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CHAPTER 12: STRATEGIC LEADERSHIP FIGURE 12.

1 Strategic Leadership and the


Strategic Management Process
INTRODUCTION

● Effective strategic leadership is the


foundation for successfully using the strategic
management process.

● Strategic leaders guide the firm in ways that


result in forming a vision and mission.

● This guidance often finds leaders thinking of


ways to create goals that stretch everyone in
the organization to improve performance.

● Moreover, strategic leaders facilitate the


development of appropriate strategic actions
and determine how to implement them.

● Leaders can make a major difference in how a


firm performs.

STRATEGIC LEADERSHIP AND STYLE


EFFECTIVE STRATEGIC LEADERS
Strategic leadership: the ability to
anticipate, envision, maintain flexibility, and • Build strong ties with external
empower others to create strategic change as stakeholders to gain access to
necessary information and advice

• Multifunctional task • Understand how their decisions impact


their firm
• Managing through others
• Sustain above-average performance
• Managing an entire enterprise
rather than a functional subunit • Attract and manage human capital

• Coping with change that is • Do not delegate decision-making


increasing in the global responsibilities
economy
• Inspire and enable others to do
• Most critical skill: attracting and excellent work and realize their
managing human (includes potential
intellectual) capital
• Promote and nurture innovation
NOTE: Many examples of well-known CEOs are through transformational leadership
mentioned throughout the chapter to illustrate
their leadership styles.
THE ROLE OF TOP-LEVEL MANAGERS • Composed of key individuals who are
responsible for selecting and implementing
● Managers use their discretion when making
firm’s strategies; usually includes officers of
strategic decisions
the corporation (VP and above) and BOD
● Primary factors that determine the
TOP MANAGEMENT TEAM, FIRM
amount of a manager’s decision-making
PERFORMANCE, AND STRATEGIC CHANGE
discretion
Heterogeneous team: individuals with varied
• External environmental sources
functional backgrounds, experiences, and
• Organization’s characteristics education

• Manager’s characteristics A HETEROGENEOUS TEAM

FACTORS AFFECTING MANAGERIAL • Introduces a variety of perspectives


DISCRETION
• Has a greater propensity for strong
competitive action

• “Outside of the box thinking," leads to


more creative decision making,
innovation, and strategic change

• Offers various areas of expertise to


identify environmental opportunities,
threats, or the need for change

• Promotes debate, which leads to better


strategic decisions, and higher firm
performance

• May take longer to reach consensus

Team members: bring a variety of strengths,


capabilities, and knowledge and provide
effective strategic leadership when faced with
TOP MANAGEMENT TEAMS complex environments and multiple
stakeholder relationships to manage
Top Management Teams
THE CEO AND TOP MANAGEMENT TEAM
• Help avoid potential problem of CEO POWER
making decisions alone: managerial
hubris Higher performance is achieved when the board
of directors (BOD) is more directly involved in
• Hubris: excessive pride leading shaping strategic direction
to a feeling of invincibility
A powerful CEO may:
Hubris can magnify the effects
of decision-making biases • Appoint sympathetic outside
board members
• Have inside board members • This decision impacts company
who report to the CEO performance and the ability to embrace
change in today's competitive landscape
• Have long tenure, thus have
greater influence on board • Succession, top management team
decisions composition, and strategy are intimately
related
• Be virtually independent of
oversight by the BOD EFFECTS OF CEO SUCCESSION AND TOP
MANAGEMENT TEAM COMPOSITION ON
• May also hold the position of
STRATEGY
chairman of the board (CEO
duality)

CEO Duality – CEO serves as CEO and BOD

• More common in the United


States

• Occurs most often in the largest


firms

• Increased shareholder activism


recently brought the practice Benefits of Internal Managerial Labor Market
under scrutiny
• Continuity
• Criticized for causing poor
performance and slow response • Continued commitment
to change
• Familiarity
BALANCE OF POWER BETWEEN THE BOD AND
• Reduced turnover
TOP MANAGEMENT IMPACTED BY:
• Retention of “private knowledge”
• Resource abundance
• Favored when the firm is performing
• Environmental volatility and
well
uncertainty
Benefits of External Managerial Labor Market
MANAGERIAL SUCCESSION
• Long tenure with the same firm is
DEFINITION: preselect and shape the skills of
thought to reduce innovation
tomorrow’s leaders
• Outsiders bring diverse knowledge
• Internal managerial labor market:
bases and social networks, which offer
opportunities for managerial positions
the potential for synergy and new
to be filled from within the firm
competitive advantages
• External managerial labor market:
• Fresh paradigms
opportunities for managerial positions
to be filled by candidates from outside
of the firm
Note: Opportunity cost for firms: Women as Effectively Managing the Firm’s Resource
strategic leaders have been somewhat Portfolio
overlooked
• Most important task - effectively managing
KEY STRATEGIC LEADERSHIP ACTIONS the firm’s portfolio of resources

Certain actions characterize effective strategic • Resources defined as financial, human,


leadership social, and organizational capital

• These actions interact with each other • Effective strategic leaders manage
their firm’s resource portfolio by:
• The most effective strategic leaders
create options as the foundation for • Organizing the resources
making effective decisions into capabilities

EXERCISE OF EFFECTIVE STRATEGIC • Structuring the firm to


LEADERSHIP facilitate using those
capabilities

• Managing each type of


resource as well as the
integration of resources,
e.g., using financial capital
to enhance human capital
capabilities (training and
development)

