1 Chapter 2 Strategic Leadership PART I STRATEGIC THINKING.

Competing for ADVANTAGE

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Chapter 2 Strategic Leadership

PART ISTRATEGIC THINKING

The Strategic Management Process

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Introduction to Strategic Leadership

Key Terms

Strategic leadership

The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary

Qualities of Legendary CEO’s

Visionary - established a clear view of what they wanted to accomplish

Transformational - agents of change

Strategic LeadershipAbilities

Oversee broad and diverse operations

Manage through others Influence human behaviorCope with changeHandle uncertainty Motivate others to achieve

organizational goalsManage complexity

Skill Hierarchy

Level 1: Highly Capable Individual Level 2: Contributing Team Member Level 3: Competent Manager Level 4: Effective Leader Level 5: Executive

Strategic Leadership Style

Directive approach

Collaborative approach

Delegation

Managerial Discretion and Decision Biases

Key Terms

Managerial discretion

Latitude for action

Hubris

Excessive pride, leading to a feeling of invincibility

Factors Impacting Managerial Discretion

Characteristics of the manager

Constraints in the external environment

Characteristics of the organization

Constraints on Decision Making

Decision-Making Biases

Reliance on a limited set of heuristics

Reliance on previously formed beliefs

Focus on limited objectives

Exposure to limited decision alternatives

Insensitivity to outcome probabilities

Illusion of control

Minimizing Decision-Making Biases

Awareness of biases

Open decision making environment

Real options analysis

Diverse top management team

Evaluation of decision processes

Top Management Teams

Key Terms

Top management team

Group composed of the CEO and other key managers who are responsible for setting the direction of the firm and for formulating and implementing its strategies

Heterogeneous top management team Managerial group composed of individuals with different functional backgrounds, experiences, and

educations.

Top Management Team Effectiveness

Top management team heterogeneity

The CEO and top management team power

Executive succession processes

Benefits of Heterogeneity

Variety of perspectives Propensity for strong competitive

actions Tendency to "think outside of the

box" Greater functional and business-level

expertise Promotion of debate

Challenges of Heterogeneity

Cohesion

Communication

Thoroughness

The CEO and Top Management Team Power

Key Terms

CEO duality Practice of CEO also holding the position as chair of the board of directors

Independent board leadership structure Practice of assigning the CEO and chair of the board positions to two different people

Stewardship theory Concept suggesting that top managers intend to behave in the right interests of the firm's shareholders

CEO Duality

Common in the United StatesOccurs most often in the largest

firmsUnder scrutiny and attack from

increased shareholder activism Criticized for causing poor

performance and slow response to change

Independent Board Leadership Structure

Used to better monitor top-level manager decisions and actions

Especially relevant to the oversight of financial performance

Always practiced in Britain, but can result in power struggles and leadership confusion

Stewardship Theory

Less interference with managerial actions should increase the profit potential of the firm.

CEO duality should facilitate effective decisions and actions.

Additional governance and coordination costs associated with an independent board leadership structure should be unnecessary.

Sources of Top Management Power

Social and business ties with directors

CEO appointment of sympathetic board members

CEO duality Tenure

Executive Succession Processes

Key Terms

Internal managerial labor market Seeking to fill managerial positions from a pool of candidates found within the firm

External managerial labor market

Seeking to fill managerial positions from a pool of candidates found outside of the firm

Benefits of Internal Hiring Practices

Continuity

Continued commitment

Familiarity

Reduced turnover

Retention of firm-specific knowledge

External Labor Market

Long tenure with the same firm is thought to reduce innovation.

Outsiders offer diverse knowledge bases and social networks with the potential for new competitive advantages.

Interaction between CEO Succession and Top Management Team Composition

Key Strategic Leadership Responsibilities and Actions

Positioning

Key Terms

Scope

Breadth of a firm's activities across products, markets, geographic regions, core technologies, and value creation stages

Five Elements of Strategy

Acquire, Develop, and Manage Key Resources

Two Critical ResourcesHuman Capital

Organizational Culture

Managing Human Capital

Knowledge and skills of the firm’s entire workforce

Context for stakeholder performanceSustainable operational performanceEffective commitments to

organizational goalsTeam commitment to achieving

strategic intentCollaborative management

Developing Global Competencies

Find opportunities for future strategic leaders to work in locations outside of the home nation

Invest in human capital in foreign subsidiaries

Manage “inpatriation”

Investing in Employees as aCapital Resource

Training and development programs

Effective reward plansContinuous learningLeveraging the knowledge

base

Ensuring an Effective Organizational Culture

Key Terms

Organizational culture

A complex set of ideologies, symbols, and core values shared throughout the firm which influences the way business is conducted

Entrepreneurial Opportunism

Employee autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness

Shaping and Reinforcinga New Culture

Communication

Problem solving

Staffing

Performance appraisals

Reward systems

Executive support

Benefits of Effective Stakeholder Management

Provides timely and accurate information about the external environment

Enhances planning and decision making quality

Attracts valuable customers and business partners

Expands strategic options Facilitates acquisition of critical resources Reduces transaction costs

Determining and Communicating Strategic

Direction Key Terms

Strategic direction

Definition of a firm's image and character over time, framed within the context of the conditions in which the company operates

Sustainable development Concept that a firm can and should operate without adversely influencing its environment

Novartis’ Mission Statement

Long-Term Vision

A core ideology – motivates employees through the company's heritage

An envisioned future – encourages employees to stretch beyond their comfort zones

Guiding Employee Decision Making

Strategic direction

Values and ethical practices

Establishing Values and Ethical Practices

Ethical leaders Code of ethics Communication of specific goals Revisions and updates based on

stakeholder input Disseminate ethical standards and

inform all stakeholders Procedures to achieve ethical

standards Explicit reward systems Universal dignity in the work

environment

Strategy Formulation and Implementation

I/O economics – develop structures, systems and programs to reinforce the external positioning of the business

Resource-based – make optimal use of and support the resources and capabilities that provide a competitive advantage

Stakeholder – manage stakeholder relationships and conduct interactive activities to exchange and integrate knowledge to build value-added strategies

Establishing Balanced Controls

Key Terms

Controls Formal, information-based procedures used by managers to maintain or alter patterns in organizational activities

Balanced scorecard Framework that strategic leaders can use to verify that they have established both financial and strategic controls to assess firm performance

Control Systems

Financial Controls focus on short-term financial

outcomes produce more short-term and risk-

averse managerial decisions Strategic Controls

focus on the content of strategic actions, rather than their outcomes

encourage decisions that incorporate moderate and acceptable levels of risk

The Balanced Scorecard

ETHICAL QUESTION

What are the ethical issues influencing managerial discretion?

Has the current business environment changed the influence of ethics on managerial discretion? If so, how?

ETHICAL QUESTION

How have ethical lapses influenced regulatory changes and how has the

current stakeholders’ view changed the expectations for strategic leaders in

formulating and implementing contemporary strategies?

ETHICAL QUESTION

What should a newly appointed CEO from the external managerial labor market do to understand a firm’s

ethical climate? How important are the CEOs efforts to understand this

climate?

ETHICAL QUESTION

Are ethical strategic leaders more effective than unethical strategic leaders? If so, why? If not, why

not?

ETHICAL QUESTION

Assume that you are working in an organization that you believe has an unethical culture. What

actions could you take to change that culture to make it

more ethical?

ETHICAL QUESTION

Is corporate downsizing ethical? If not, why not? If corporate

downsizing is ethical, what can strategic leaders do to mitigate the

negative effects associated with reducing the size of their firm’s

labor force?