Chapter 12: Strategic Leadership (SL)

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

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 subunit • Coping with change • 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

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.

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 use their discretion when making strategic decisions and this discretion influences firm performance • Several factors determine the amount of manager’s decision-making discretion including: • External environmental sources • Organizational characteristics • Characteristics of the manager

Factors Affecting Managerial Discretion

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

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

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

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

Effects of CEO Succession and Top Management Team Composition on Strategy

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

Exercise of Effective Strategic Leadership:Key Strategic Leadership Actions

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

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

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

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

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 develop cooperative cultures • Unrelated firms develop competitive cultures • Cost leaders value economy, frugality and efficiency • Differentiators value innovation, quality, and excellence • Changing culture can be difficult but can be accomplished if the appropriate strategic leadership is in place

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

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

Strategic Controls and Financial Controls in a Balanced Scorecard Framework

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

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

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)

Key Strategic Leadership Actions

Chapter 12: Strategic Leadership (SL)