Strategic Leadership

1. Strategic Leadership • Strategic leadership involves: • the ability to anticipate, envision, maintain flexibility and empower others to create strategic change • multi-functional work that involves working through others • consideration of the entire enterprise rather than just a sub-unit • a managerial frame of reference

2. Effective Strategic Leadership Strategic Intent Strategic Mission Successful Strategic Actions Strategic Leadership and the Strategic Management Process shapes the formulation of and influence

3. Strategic Competitiveness Above-Average Returns Formulation of Strategies Implementation of Strategies Successful Strategic Actions Strategic Leadership and the Strategic Management Process yields

4. External Environment Factors Affecting 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

5. External Environment Characteristics of the Organization Factors Affecting Managerial Discretion • Characteristics of the Organization • Size • Age • Culture • Availability of resources • Patterns of interaction among employees

6. External Environment Characteristics of the Organization Characteristics of the Manager Managerial Discretion Factors Affecting Managerial Discretion • Characteristics of the Manager • Tolerance for ambiguity • Commitment to the firm and its desired strategic outcomes • Interpersonal skills • Aspiration level • Degree of self-confidence

7. Top Management Teams • The top management team is composed of key managers who are responsible for • formulating and • implementing • the organization’s strategies • A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus

8. Top Management Teams • A top management team must also be able to function effectively as a team in order to implement strategies • a heterogeneous team makes this more difficult • a heterogeneous team, however, is associated positively with innovation and strategic change

9. Strategic Leadership • Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors • This is especially true when the CEO is also chairman of the board of directors • CEOs of long tenure can also wield substantial power • The most effective forms of governance share power and influence among the CEO and board of directors

10. Managerial Labor Markets • The internal labor market is comprised of the career path alternatives available to a firm’s managers • Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge

11. Managerial Labor Markets • The external labor market includes the collection of career opportunities for managers outside their firm • Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas

12. Internal CEO succession External CEO succession Ambiguous: possible change in top management team and strategy Stable strategy Homogeneous Strategic change Stable strategy with innovation Heterogeneous Managerial Labor Markets Managerial Labor Market: CEO Succession Top Management Team Composition

13. Determining strategic direction Exploiting and maintaining core competencies Establishing balanced organizational controls Effective Strategic Leadership Emphasizing ethical practice Developing human capital Sustaining an effective organizational culture Exercise of Effective Strategic Leadership

14. Determining Strategic Direction • Strategic direction means the development of a long-term vision of a firm’s strategic intent • A charismatic leader can help achieve strategic intent • It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction • Executives must structure the firm effectively to help achieve the vision

15. Exploiting and Maintaining Core Competencies • Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals • Strategic leaders must verify that the firm’s competencies are emphasized in strategy implementation efforts

16. Exploiting and Maintaining Core Competencies • In many large firms, and certainly in related-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units • Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital

17. Developing Human Capital • Human capital refers to the knowledge and skills of the firm’s entire workforce • Employees are viewed as a capital resource that requires investment • No strategy can be effective unless the firm is able to develop and retain good people to carry it out • The effective development and management of the firm’s human capital may be the primary determinant of a firm’s ability to formulate and implement strategies successfully

18. Sustaining an Effective Organizational Culture • An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business • Shaping the firm’s culture is a central task of effective strategic leadership

19. Sustaining an Effective Organizational Culture • An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary • Reengineering can facilitate this process

20. Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering • The benefits of business reengineering are maximized when employees believe that: • every job in the company is essential and important • all employees must create value through their work

21. Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering • Constant learning is a vital part of every person’s job • Teamwork is essential to successful implementation • Problems are solved only when teams accept the responsibility for the solution

22. Emphasizing Ethical Practices • Ethical practices increase the effectiveness of strategy implementation processes • Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment

23. Emphasizing Ethical Practices • To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture • Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees

24. Establishing Balanced Organizational Controls • Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken • Financial controls are often emphasized in large corporations and focus on short-term financial outcomes • Strategic control focuses on the content of strategic actions, rather than their outcomes

25. Establishing Balanced Organizational Controls • Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns

26. Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives Criteria Financial • Cash flow • Return on equity • Return on assets Customer • Assessment of ability to anticipate customers needs • Effectiveness of customer service practices • Percentage of repeat business • Quality of communications with customers

27. Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives Criteria Internal Business Process • Asset utilization improvements • Improvements in employee morale • Changes in turnover rates Learning and Growth • Improvements in innovation ability • Number of new products compared to competitors • Increases in employees’ skills