1. PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Copyright Š 2004 South-Western
All rights reserved.
Chapter 12
Strategic
Leadership
2. Copyright Š 2004 South-Western. All rights reserved. 12â2
Knowledge Objectives
⢠Studying this chapter should provide you with the
strategic management knowledge needed to:
ď Define strategic leadership and describe top-level
managersâ importance as a resource.
ď Define top management teams and explain their effects on
firm performance.
ď Describe the internal and external managerial labor
markets and their effects on developing and implementing
strategies.
ď Discuss the value of strategic leadership in determining the
firmâs strategic direction.
3. Copyright Š 2004 South-Western. All rights reserved. 12â3
Knowledge Objectives (contâd)
⢠Studying this chapter should provide you with the
strategic management knowledge needed to:
ď Describe the importance of strategic leaders in managing
the firmâs resources, with emphasis on exploiting and
maintaining core competencies, human capital, and social
capital.
ď Define organizational culture and explain what must be
done to sustain an effective culture.
ď Explain what strategic leaders can do to establish and
emphasize ethical practices.
ď Discuss the importance and use of organizational controls.
4. Copyright Š 2004 South-Western. All rights reserved. 12â4
Figure 1.1
Copyright Š 2004 South-Western. All rights reserved.
The Strategic
Management
Process
5. Copyright Š 2004 South-Western. All rights reserved. 12â5
Strategic Leadership
and the Strategic
Management Process
Adapted from
Figure 12.1
Effective Strategic
Leadership
Strategic Intent Strategic
Mission
Successful
Strategic Actions
Formulation of
Strategies
Implementation
of Strategies
Strategic
Competitiveness
Above-average Returns
Shapes the
Formulation of
and
Influence
Yields
Yields
6. Copyright Š 2004 South-Western. All rights reserved. 12â6
Strategic Leadership
⢠Requires the managerial ability to:
ďAnticipate and envision
ďMaintain flexibility
ďEmpower others to create strategic change as
necessary
⢠Strategic leadership is:
ďMulti-functional work that involves working
through others
ďConsideration of the entire enterprise rather than
just a sub-unit
ďA managerial frame of reference
7. Copyright Š 2004 South-Western. All rights reserved. 12â7
Strategic Leadership (contâd)
⢠Effective strategic leaders:
ďManage the firmâs operations effectively
ďSustain a high performance over time
ďMake better decisions than their competitors
ďMake candid, courageous, pragmatic decisions
ďUnderstand how their decisions affect the
internal systems in use by the firm
ďSolicit feedback from peers, superiors and
employees about their decisions and visions
8. Copyright Š 2004 South-Western. All rights reserved. 12â8
Managers as an Organizational Resource
⢠Managers often use their discretion when
making strategic decisions and
implementing strategies
⢠Factors affecting the amount of decision-
making discretion include:
ďExternal environmental sources
ďCharacteristics of the organization
ďCharacteristics of the manager
9. Copyright Š 2004 South-Western. All rights reserved. 12â9
Factors Affecting
Managerial Discretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,
Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
External
Environment
Managerial
Discretion
External Environment
⢠Industry structure
⢠Rate of market growth
⢠Number and type of
competitors
⢠Nature and degree of
political/legal constraints
⢠Degree to which products
can be differentiated
10. Copyright Š 2004 South-Western. All rights reserved. 12â10
Factors Affecting
Managerial Discretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,
Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
External
Environment
Characteristics of
the Organization
Managerial
Discretion
Characteristics of the
Organization
⢠Size
⢠Age
⢠Culture
⢠Availability of resources
⢠Patterns of interaction
among employees
11. Copyright Š 2004 South-Western. All rights reserved. 12â11
Factors Affecting
Managerial Discretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,
Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
External
Environment
Characteristics of
