreneur (page
129): the founder of an organization, the manager of a self-
wards are worth it as those with whom the leader owned business, or an innovative leader of an organization
works become energized and more productive, ac- owned by others, Schultz bought Starbucks from its original
complishing more in less time. They come to enjoy owners in 1987 and grew it before he took it public in 1992.
work more, as they become more creative and in- ^Schultz, H, & Yang, D, J. 1997, Pour your heait into it: How
novative, and more prone to taking risks because Starbucks built a company one cup at a time. New York: Hype-
they know this is what it takes to enhance long- rion, 181: and Starbucks: Making values pay. Fortune, 29 Sep-
tember 1997, 261-272.
term viability.''^ ^^ •" ^^lbert, L, 1995. The 1994 Stem Stewart Periormance 1000,
Journal of Applied Corpoiate Finance. 7(4), Winter. 104-118;
Ross, I. 1996, The 1995 Stern Stewart Performance 1000, excerpts
irom the Jouinal of Applied Coipoiate FinancG. 8(4), Winter,
A strategic leader creates chaos, makes 1-18; Ross, I, 1997, The 1996 Stem Stewart Performance WOO. New
mistakes, occasionally gets rapped on York: Stern Stewart & Co,, t~19; Ross, I, 1998, The 1997 Stern
the knuckles by bosses and subordinates, Stewart Performance 1000. journal of Appiied Corporate Fi-
nance. 10(4), Winter, 116-128; Ross, I, 1999. The 1998 Stern Stew-
and even occasionally has to apologize art Performance WOO. New York: Stem Stewart & Co,, 1-15.
to staff for creating too much disorder ^MVA means market value added and is the equivalent of
before they were ready for it. the difference in the firm's current total market value (stocks
and bonds) and the tola] capital (debt and equity offerings,
bank loans, and retained earnings) invested in the firm since its
inception. It is the cash investors could get out oi the firm at a
Working through the paradox oi leading and point in time minus all of the cash that has been invested in the
managing is demanding and diiiicult, but is firm since its beginning.
achievable ior a critical mass in organizations that ^ This analysis predates the current antitrust environment
and legal action brought against Microsoft by the U,S. Attorney
have not lost strategic control. Executives in such General's office.
organizations should start thinking of themselves ' A conversation with Roberto Goizueta and Jack Welch: The
as strategic leaders who have to accept and merge wealth builders. Forfune, 11 December 1995, 96-102; Sellers, P.
the visionaries and managerial leaders in their How Coke is kicking Pepsi's can. Fortune, 28 October 1996.
organizations. They should fight against the con- 70-84; and Morris. B, Robert Goizueta and Jack Welch: The
wealth builders. Fortune, 11 December 1995, 80-94.
straining iniluence of financial controls and fight ^ Gardner, W, L. & Avolio. B, J, 1998. The charismatic relation-
ior the exercise of strategic and financial controls, ship: A dramaturgical perspective. Academy of Management
with the emphasis on strategic controls. They need Beview. 23(1), 32-58: Chen, C, C. & Meindl, J. R. 1991. The con-
to understand the concepts oi explicit and tacit struction of leadership images in the popular press: The case of
knowledge and linear and nonlinear thinking and Donald Burr and People Express, Administrative Science Quar-
how to integrate them for the benefit of your orga- (eriy, 36, 521-551. Kerr, S, & Jermier. J, M. 1978, Substitutes ior
leadership: Their meaning and measurement. Organizafionai
nization. The rewards will often be wealth creation Behavioi and Human Performance, 22, 735-403; Meindl, I. R.,
2001 Rowe 93
Ehrlich, S. B., 8E Dukerich. J. M, 1985. The romance of leadership. cit; and Minlzberg, H,, Ahlstrand, B, & Lampel, J,, op. cit,, chap-
Administrative Science Quarterly, 30, 78-102; Meindl, J, R, 1990, ter 10.
On leadership: An alternative to the conventional wisdom. In ^^Bass, B, M. 1985, Leadership and periormance beyond ex-
B, M, Staw & L, L. Cummings, (Eds.), Research in Organizafionai pectations. New York: The Free Press; Yukl, G. 1994. Leadership
Behavior, 12, 159-203. Greenwich, CT: JAI Press. in organizations, 3'' ed. Toronto: Prentice Hall.
