Competing for Advantage

1. Competing for Advantage Chapter 2 Strategic Leadership PART I STRATEGIC THINKING

2. The Strategic Management Process

3. Introduction to Strategic Leadership • Key Terms • Strategic leadership The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary

4. Qualities of Legendary CEO’s • Visionary - established a clear view of what they wanted to accomplish • Transformational - agents of change

5. Strategic LeadershipAbilities • Oversee broad and diverse operations • Manage through others • Influence human behavior • Cope with change • Handle uncertainty • Motivate others to achieve organizational goals • Manage complexity

6. Skill Hierarchy • Level 1: Highly Capable Individual • Level 2: Contributing Team Member • Level 3: Competent Manager • Level 4: Effective Leader • Level 5: Executive

7. Strategic Leadership Style • Directive approach • Collaborative approach • Delegation

8. Managerial Discretion and Decision Biases • Key Terms • Managerial discretion Latitude for action • Hubris Excessive pride, leading to a feeling of invincibility

9. Factors Impacting Managerial Discretion • Characteristics of the manager • Constraints in the external environment • Characteristics of the organization

10. Constraints on Decision Making

11. 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

12. Minimizing Decision-Making Biases • Awareness of biases • Open decision making environment • Real options analysis • Diverse top management team • Evaluation of decision processes

13. 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.

14. Top Management Team Effectiveness • Top management team heterogeneity • The CEO and top management team power • Executive succession processes

15. 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

16. Challenges of Heterogeneity • Cohesion • Communication • Thoroughness

17. 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

18. CEO Duality • Common in the United States • Occurs most often in the largest firms • Under scrutiny and attack from increased shareholder activism • Criticized for causing poor performance and slow response to change

19. 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

20. 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.

21. Sources of Top Management Power • Social and business ties with directors • CEO appointment of sympathetic board members • CEO duality • Tenure

22. 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

23. Benefits of Internal Hiring Practices • Continuity • Continued commitment • Familiarity • Reduced turnover • Retention of firm-specific knowledge

24. 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.

25. Interaction between CEO Succession and Top Management Team Composition

26. Key Strategic Leadership Responsibilities and Actions

27. Positioning • Key Terms • Scope Breadth of a firm's activities across products, markets, geographic regions, core technologies, and value creation stages

28. Five Elements of Strategy

29. Acquire, Develop, and Manage Key Resources • Two Critical Resources • Human Capital • Organizational Culture

30. Managing Human Capital • Knowledge and skills of the firm’s entire workforce • Context for stakeholder performance • Sustainable operational performance • Effective commitments to organizational goals • Team commitment to achieving strategic intent • Collaborative management

31. 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”

32. Investing in Employees as aCapital Resource • Training and development programs • Effective reward plans • Continuous learning • Leveraging the knowledge base

33. 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

34. Entrepreneurial Opportunism • Employee autonomy • Innovativeness • Risk taking • Proactiveness • Competitive aggressiveness

35. Shaping and Reinforcinga New Culture • Communication • Problem solving • Staffing • Performance appraisals • Reward systems • Executive support

36. 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

37. 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

38. Novartis’ Mission Statement

39. Long-Term Vision • A core ideology – motivates employees through the company's heritage • An envisioned future – encourages employees to stretch beyond their comfort zones

40. Guiding Employee Decision Making • Strategic direction • Values and ethical practices

41. 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

42. 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

43. 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

44. 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

45. The Balanced Scorecard

46. 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?

47. 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?

48. 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?

49. Ethical Question Are ethical strategic leaders more effective than unethical strategic leaders? If so, why? If not, why not?

50. 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?