Chapter 12: Strategic Leadership (SL)

Overview:
Strategic leadership & top-level managers importance
Top management teams and effects on firm performance
Managerial succession process
Value of strategic leadership in determining firms
strategic direction
Importance of strategic leaders in managing firms
resources
Organizational culture and actions to sustain it
Ethical practices: establishment and emphasis
Importance and use of organizational controls
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The Strategic Management Process

Strategic Leadership and Style

Strategic leadership: the ability to anticipate, envision,

maintain flexibility, and empower others to create strategic

change as necessary
Multifunctional task that involves

Managing through others

Managing an entire enterprise rather than a functional subunit
Coping with change
Attracting and managing human (includes intellectual) capital
Being able to meaningfully influence others

Strategic leaders make a major difference in how well a

firm performs

Strategic Leadership and the Strategic

Management Process
Effective strategic leadership is

the foundation for successfully

using the strategic
management process
Strategic leaders:

Shape the formation of vision

and mission
Facilitate strategy formulation
and strategy implementation
Are needed for the
achievement of strategic
competitiveness and aboveaverage returns.
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The Role of Top-Level Managers

Top level managers play a critical role in strategy

formulation and implementation

Their strategic decisions influence how an organization is

designed and how goals are achieved
Top managers also develop structure, culture, reward systems,
and policies/SOPs

Having a top management team with superior managerial

skills is critical (and can be a source of CA and AAR)

Managers use their discretion when making strategic
decisions and this discretion influences firm performance
Several factors determine the amount of managers
decision-making discretion including:

External environmental sources

Organizational characteristics
Characteristics of the manager

Factors
Affecting
Managerial
Discretion

The Role of Top-Level Managers

Top Management Teams (TMT)
In most firms there is a team of strategic leaders called
the top management team
A team is needed to deal with the complexity of
challenges and the need for substantial amounts of
information and knowledge to make strategic decisions
TMT composed of key individuals who are responsible
for selecting and implementing firms strategies

Usually includes officers of the corporation (VP and above)

and members of BOD

TMT characteristics must fit strategy and strategy

implementation
TMTs affect firm performance and strategic change

The Role of Top-Level Managers

TMTs, Firm Performance & Strategic Change

Top managers need to operate the internal organization and deal with
the external environment and stakeholders groups
A heterogeneous TMT can facilitate this
Managerial group of individuals with different functional
backgrounds, experiences, and education
Introduce a variety of perspectives and can lead to better decisions
Tend to "think outside of the box," leading to more creative decision
making, innovation, and strategic change
Offers various areas of expertise and promotes debate
Having a top management team that functions cohesively and having
members with expertise in the firms core functions and businesses is
also important
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The Role of Top-Level Managers

The CEO & TMT Power

TMT characteristics can give the CEOs team power relative to the
board of directors and can influence the amount of strategic
leadership the board provides
Can affect CEO discretion and the ability to appoint board members
CEO Duality and longer tenure can also lead to greater CEO power
The relative degrees of power held by the board and TMT should be
appropriate for the organization
TMT characteristics must fit strategy and strategy implementation

Managerial Succession
The choice of executives is a critical decision with

important implications for the firms performance

Organizations select managers and strategic leaders from
two types of managerial labor markets

Internal Managerial Labor Market opportunities for managerial

positions to be filled from within the firm
External Managerial Labor Market opportunities for managerial
positions to be filled by candidates from outside of the firm

Impacts company performance and the ability to embrace

change in today's competitive landscape

Succession, top management team composition and
strategy are related
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Effects of CEO Succession and Top

Management Team Composition on Strategy

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Managerial Succession
Benefits of Internal Managerial Labor Market

Leads to continuity and continued commitment to firms vision,

mission, and strategies
Insiders are familiar with company products, markets,
technologies, and operating procedures
Reduces turnover of existing personnel many of whom possess
valuable firm-specific knowledge
Favored when the firm is performing well

Benefits of External Managerial Labor Market

Long tenure with the same firm is thought to reduce innovation

Outsiders bring diverse knowledge bases and social networks,

which offer the potential for synergy and new competitive
advantage
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Exercise of Effective Strategic Leadership:

Key Strategic Leadership Actions

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Key Strategic Leadership Actions

Determining Strategic Direction
Involves specifying the vision and the strategy to
achieve this vision over time

Vision is a picture of what the firm wants to be and in broad

terms what it wants to ultimately achieve

Strategic direction is framed within the context of the

opportunities and threats over next 3-5 years
Includes a core ideology and an envisioned future
Should serve to motivate, push, and guide the
organization
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Key Strategic Leadership Actions

Effectively Managing the Firms Resource Portfolio

Includes financial, organizational (competencies and capabilities)

and human capital
Firms resources must be managed in a way that is consistent and
supportive of strategy
They also must be allocated as efficiently and effectively as
possible so that each area or part of the firm has what it needs for
strategy implementation
Changing strategy will likely call for the reallocation of resources
and the movement of people and other resources from one area to
another
Financial resources are managed through the budgeting and
resource allocation process
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Key Strategic Leadership Actions

Effectively Managing the Firms Resource Portfolio

Core competencies and competitive capabilities should be

developed in a strategy supportive fashion

Firms should build their strategy around things they are good at doing
and/or become good at doing things that are supportive of strategy

A firms human capital, which refers to the knowledge and skills of

a firms entire workforce, should also fit its strategy.