^ Hill. L, & Wetlaufer, S, 1998. Leadership when there is no one ^^ Conger, J. 1991, Inspiring others: The language of leader-
to ask; An interview with ENI's Franco Bernabe, Harvard Busi- ship. The Academy of Management Executive. 5(1), 31-45;
ness Beview. July-August. 80-96; Chatterjee, S,. Lubatkin, M. H. Nathan, M. 1996. What is organizational vision? Ask chief exec-
& Schulze, W. S. 1999. Toward a strategic theory of risk premium: utives. The Academy of Management Executive, 10(1), 82-83.
Moving beyond CAPM. Academy oi Management Beview, 24(3), ^° Zaleznik, op. cit.
556-567. ^' Hosmer. op. cit.
'° Ireland 8E Hitt, op, cit. ^^ Schendel. op. cit.
" Evered. R, 1980. So what is strategy? Working paper. Naval ^^ Hambrick. op. cit,; also, Mintzberg, H. 1973. The nature oi
Postgraduate School, Monterey; Quinn, J, B, f980. Strategies for managerial work. New York: Harper and Row. chapters 15-17.
change: Logical incrementalism. Homewood, IL: Richard D. Irwin; ^'^ Hambrick. op, cit,
and. Mintzberg. H, & Quinn. J, B, 1996. The strategy process: Con- ^^ Evans, op, cit,; Hosmer, op. cit.; Sooklal. op, cit,; Zaleznik,
cepts, contexts, cases. 3'' ed. Upp>er Saddle River, NJ: Prentice Halt. op. cit.
'^ Tichy, N. M, & Cohen, E, 1997, The leadership engine: How ^^ Hoskisson & Hitt. op, cit.
winning companies build leaders at every level. New York: ^•'Tacit knowledge is so internalized we may not even know
HarperCollins, 106. we know it. It gives us the ability to know more than we can
'^ Mintzberg, H. 1987. Five Ps for strategy, California Manage- express. See Polanyi, M, 1966. The tacit dinif^nsion. Garden City.
ment Beview. Fall; and, Mintzberg. H, 1987, Crafting strategy. NY: Anchor; Reed. R. & deFillippi, R. J. 1990. Causal ambiguity,
Harvard Business Review. July-August. barriers to imitation, and sustainable competitive advantage.
^ Barney. J. B. 1997, Gaining and sustaining competitive ad- Academy of Management Beview. 15. 88-102; Nelson, R, & Win-
vantage. New York: Addison-Wesley Publishing Company. ter, S, 1982. An evoJutionaiy theory o( economic change. Cam-
'^ Hitt, M. A.. Ireland, R, D. & Hoskisson, R, E, 2001. Strategic bridge. MA: Belknap Press; Itami. H, 1987. Mobiiizing invisible
management," Competitiveness and globalization, 4th ed. Cin- assets. Cambridge. MA: Harvard University Press, See Kotter, J.
cinnati: South-Western College Publishing Company, See & Heskett, ], 1992, Corporate cuiture and performance. New York:
Chapter 1, For a different view, see Child, J. 1972. Organiza- The Free Press; Ouchi, W, G, & Maguire. M. 1975. Organizational
tional structure, environment and performance: The role of stra- control: Two functions. Administrative Science Quarterly. 20,
tegic choice. SocioJogy, 6, 1-22. 559-569; and Schein. E. H, 1993. On dialogue, culture, and orga-
'^Zaleznik. A, 1977. Managers and leaders: Are they differ- nizational learning. Organizational Dynamics. 22(2). 40-51, ior
ent? Harvard Business Review. May-June, discussions on the use oi tacit knowledge by leaders.
" I will discuss these issues in more depth in the section. ^^ Trigg, op. cit,, gives a basic introduction to the philosoph-
Constraints on Strategic Leadership. ical concept of free will. Child, op, cit.. discusses strategic
'^ Zaleznik, op, cit, choice from the perspective of leaders of iirms. See Mintzberg.
