Chapter 12: Strategic Leadership (SL)

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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
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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 ProcessStrategic 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 DiscretionThe 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 StrategyManagerial 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 ActionsKey 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 FrameworkKey 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
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