This can be accomplished by:

Hiring people who fit the organization and its strategy
An effective training and development program

Investments should be made to acquire and develop the firms human

capital

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Key Strategic Leadership Actions

Sustaining an Effective Organizational Culture
Organizational culture: consists of a complex set of
ideologies, symbols, and core values shared throughout the firm
and influence the way business is conducted

Shapes the context within which the firm formulates and implements
it's strategies.
Also helps to regulate and control employees behavior

There are many things that make up a companys culture and

many places that is comes from
Once developed, a companys culture tends to last because:

Organizations hire people who fit the firm and its culture
Employees learn by observing the behavior of others and through
socialization and systematic indoctrination of cultural values
Storytelling of company legends and ceremonies that honor employees
who display cultural ideals
Visibly rewarding those who follow cultural norms
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Key Strategic Leadership Actions

Sustaining an Effective Organizational Culture

Cultures can vary in strength depending on the degree to which

they are imbedded in company practices and norms.
Firms must match culture to strategy, as a culture that promotes
attitudes and behaviors that are well-suited to strategy will help
in the achievement of strategic competitiveness and above
average returns.

Related firms develop cooperative cultures

Unrelated firms develop competitive cultures
Cost leaders value economy, frugality and efficiency
Differentiators value innovation, quality, and excellence

Changing culture can be difficult but can be accomplished if the

appropriate strategic leadership is in place
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Key Strategic Leadership Actions

Emphasizing Ethical Practices

Ethical practices can be used control employee judgment and

behavior
They should shape the firms decisions making process and are an
integral part of organizational culture
Strategic leaders should:
Establish and communicate ethics related goals
Continuously revise, update, and disseminate the firms code of
conduct
Develop and implement ethical policies and procedures
Use rewards to recognize ethical behavior
Create an appropriate work environment
Ethical practices can be used to control ethical behavior to make
sure people are behaving in the "right" way
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Key Strategic Leadership Actions

Establishing Balanced Organizational Controls

Strategic leaders are responsible for the development and effective use
of strategic and financial controls
Controls provide the parameters for implementing strategies as well as
the corrective actions to be taken when implementation related
adjustments are required
The challenge is to achieve an appropriate balance of financial and
strategic controls

The Balanced Scorecard

Framework that allows strategic leaders to verify that they have
established both financial and strategic controls to assess firm
performance
Underlying premise is that firms jeopardize their future performance
possibilities when financial controls are emphasized at the expense of
strategic controls
An appropriate balance of strategic and financial controls allows firms to
achieve higher level of performance.
Uses multiple perspectives
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Strategic Controls and Financial Controls

in a Balanced Scorecard Framework

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Key Strategic Leadership Actions

Developing Policies and Procedures

Policies and procedures - are written or unwritten standards or

styles of behavior that govern how people act and lead people to
behave in predictable ways
Can facilitate good strategy implementation:
Can increase efficiency because they standardize work behavior
and specify the best way to accomplish a task
Provide top down guidance about how certain things need to be
done
They help ensure consistency in how strategy critical activities are
performed
Different types of firms make use of different types and numbers of
policies and procedures
Firms need to create a strong supportive fit between policies and
procedures and strategy
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Key Strategic Leadership Actions

Developing Reward Systems

It can be argued that rewards are the single most powerful tool for
winning the commitment of employees to effective strategy
implementation
Rewards are an important tool used to achieve behavioral control.
Firms should create a results oriented system in which those
achieving objectives are generously rewarded and those not
achieving objectives are not rewarded
Rewards and incentives should also be tied to strategy:
Cost leaders should reward people for being efficient and for
identifying ways to reduce costs
Differentiators should reward people for being innovative
The bottom line is that firms need to reward and motivate people in
ways that are supportive of strategy and strategy implementation23

Key Strategic Leadership Actions

McKinsey 7-S Strategy Implementation Framework
Basic Premise: there are seven internal aspects of an organization

that need to be aligned if the organization is to be successful.

These seven elements are interdependent and can be categorized as
either "hard" or "soft" elements.
They are interdependent to the extent that making changes to one
affects all of the others.
For an organization to perform well each of these elements must fit
with and be consistent with one another.
These elements include:

Strategy, Structure, Systems, Shared Values, Style, Staff , and Skills

(source: http://www.mindtools.com/pages/article/newSTR_91.htm)
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Key Strategic Leadership Actions

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