'^ Morris, op, cit, Ahlstrand, & Lampel. op, cit.. Chapter 5, for a very good descrip-
^° Zaleznik, op, cit. tion of visionary leadership.
^' Hosmer, L. T. 1982. The importance of strategic leadership. ^^ Bass, op, cit,, and, Yukl, op. cit.
Journal ol Business Strategy. 3(2), Fall, 47-57. "" Kotter, J. P. 1990, What leaders really do. Harvard Business
^^ Schendel, D, 1989. Introduction to the special issue on stra- Beview. May-June,
tegic leadership, Sdafegic Management Journal, Special Issue. " Zaleznik 1977, op. cit,. and Zale2nik 1990, op. cit.
10, 1-3, ''^Kotter, op. cit.
" Hambrick, D, 1989. Guest's editor's introduction: Putting top " Ibid.
managers back in the strategy picture. Strategic Management ^•^ Zaleznik, 1977, op. cit.
lournal. Special Issue. 10, 5-15. ^^ Loeb, M. Steven J, Ross, 1927-1992, Fortune, 24 January 1993,
^^ Hosmer, op. cit.. See also Evans, R. 1997. Hollow the leader, 4. quoted in Hitt. et, al,. op, cit,
flepor( on Business. November. 56-63; Sooklal. L. 1991. The •"^ Many writers (e.g., Mintzberg 1975) argue for a balance
leader as a broker of dreams. Human Relations. 44(8). 833-856; between visionary and managerial skills, I argue for a syner-
Zaieznik. A, 1990, The leadership gap. The Academy of Manage- gistic combination. The reason is clear from Figure 2. II one
ment Executive. 4(1). 7-22. draws a diagonal from the lower left quadrant to the upper right
^^ Hill, C. W, L. 8t Hoskisson, R, E. 1987. Strategy and structure quadrant, everywhere on that diagonal is a balance between
in the multiproduct firm. Academy of Management Beview. visionary and managerial. What is important is to use a high
12(2), 331-341; and, Hoskisson, R, E. & Hitt. M. A. 1994. Downscop- level oi managerial leadership and a high level of visionary
ing: Taming the diversified firm. New York: Oxford University leadership and to be more than the sum of these two.
Press; Zaleznik 1990, op, cit. ''•' Ireland & Hitt, op. cit.
^^ Explicit knowledge is highly codifiable. It can be verbally *^ The most common iorm of leadership is managerial. Given
expressed, and includes computer programs, patents, and draw- the call for visionary leadership in recent years (See Conger, J.
ings. It is separable from the person who encoded the knowledge 1991. Inspiring others: The language oi leadership. The Acad-
and is highly mobile. See Hedlund, G. 1994, A model of knowledge emy oi Management Executive, 5(1), 31-45; and. Nathan, op. cit.),
management and the n-form corporation. Strategic Management it is logical to assume that visionary and strategic leadership
Journal. Special Issue 15, Summer, 73-90; Kogut. B. & Zander, U. are rare,
1992. Knowledge of the firm, combinative abilities, and the repli- "^Hambrick, op, cit. and Schendel, op. cit.
cation of technology. Organization Science, 3, 383-97, ^° Hoskisson & Hitt, op. cit.
^'See Trigg. R. 1996. Ideas of human nature: An historical ^' Nonaka, I. 1994. A dynamic theory oi organizational knowl-
introduction. Cambridge, MA: Blackwell Publishers; Child, op. edge creation. Qiganization Science, 5(1), 14-37; and. Nonaka, L
94 Academy of Management Executive February
& Takeuchi. H. 1995. The knowledge creating company. New 1995. Producing sustainable competitive advantage through the
York: Oxford University Press. eifective management of people. The Academy of Management
^^ Trigg. op, cit,; Child, op. cit.; Mintzberg, et, al,, op. cit., Executive. 9(1), 55-72.
chapters 5 and 10. ^^ Walton, S, & Huey. J, 1992. Sam Walton: Made in Ameri-
^^ Nonaka & Takeuchi, op, cit.; Kogut & Zander, op, cit. Also ca—my story. New York: Doubleday.
see Sherman, S, & Rowe, W, G,, 1996. Leadership and strategic ™Greenwald, J. 1999. Spring a leak: Five lessons from a
value: A resource-based typology. Proceedings af the Texas Corporate king's downfall. Time. 20 December 1999, 46-48,
Conierence on Organizations, March 1, ' ' Walton & Huey. op. cit.