• Choosing strategies through


KEY STRATEGIC LEADERSHIP ACTIONS which the capabilities are
successfully leveraged to
Determining Strategic Direction create value for customers
● The strategic direction is framed within the Exploiting and Maintaining Core Competencies
context of the conditions (i.e., opportunities
and threats) strategic leaders expect their firm Core competencies
to face in the next 3-5 years
• Resources and capabilities that serve as
● Ideal long-term strategic direction has two a source of competitive advantage for a
parts: firm over its rivals

■ Core ideology • Relate to an organization’s functional


skills, such as manufacturing, finance,
■ Envisioned future marketing, and research and
● Serves as a guide to a firm’s strategy development
implementation process, including motivation, • Leadership must verify that the firm’s
leadership, employee empowerment, and competencies are emphasized when
organizational design implementing strategy
• Firms must continuously • Strong organizational culture may
develop/change their core be a competitive advantage
competencies to prevail over
ENTREPRENEURIAL MIND-SET
competitors
 Source of growth and innovation
Developing Human Capital and Social Capital
 May be encouraged and promoted by
• Human capital: knowledge and skills of strategic leaders
a firm’s entire workforce, requiring  An organizational culture can encourage (or
investment in training and development discourage) strategic leaders from pursuing
(or not pursuing) entrepreneurial
• Social capital: relationships inside and
opportunities
outside the firm that help it accomplish
tasks and create value for customers Fostering an Entrepreneurial Mind-Set: Five
and shareholders Dimensions
• Cooperative strategies, e.g., strategic • Autonomy- Employees are allowed to take
alliances, may leverage complementary actions that are free of organizational
resources to develop social capital constraints; permits individuals and groups
to be self-directed
• Firms with strong social capital can
access multiple capabilities, providing • Innovativeness - Reflects a firm’s tendency
them with important flexibility to take to engage in and support new ideas,
advantage of opportunities and respond novelty, experimentation, and creative
to challenges processes that may result in new products,
services, or technological processes
• Social capital created through alliances
is pivotal to: Cultures with a tendency toward
innovativeness encourage employees to
o Large multinational firms when
think beyond existing knowledge,
entering new foreign markets
technologies, and parameters to find
o Entrepreneurial firms for creative ways to add value
resource access, venture
• Risk taking - Reflects a willingness by
capital, or other types of
employees and their firm to accept risks
resources
when pursuing entrepreneurial
Sustaining an Effective Organizational Culture opportunities

• Organizational culture: the complex set Examples of RISKS


of ideologies, symbols, and core values
Assuming significant levels of debt
shared throughout the firm
Allocating large amounts of resources to
• Influences the way business is
projects that may not be completed
conducted

• Helps regulate and control employees’


behavior • Proactiveness - Ability to be a market
leader rather than a follower
Proactive organizational cultures constantly Actions that foster an ethical organizational
use processes to anticipate future market culture:
needs and to satisfy them before
• Establish and communicate ethics-
competitors learn how to do so
related goals

• Revise, update, and disseminate code of


• Competitive aggressiveness - Propensity to conduct
take actions that allow the firm to
• Develop and implement methods and
consistently and substantially outperform
procedures to use in achieving firm’s
its rivals.
ethical standards
KEY STRATEGIC LEADERSHIP ACTIONS
• Create/use specific reward systems that
Sustaining an Effective Organizational Culture recognize acts of courage

CHANGING THE ORGANIZATIONAL CULTURE • Create a working environment where all


AND RESTRUCTURING are treated with dignity

• More difficult to change culture than Establishing Balanced Organizational Controls


maintain it
Controls: formal, information-based
• Sometimes change must occur procedures used by managers to maintain
or alter patterns in organizational activities
• Effective strategic leaders recognize
when change in culture is needed Controls help strategic leaders:

• Requires effective ● Build credibility


communicating and problem
● Demonstrate the value of strategies to
solving
the firm’s stakeholders
• Selecting the right people
● Promote and support strategic change
• Engaging in effective
● Financial Controls
performance appraisals
• Focus on short-term financial outcomes
• Measuring individual
performance toward goals that • Produce risk-averse managerial
fit with new values decisions because financial outcomes
may be caused by events beyond
• Using appropriate reward
managers’ direct control
systems
● Strategic Controls
Emphasizing Ethical Practices
• Focus on the content of strategic
• Effectiveness of strategy
actions rather than their outcomes
implementation processes increases
when based on ethical practices • Encourage decisions that incorporate
moderate and acceptable levels of risk
• Ethical practices create social capital
and goodwill for the firm
THE BALANCED SCORECARD STRATEGIC CONTROLS AND FINANCIAL
CONTROLS IN A BALANCED SCORECARD
• Framework to evaluate if firms have
FRAMEWORK
achieved the appropriate balance
among the strategic and financial
controls to attain the desired level of
firm performance

• Most appropriate for evaluating


business-level strategies; it can also be
used with the other strategies firms
implement (e.g., corporate-level,
international, and cooperative)

• Prevents overemphasis of financial


controls at the expense of strategic
controls

THE BALANCED SCORECARD

● Premise is that firms jeopardize their


future performance when financial controls
are emphasized at the expense of strategic
controls

● This is because financial controls focus on


historical outcomes, and do not address
future performance drivers

● An overemphasis on financial controls


may promote managerial behavior that
sacrifices long-term, value-creating
potential for short-term performance gains

● An appropriate balance of strategic


controls and financial controls, rather than
an overemphasis on either, allows firms to
achieve higher levels of performance

Four perspectives of the balanced scorecard

 Financial

 Customer

 Internal Business Processes

 Learning and Growth