Competing For Advantage

1. Competing For Advantage Part I – Strategic Thinking Chapter 2 – Strategic Leadership

2. The Strategic Management Process

3. Individual Strategic Leaders and Influences on Their Decisions • Key Terms • Strategic Leadership – the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary

4. Qualities of Legendary CEOs • Visionary • have a clear view of what they want to accomplish • Transformational • act as agents of change

5. Strategic Leadership • Multifunctional • Managerial • Influential • Change tolerant • Uncertainty tolerant • Motivational

6. Skill Hierarchy

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

8. Effective Leadership Style Several examples of well-known CEOs are mentioned throughout the chapter to illustrate their leadership styles. Who do you think has the most effective leadership style and why?

9. Managerial Discretion and Decision Biases • Key Terms • Discretion – latitude for action • Heuristics– rules of thumb used in decision making • Hubris – excessive pride, leading to a feeling of invincibility

10. Enhancing Leadership Effectiveness • Matching backgrounds to existing challenges • Having an orientation to action • Minimizing decision-making biases • Maneuvering around constraints on managerial decision making

11. Minimizing Decision-Making Biases • Awareness of biases • Open decision-making environment • Use of real options analysis • Diverse top management team

12. Constraints on Decision Making

13. 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

14. Hubris • Hubris refers to the excessive pride that leads to a feeling of invincibility • Hubris can magnify the effects of decision-making biases

15. Top Management Teams • Key Term • Top Management Team –group composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies

16. Factors that Influence the Effectiveness of Top Management Teams • Top management team heterogeneity • The CEO and top management team power • Executive succession processes

17. Top Management Team Heterogeneity • Key Term • Heterogeneous Top Management Team – managerial group composed of individuals with different functional backgrounds, experiences, and educations

18. Heterogeneous Top Management Team • Introduces a variety of perspectives • Has a greater propensity for strong competitive action • Tends to "think outside of the box," leading to more creative decision making, innovation, and strategic change • Offers various areas of expertise to identify environmental opportunities, threats, or the need for change • Promotes debate

19. Heterogeneous Top Management Team Challenges • Cohesion • Communication • Comprehensive examination of threats and opportunities

20. The CEO and Top Management Team Power • Key Terms • CEO Duality–the structure in which the CEO serves as chair of the board of directors to achieve power relative to the board • Independent Board Leadership Structure –the structure in which the board's ability to monitor top-level managers' decisions and actions (particularly in terms of financial performance) is enhanced by employing two different people to serve as CEO and board chair

21. The CEO and Top Management Team Power • Key Terms • Stewardship Theory–suggests that top managers want to do the right thing for the firm's shareholders and that reducing the amount of interference with their actions will increase the profit potential of the firm

22. Top Management Power • Members of top management can use their social and business ties with directors • Powerful CEOs can appoint members of the top management team or other sympathetic associates to serve on the board • CEO duality • CEO tenure

23. CEO Duality • Is more common in the United States • Occurs most often in the largest firms • Receives scrutiny from increased shareholder activism • Is criticized for causing poor performance and slow response to change

24. Executive Succession Processes • Key Terms • 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

25. Benefits of Internal Labor Market • Continuity • Continued commitment • Familiarity • Reduced turnover • Retention of "private knowledge"

26. External 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

27. Effect of CEO Succession and Top Management Team on Strategy

28. Key Strategic Leadership Responsibilities and Actions

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

30. Five Elements of Strategy

31. Acquire, Develop, and Manage Key Resources • Key Terms • Organizational Culture–complex set of ideologies, symbols, and core values that are shared throughout the firm and influence the way business is conducted

32. HR Practices Linked to Strategic Success • Managing intellectual capital • Investing in capital resources • Building effective commitments to organizational goals • Incorporating international experience into the skill sets of employees

33. HR Practices Linked to Strategic Success (cont.) • Employing effective training and development programs to promote strategic vision and cohesion • Establishing effective reward plans • Instituting continuous learning • Leveraging the firm's expanding knowledge base

34. Effective Cultural Qualities • Entrepreneurial opportunism • Employee autonomy • Innovativeness • Risk taking • Proactiveness • Competitive aggressiveness

35. Overcoming Cultural Difficulties • Effective communication • Effective problem solving • Effective staffing • Effective performance appraisals • Effective reward systems

36. Mintzberg’s Managerial Roles

37. Determine and Communicate 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. Novartis Stakeholders • Customers • Employees • Shareholders • Society

40. Long-Term Vision • A core ideology to motivate employees through the company's heritage • An envisioned future to encourage employees to stretch beyond their comfort zones

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

42. Actions for an Ethical Culture • Employ ethical strategic leaders • Establish and communicate specific goals to describe the firm's ethical standards • Continuously revise and update the code of conduct based on stakeholder input • Disseminate the code of conduct to all stakeholders to inform them of ethical standards and practices • Develop and implement methods and procedures to use in achieving the firm's ethical standards • Create and use explicit reward systems to recognize bold acts that demonstrate ethical behavior and decision making • Create a work environment in which all people are treated with dignity

43. Strategy Implementation • I/O economics framework – develops structures, systems, and programs to reinforce the external positioning of the business • Resource model –makes optimal use of and supports the resources and capabilities that provide a competitive advantage • Stakeholder perspective – includes activities such as collecting information from stakeholders, assessing their needs and desires, integrating this knowledge into strategic decisions, effectively managing internal stakeholders, and forming interorganizational relationships with external stakeholders

44. Balanced Controls • Key Terms • Controls–formal, information-based procedures used by managers to maintain or alter patterns in organizational activities • Balanced Scorecard–framework that allows strategic leaders to verify that they have established both financial and strategic controls to assess firm performance

45. Control Systems • Financial Controls • focus on short-term financial outcomes • produce risk-averse managerial decisions • Strategic Controls • focus on the content of strategic actions • encourage decisions that incorporate moderate and acceptable levels of risk

46. Controls in Balanced Scorecard Framework

47. Ethical Questions What are the ethical issues influencing managerial discretion? Has the current business environment changed the influence of ethics on managerial discretion? If so, how?

48. Ethical Questions Is there a difference between stakeholders’ current view of an ethical strategic leader and the early 1990s perspective of an ethical strategic leader? If so, describe the differences between the two views.

49. Ethical Questions What should a newly appointed CEO from the external managerial labor market do to understand a firm’s ethical climate? How important are the CEO’s efforts to understand this climate?

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