the Organization
Managerial
Discretion
Characteristics of
the Manager
Characteristics of the
Manager
⢠Tolerance for ambiguity
⢠Commitment to the firm
and its desired strategic
outcomes
⢠Interpersonal skills
⢠Aspiration level
⢠Degree of self-confidence
12. Copyright Š 2004 South-Western. All rights reserved. 12â12
Top Management Teams
⢠Composed of the key managers who are
responsible for selecting and implementing
the firmâs strategies
⢠A heterogeneous top management team:
ďHas varied expertise and knowledge
ďCan draw on multiple perspectives
ďWill evaluate alternative strategies
ďBuilds consensus
13. Copyright Š 2004 South-Western. All rights reserved. 12â13
Firm Performance and Strategic Change
⢠Heterogeneous top management teams:
ďHave difficulty functioning effectively as a team
ďRequire effective management of the team to
facilitate the process of decision making
ďbut âŚ
ďAre associated positively with innovation and
strategic change
ďMay force the team or members to âthink outside
of the boxâ and be more creative
ďHave greater capacity to provide effective
strategic leadership in formulating strategy
14. Copyright Š 2004 South-Western. All rights reserved. 12â14
CEO and Top Management Team Power
⢠Higher performance is achieved when board
of directors are more directly involved in
shaping strategic direction
⢠A powerful CEO may:
ďAppoint sympathetic outside board members
ďHave inside board members who report to the
CEO
ďHave significant control over the boardâs actions
ďMay also hold the position of chairman of the
board (CEO duality)
15. Copyright Š 2004 South-Western. All rights reserved. 12â15
CEO and Top Management Power
⢠Duality often relates to poor performance
and slow response to change
ďCEOs of long tenure can also wield substantial
power
ďCEOs can gain so much power that they are
virtually independent of oversight by the board of
directors
⢠The most effective forms of governance
share power and influence among the CEO
and board of directors
16. Copyright Š 2004 South-Western. All rights reserved. 12â16
Managerial Labor Market
⢠Organizations select managers and strategic
leaders from two types of managerial labor
markets:
ďInternal managerial labor market: advancement
opportunities related to managerial positions
within a firm
ďExternal managerial labor market: career
opportunities for managers in organizations
other than the one for which they currently work
17. Copyright Š 2004 South-Western. All rights reserved. 12â17
Managerial Labor Market (contâd)
⢠Advantages of internal managerial labor
market include:
ďExperience with the firm and industry
environment
ďFamiliarity with company products, markets,
technologies, and operating procedures
ďProduces lower turnover among existing
personnel
18. Copyright Š 2004 South-Western. All rights reserved. 12â18
Managerial Labor Market (contâd)
⢠Advantages of the external managerial labor
market include
ďLong tenured insiders may be âstale in the
saddleâ
ďOutsiders may bring fresh perspectives
19. Copyright Š 2004 South-Western. All rights reserved. 12â19
Effects of CEO Succession and Top Management Team
Composition on Strategy
Figure 12.3
20. Copyright Š 2004 South-Western. All rights reserved. 12â20
Exercise of Effective Strategic Leadership
Figure 12.4
21. Copyright Š 2004 South-Western. All rights reserved. 12â21
Key Strategic Leadership Actions:
Determining Strategic Direction
⢠Determining strategic direction involves
developing a long-term vision of the firmâs
strategic intent
ďFive to ten years into the future
ďPhilosophy with goals
ďThe image and character the firm seeks
⢠Ideal long-term vision has two parts:
ďCore ideology
ďEnvisioned future
22. Copyright Š 2004 South-Western. All rights reserved. 12â22
Key Strategic Leadership Actions:
Exploiting and Maintaining Core Competencies
⢠Core competencies
ďResources and capabilities of a firm that serve as
a source of competitive advantage over its rivals
ďLeadership must verify that the firmâs
competencies are emphasized in strategy
implementation efforts
ďFirms must continuously develop or even change
their core competencies to stay ahead of
competitors
23. Copyright Š 2004 South-Western. All rights reserved. 12â23
