Competing For Advantage

Part I – Strategic ThinkingChapter 2 – Strategic Leadership

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

Qualities of Legendary CEOs Visionary

have a clear view of what they want to accomplish

Transformational act as agents of change motivates others to do more organizational needs above

their own

Strategic Leadership

Multifunctional Managerial & InfluentialChange tolerantUncertainty tolerantMotivational

Skill Hierarchy

Level 5 Leaders

Self-confident enough to set up their successors for success

Humble and modest “Unwavering resolve“ “Workmanlike diligence - more plow horse

than show horse" Give credit to others for their success and

take full responsibility for poor results “Attribute much of their success to 'good luck'

rather than personal greatness"

Strategic Leadership Style

Directive approachCollaborative approach Delegation

Each has its own set of advantages & disadvantages

Managerial Discretion and Decision Biases

Discretion – latitude for action or decision making

Hubris – excessive pride, leading to a feeling of invincibility

Heuristics – rules of thumb used in decision making

Constraints on Decision Making

Decision-Making Biases

Reliance on previously formed beliefsFocus on limited objectivesExposure to limited decision alternatives Insensitivity to outcome probabilities Illusion of controlReliance on a limited set of heuristics

Hubris

Excessive pride that leads to a feeling of invincibility

Magnifies the effects of decision-making biases

Implications for IBP

Be sure you don’t fall prey to decision making biases

Be sure you understand the effects of hubris Play the role of Devil’s Advocate. Question decisions constructively. Other ideas?

Top Management Teams

Group composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies

Factors that Influence the Effectiveness of Top Management Teams

Top management team heterogeneity

The CEO and top management team power

Executive succession processes

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

Heterogeneous Top Management Team Challenges

Cohesion

Communication

Comprehensive examination of threats and opportunities

The CEO and Top Management Team Power

CEO Duality - CEO also 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

CEO Duality

Is more common in the United StatesOccurs most often in the largest firmsReceives scrutiny from increased

shareholder activism Is criticized for causing poor

performance and slow response to change

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

Executive Succession Processes

Process can be internal or external

Benefits of Internal Labor Market

Continuity

Continued commitment

Familiarity

Reduced turnover

Retention of "private knowledge"

Benefits of External Labor Market

Since tenure with the same firm is thought to reduce innovation, outsiders can bring

diverse knowledge bases

new social networks

which may offer new synergies and new competitive advantages

Effect of CEO Succession and Top Management Team on Strategy

Key Strategic Leadership Responsibilities and Actions

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

HR Practices Linked to Strategic Success

Managing intellectual capital Investing in capital resourcesBuilding effective commitments to

organizational goals Incorporating international experience

into the skill sets of employees

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 learningLeveraging the firm's expanding

knowledge base

Effective Cultural Qualities

Entrepreneurial opportunism Employee autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness

Overcoming Cultural Difficulties

Effective communicationEffective problem solvingEffective staffingEffective performance appraisalsEffective reward systems

Mintzberg’s Managerial Roles

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

What is strategic effectiveness?

Consistent, long-termgoals and objectivesConsistent, long-termgoals and objectives

Reflects and understandingof the environment

Takes resources into consideration

Effectivelyimplemented

StrategicEffectiveness

(fit)

Strategic Vision vs. Mission

A strategic vision concerns “wherewe are going” or ”what do we want to be.” Markets to be pursued Future product/ market/

customer/ technology focus

Kind of company management is trying to create

The mission statement focuses on its “who we are and what we do” Current product and

service offerings Customer needs being

served Technological

and businesscapabilities

Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from

other firms of its type Conveys

Who we are, What we do, and Why we are here

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term

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

Current financial results are “lagging indicators” reflecting results of past decisions and actions—good profitability now does not translate into stronger capability for delivering better financial results later

However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead

Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance

Leading versus Lagging Indicators

Controls in Balanced Scorecard Framework