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 firms
strategic direction
Importance of strategic leaders in managing firms
resources
Organizational culture and actions to sustain it
Ethical practices: establishment and emphasis
Importance and use of organizational controls

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The Strategic Management Process

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 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 unit
Corporate, business, and international strategies
Coping with change from internal and external environments
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
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 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.

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 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 make a difference because of the discretion (or
latitude for action) they use when making strategic
decisions
This discretion influences firm outcomes like performance
A managers decision-making discretion is determined by
several factors
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 Factors
Affecting
Managerial
Discretion

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 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 firms 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 7
 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

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 The Role of Top-Level Managers
The CEO & TMT Power
TMT characteristics can give the CEOs 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

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 Managerial Succession
The choice of executives is a critical decision with
important implications for the firms 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
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 Effects of CEO Succession and Top
Management Team Composition on Strategy

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 Managerial Succession
Benefits of Internal Managerial Labor Market
Leads to continuity and continued commitment to firms 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 12
Exercise of Effective Strategic Leadership:
Key Strategic Leadership Actions

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 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

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 Key Strategic Leadership Actions
Effectively Managing the Firms 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
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 Key Strategic Leadership Actions
Effectively Managing the Firms 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 firms human capital, which refers to the knowledge and skills of
a firms 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 firms human
capital

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 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 companys culture and
many places that is comes from
Once developed, a companys 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 17
 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 should develop cooperative cultures
Unrelated firms should develop competitive cultures
Cost leaders should value economy, frugality and efficiency
Differentiators should value innovation, quality, and excellence
Changing culture can be difficult but can be accomplished if the
appropriate strategic leadership is in place

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 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 firms 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 19
 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 20
Strategic Controls and Financial Controls
in a Balanced Scorecard Framework

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 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
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 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 23
 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)

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Key Strategic Leadership Actions

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