" Mintzberg, H. 1975. The manager's job: Folklore and fact. Some strategic leaders are able to downscope unrelatedly
Harvard Business Review, July-August. Mintzberg argues diversified organizations so that strategic control is restored.
that managers need two faces, one insightful and the other When this happens, strategic and visionary leadership are pos-
cerebral. sible.
^^ House, J, D, 1999, Against the tide: Battling for economic '^Hoskisson & Hitt, op. cit.. chapters 4 and li.
renewal in Newfoundland and Labrador. Toronto: University of '^ Baldwin, J., Gray, T.. Johnson, J., Proctor, J,, Rafiquzzaman,
Toronto Press, M. & Sabourin, D. 1997, Failing concerns: Business bankruptcy
^^ Barney, J. B, 1997, Gaining and sustaining competitive ad- in Canada. Ottawa: Statistics Canada, November, Catalogue
vantage. New York: Addison-Wesley, No, 61*525-XPE.
" A 1999 TV news report stated that almost 50,000 people '^ Dollinger, M, J. 1999, Entrepreneurship: Strategies and re-
have moved lo Calgary, Alberta, Canada, irom other parts of sources. 2nd ed. Upper Saddle River, NJ: Prentice Hall.
Canada because of lower taxes and better job opportunities. Tichy & Cohen, op, cit., provide an excellent description of
^^ House, op. cit, how Ihis has been done. It is amazing that GE is so successful and
^^ I am indebted to Mike Hitt, who helped to clarify this very ranked second in MVA at $360 billion, given the complexity of its
thorny issue. corporate-level strategy. It is even more amazing when one con-
^Barney, op. cit. See chapter 2 for an excellent explanation siders thai Jack Welch spends 30 percent oi his time on leadership
of above-normal performance (ANP), normal periormance (NP), development. Or maybe it is not so amazing, given that Welch
and below-normal performance (BNP). ANP means that more spends 30 percent of his time developing strategic leaders.
wealth was created than owners of assets expected Ihe orga- The author applied the principles of strategic leadership and
nization to create; NP means (hat the wealth created was what watched as organizational revenues quadrupled and profits rose
owners of assets expected the organization to create; and BNP even more dramatically over a three-year period. Unfortunately,
means that less wealth was created than expected. Under ANP, the principle of higher visibility kicked in, and the autonomy and
organizations will retain their current assets, attract new and protection required to exercise strategic leadership was slowly
better assets, and prosper. Under NP, organizations will retain eroded. The organization was a small division of a large unrelat-
their current assets, but not attract new assets, and will survive. edly diversiiied organization that was managerially led and fi-
Under BNP, organizations will lose their assets as they migrate nancially controlled.
to other organizations, and these organizations will cease to
exist economically.
^' See endnote number 4. W, Glenn Rowe is an associate
^^ Barney, op, cit. See chapter 5. professor of strategic manage-
^^ Watson. Jr., T. J. & Petre, P. 1990, Father son & Co.: My hie at ment and associate dean. Grad-
IBM and beyond. New York: Bantam Books. uate Programs and Research, in
^ See endnote number 4. the Faculty of Business Adminis-
^^ Fortune, 11 December 1995, op. cit,; Sellers, op. cit,; Morris, tration at Memorial University oi
op, cit, Newfoundland. Canada. He re-
^^ Kotter, J. P, 1997, Matstishita leadership. New York: Free ceived his Ph,D, in management
Press. This was growth while the entrepreneur was associated from Texas A&M University, His
with the iirm and expresses growth through mid-1994, research interests include strate-
^^ Teitelbaum, R. Who is Bob Kierlin—and why is he so suc- gic leadership, CEO succession,
cessful? For(une, 8 December 1997, 245-248, organizational control systems,
Conger, J. 1989. Leadership: The art of empowering others. and organizational performance.
The Academy of Management Executive. 3(1), 17-24; Piefier, J, Contact: growe@mLin,ca.