1 Chapter 12: Strategic Leadership (SL) Overview: Strategic leadership & top-level managers importance Top management teams and effects on firm performance.

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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 firm’s

strategic direction Importance of strategic leaders in managing firm’s

resources Organizational culture and actions to sustain it Ethical practices: establishment and emphasis Importance and use of organizational controls

The Strategic Management Process

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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 unit

Corporate, business, and international strategies Coping with change from internal and external environments 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

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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 above-average 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 make a difference because of the discretion (or

latitude for action) they use when making strategic decisions

This discretion influences firm outcomes like performance A manager’s decision-making discretion is determined by

several factors

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Factors Affecting

Managerial Discretion

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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 firm’s 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

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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 CEO’s 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

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Managerial Succession

The choice of executives is a critical decision with important implications for the firm’s 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 firm’s 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 Firm’s 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 Firm’s 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 firm’s human capital, which refers to the knowledge and skills of

a firm’s 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 firm’s 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 company’s culture

and many places that is comes from Once developed, a company’s 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 should develop cooperative cultures Unrelated firms should develop competitive cultures Cost leaders should value economy, frugality and efficiency Differentiators should 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 firm’s 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 implementation

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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