Chapter 12 Strategic Leadership Michael A Hitt R

Chapter 12 Strategic Leadership Michael A. Hitt R. Duane Ireland Robert E. Hoskisson © 2003 Southwestern Publishing Company 1

Strategic Inputs The Strategic Management Process Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment Strategy Implementation Strategic Outcomes Strategic Actions Strategy Formulation Chapter 5 Chapter 4 Competitive Rivalry Business-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 8 International Strategy Chapter 6 Corporate. Level Strategy Chapter 10 Corporate Governance Chapter 9 Cooperative Strategy Chapter 12 Strategic Leadership Strategic Competitiveness Above-Average Returns Feedback Chapter 11 Organizational Structure and Controls 2

Strategic Leadership l Strategic leadership involves: – the ability to anticipate, envision, maintain flexibility and empower others to create strategic change – multi-functional work that involves working through others – consideration of the entire enterprise rather than just a sub-unit – a managerial frame of reference 3

Strategic Leadership and the Strategic Management Process Effective Strategic Leadership shapes the formulation of Strategic Intent Strategic Mission and influence Successful Strategic Actions 4

Strategic Leadership and the Strategic Management Process Successful Strategic Actions Formulation of Strategies Implementation of Strategies yields Strategic Competitiveness Above-Average Returns 5

Factors Affecting Managerial Discretion External Environment • Industry structure • Rate of market growth • Number and type of competitors • Nature and degree of political/legal constraints • Degree to which products can be differentiated 6

Factors Affecting Managerial Discretion External Environment Characteristics of the Organization • Size • Age • Culture • Availability of resources • Patterns of interaction among employees 7

Factors Affecting Managerial Discretion External Environment Characteristics of the Organization Characteristics of the Managerial Discretion Characteristics of the Manager • Tolerance for ambiguity • Commitment to the firm and its desired strategic outcomes • Interpersonal skills • Aspiration level • Degree of self-confidence 8

Top Management Teams l The top management team is composed of key managers who are responsible for – – – l formulating and implementing the organization’s strategies A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus 9

Top Management Teams l A top management team must also be able to function effectively as a team in order to implement strategies – a heterogeneous team makes this more difficult – a heterogeneous team, however, is associated positively with innovation and strategic change 10

Strategic Leadership Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors l This is especially true when the CEO is also chairman of the board of directors l CEOs of long tenure can also wield substantial power l The most effective forms of governance share power and influence among the CEO and board of directors l 11

Managerial Labor Markets The internal labor market is comprised of the career path alternatives available to a firm’s managers l Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge l 12

Managerial Labor Markets The external labor market includes the collection of career opportunities for managers outside their firm l Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas l 13

Managerial Labor Markets Homogeneous Top Management Team Composition Heterogeneous Managerial Labor Market: CEO Succession Internal CEO External CEO succession Ambiguous: Stable possible change in strategy top management team and strategy Stable strategy with innovation Strategic change 14

Exercise of Effective Strategic Leadership Establishing balanced organizational controls Determining strategic direction Exploiting and maintaining core competencies Effective Strategic Leadership Emphasizing ethical practice Sustaining an effective organizational culture Developing human capital 15

Determining Strategic Direction Strategic direction means the development of a long-term vision of a firm’s strategic intent l A charismatic leader can help achieve strategic intent l It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction l Executives must structure the firm effectively to help achieve the vision l 16

Exploiting and Maintaining Core Competencies Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals l Strategic leaders must verify that the firm’s competencies are emphasized in strategy implementation efforts l 17

Exploiting and Maintaining Core Competencies In many large firms, and certainly in related-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units l Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital l 18

Developing Human Capital Human capital refers to the knowledge and skills of the firm’s entire workforce l Employees are viewed as a capital resource that requires investment l No strategy can be effective unless the firm is able to develop and retain good people to carry it out l The effective development and management of the firm’s human capital may be the primary determinant of a firm’s ability to formulate and implement 19 strategies successfully l

Sustaining an Effective Organizational Culture An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business l Shaping the firm’s culture is a central task of effective strategic leadership l 20

Sustaining an Effective Organizational Culture An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary l Reengineering can facilitate this process l 21

Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering l The benefits of business reengineering are maximized when employees believe that: – every job in the company is essential and important – all employees must create value through their work 22

Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering l l l Constant learning is a vital part of every person’s job Teamwork is essential to successful implementation Problems are solved only when teams accept the responsibility for the solution 23

Emphasizing Ethical Practices Ethical practices increase the effectiveness of strategy implementation processes l Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment l 24

Emphasizing Ethical Practices To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture l Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees l 25

Establishing Balanced Organizational Controls Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken l Financial controls are often emphasized in large corporations and focus on shortterm financial outcomes l Strategic control focuses on the content of strategic actions, rather than their outcomes l 26

Establishing Balanced Organizational Controls l Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns 27

Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives Criteria Financial • Cash flow • Return on equity • Return on assets Customer • Assessment of ability to anticipate customers needs • Effectiveness of customer service practices • Percentage of repeat business • Quality of communications with customers 28

Strategic and Financial Controls in a Balanced Scorecard Framework Perspectives Criteria Internal Business Process • Asset utilization improvements • Improvements in employee morale • Changes in turnover rates Learning and Growth • Improvements in innovation ability • Number of new products compared to competitors • Increases in employees’ skills 29