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Competing for ADVANTAGE
1
Chapter 2 Strategic Leadership
PART ISTRATEGIC THINKING
The Strategic Management Process
3
Introduction to Strategic Leadership
Key Terms
Strategic leadership
The ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary
Qualities of Legendary CEO’s
Visionary - established a clear view of what they wanted to accomplish
Transformational - agents of change
Strategic LeadershipAbilities
Oversee broad and diverse operations
Manage through others Influence human behaviorCope with changeHandle uncertainty Motivate others to achieve
organizational goalsManage complexity
Skill Hierarchy
Level 1: Highly Capable Individual Level 2: Contributing Team Member Level 3: Competent Manager Level 4: Effective Leader Level 5: Executive
Strategic Leadership Style
Directive approach
Collaborative approach
Delegation
Managerial Discretion and Decision Biases
Key Terms
Managerial discretion
Latitude for action
Hubris
Excessive pride, leading to a feeling of invincibility
Factors Impacting Managerial Discretion
Characteristics of the manager
Constraints in the external environment
Characteristics of the organization
Constraints on Decision Making
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
Minimizing Decision-Making Biases
Awareness of biases
Open decision making environment
Real options analysis
Diverse top management team
Evaluation of decision processes
Top Management Teams
Key Terms
Top management team
Group composed of the CEO and other key managers who are responsible for setting the direction of the firm and for formulating and implementing its strategies
Heterogeneous top management team Managerial group composed of individuals with different functional backgrounds, experiences, and
educations.
Top Management Team Effectiveness
Top management team heterogeneity
The CEO and top management team power
Executive succession processes
Benefits of Heterogeneity
Variety of perspectives Propensity for strong competitive
actions Tendency to "think outside of the
box" Greater functional and business-level
expertise Promotion of debate
Challenges of Heterogeneity
Cohesion
Communication
Thoroughness
The CEO and Top Management Team Power
Key Terms
CEO duality Practice of CEO also holding the position as chair of the board of directors
Independent board leadership structure Practice of assigning the CEO and chair of the board positions to two different people
Stewardship theory Concept suggesting that top managers intend to behave in the right interests of the firm's shareholders
CEO Duality
Common in the United StatesOccurs most often in the largest
firmsUnder scrutiny and attack from
increased shareholder activism Criticized for causing poor
performance and slow response to change
Independent Board Leadership Structure
Used to better monitor top-level manager decisions and actions
Especially relevant to the oversight of financial performance
Always practiced in Britain, but can result in power struggles and leadership confusion
Stewardship Theory
Less interference with managerial actions should increase the profit potential of the firm.
CEO duality should facilitate effective decisions and actions.
Additional governance and coordination costs associated with an independent board leadership structure should be unnecessary.
Sources of Top Management Power
Social and business ties with directors
CEO appointment of sympathetic board members
CEO duality Tenure
Executive Succession Processes
Key Terms
Internal managerial labor market Seeking to fill managerial positions from a pool of candidates found within the firm
External managerial labor market
Seeking to fill managerial positions from a pool of candidates found outside of the firm
Benefits of Internal Hiring Practices
Continuity
Continued commitment
Familiarity
Reduced turnover
Retention of firm-specific knowledge
External Labor Market
Long tenure with the same firm is thought to reduce innovation.
Outsiders offer diverse knowledge bases and social networks with the potential for new competitive advantages.
Interaction between CEO Succession and Top Management Team Composition
Key Strategic Leadership Responsibilities and Actions
Positioning
Key Terms
Scope
Breadth of a firm's activities across products, markets, geographic regions, core technologies, and value creation stages
Five Elements of Strategy
Acquire, Develop, and Manage Key Resources
Two Critical ResourcesHuman Capital
Organizational Culture
Managing Human Capital
Knowledge and skills of the firm’s entire workforce
Context for stakeholder performanceSustainable operational performanceEffective commitments to
organizational goalsTeam commitment to achieving
strategic intentCollaborative management
Developing Global Competencies
Find opportunities for future strategic leaders to work in locations outside of the home nation
Invest in human capital in foreign subsidiaries
Manage “inpatriation”
Investing in Employees as aCapital Resource
Training and development programs
Effective reward plansContinuous learningLeveraging the knowledge
base
Ensuring an Effective Organizational Culture
Key Terms
Organizational culture
A complex set of ideologies, symbols, and core values shared throughout the firm which influences the way business is conducted
Entrepreneurial Opportunism
Employee autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness
Shaping and Reinforcinga New Culture
Communication
Problem solving
Staffing
Performance appraisals
Reward systems
Executive support
Benefits of Effective Stakeholder Management
Provides timely and accurate information about the external environment
Enhances planning and decision making quality
Attracts valuable customers and business partners
Expands strategic options Facilitates acquisition of critical resources Reduces transaction costs
Determining and Communicating 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
Novartis’ Mission Statement
Long-Term Vision
A core ideology – motivates employees through the company's heritage
An envisioned future – encourages employees to stretch beyond their comfort zones
Guiding Employee Decision Making
Strategic direction
Values and ethical practices
Establishing Values and Ethical Practices
Ethical leaders Code of ethics Communication of specific goals Revisions and updates based on
stakeholder input Disseminate ethical standards and
inform all stakeholders Procedures to achieve ethical
standards Explicit reward systems Universal dignity in the work
environment
Strategy Formulation and Implementation
I/O economics – develop structures, systems and programs to reinforce the external positioning of the business
Resource-based – make optimal use of and support the resources and capabilities that provide a competitive advantage
Stakeholder – manage stakeholder relationships and conduct interactive activities to exchange and integrate knowledge to build value-added strategies
Establishing Balanced Controls
Key Terms
Controls Formal, information-based procedures used by managers to maintain or alter patterns in organizational activities
Balanced scorecard Framework that strategic leaders can use to verify that they have established both financial and strategic controls to assess firm performance
Control Systems
Financial Controls focus on short-term financial
outcomes produce more short-term and risk-
averse managerial decisions Strategic Controls
focus on the content of strategic actions, rather than their outcomes
encourage decisions that incorporate moderate and acceptable levels of risk
The Balanced Scorecard
ETHICAL QUESTION
What are the ethical issues influencing managerial discretion?
Has the current business environment changed the influence of ethics on managerial discretion? If so, how?
ETHICAL QUESTION
How have ethical lapses influenced regulatory changes and how has the
current stakeholders’ view changed the expectations for strategic leaders in
formulating and implementing contemporary strategies?
ETHICAL QUESTION
What should a newly appointed CEO from the external managerial labor market do to understand a firm’s
ethical climate? How important are the CEOs efforts to understand this
climate?
ETHICAL QUESTION
Are ethical strategic leaders more effective than unethical strategic leaders? If so, why? If not, why
not?
ETHICAL QUESTION
Assume that you are working in an organization that you believe has an unethical culture. What
actions could you take to change that culture to make it
more ethical?
ETHICAL QUESTION
Is corporate downsizing ethical? If not, why not? If corporate
downsizing is ethical, what can strategic leaders do to mitigate the
negative effects associated with reducing the size of their firm’s
labor force?