Key Strategic Leadership Actions:
Developing Human Capital and Social Capital
⢠Human capital
ďThe knowledge and skills of the firmâs entire
workforce are a capital resource that requires
investment in training and development
⢠Social capital
ďRelationships inside and outside the firm that
help it accomplish tasks and create value for
customers and shareholders
24. Copyright Š 2004 South-Western. All rights reserved. 12â24
Key Strategic Leadership Actions:
Sustaining an Effective Organizational Culture
⢠Organizational culture
ďThe complex set of ideologies, symbols and core
values shared through the firm, that influences
the way business is conducted
⢠Entrepreneurial orientation
ďPersonal characteristics that encourage or
discourage entrepreneurial opportunities
ďś Autonomy ďś Proactiveness
ďś Innovativeness ďś Risk taking
25. Copyright Š 2004 South-Western. All rights reserved. 12â25
Key Strategic Leadership Actions:
Sustaining an Organizational Culture (contâd)
⢠Changing a firmâs organizational culture is
more difficult than maintaining it
ďEffective strategic leaders recognize when
change in culture is needed
⢠Shaping and reinforcing culture requires:
ďEffective communication
ďProblem solving skills
ďSelection of the right people
ďEffective performance appraisals
ďAppropriate reward systems
26. Copyright Š 2004 South-Western. All rights reserved. 12â26
Key Strategic Leadership Actions:
Emphasizing Ethical Practices
⢠Effectiveness of processes used to
implement the firmâs strategies increases
when based on ethical practices
⢠Ethical practices create social capital and
goodwill for the firm
27. Copyright Š 2004 South-Western. All rights reserved. 12â27
Key Strategic Leadership Actions:
Emphasizing Ethical Practices
⢠Actions that develop an ethical
organizational culture include:
ďEstablishing and communicating specific goals
to describe the firmâs ethical standards
ďContinuously revising and updating the code of
conduct
ďDisseminating the code of conduct to all
stakeholders to inform them of the firmâs ethical
standards and practices
28. Copyright Š 2004 South-Western. All rights reserved. 12â28
Key Strategic Leadership Actions:
Emphasizing Ethical Practices (contâd)
⢠Actions that develop an ethical
organizational culture include:
ďDeveloping and implementing methods and
procedures to use in achieving the firmâs ethical
standards
ďCreating and using explicit reward systems that
recognize acts of courage
ďCreating a work environment in which all people
are treated with dignity
29. Copyright Š 2004 South-Western. All rights reserved. 12â29
Key Strategic Leadership Actions:
Establishing Organizational Controls
⢠Controls
ďFormal, information-based procedures used by
managers to maintain or alter patterns in
organizational activities
⢠Controls help strategic leaders to:
ďBuild credibility
ďDemonstrate the value of strategies to the firmâs
stakeholders
ďPromote and support strategic change
30. Copyright Š 2004 South-Western. All rights reserved. 12â30
Key Strategic Leadership Actions:
Establishing Balanced Organizational Controls
⢠Balanced Scorecard
ďFramework used to verify that the firm has
established both strategic and financial controls
to assess its performance
ďPrevents overemphasis of financial controls at
the expense of strategic controls
⢠Four perspectives of balanced scorecard
ďFinancial ďCustomer
ďInternal business processes
ďLearning and growth
31. Copyright Š 2004 South-Western. All rights reserved. 12â31
Customer
Strategic and Financial Controls in a Balanced
Scorecard Framework
Adapted from
Figure 12.5
Financial
⢠Cash flow
⢠Return on equity
⢠Return on assets
⢠Assessment of ability to anticipate
customer needs
⢠Effectiveness of customer service needs
⢠Percentage of repeat business
⢠Quality of communications with customers
32. Copyright Š 2004 South-Western. All rights reserved. 12â32
Learning
and
Growth
⢠Improvements in innovation ability
⢠Number of new products compared to
competitorsâ
⢠Increases in employeesâ skills
Strategic and Financial Controls in a Balanced
Scorecard Framework
Adapted from
Figure 12.5
Internal
Business
Processes
⢠Asset utilization improvements
⢠Improvements in employee morale
⢠Changes in turnover rates