Chapter 12 Strategic Leadership Notes PDF

Preview

Summary

Chapter 12: Strategic Leadership Effective strategic leadership is foundation for successfully using strategic mgmt. process. Strategic leadership: ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. o Strategic change: change brought ab...

Description

Chapter 12: Strategic Leadership  Effective strategic leadership is foundation for successfully using strategic mgmt. process.  Strategic leadership: ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. o Strategic change: change brought about as a result of selecting/implementing firm’s strategies. o Involves managing through others, managing entire organization rather than a functional subunit, and copying with change that continues to increase in global economy.  Strategic leaders must learn how to effectively influence human behavior, often in uncertain environments. They can meaningfully influence behaviors, thoughts, and feelings of those with whom they work.  Most critical skill: attracting and managing human capital  Create and support context/environment through which stakeholders can perform at peak efficiency (nurturing context for capital to flourish) o Crux of strategic leadership is ability to manage firm’s operations effectively and sustain high performance over time.  Rests at top (CEO), board of directors, top mgmt. team, and divisional general managers  Any individual with responsibility for performance of human capital and/or a party of firm is a strategic leader. o Have substantial decision-making responsibilities that can’t be delegated. o Complex, but critical form of leadership o As a strategic leader, firm’s CEO is involved w/ large number and variety of tasks that in some form or fashion relate to effective use of strategic mgmt. process.  Leader’s style and organizational culture displayed affects productivity of those being led  Style of leadership is vital, and it’s based on their personal ideology/experience. o Transformational leadership is one of most effective strategic leadership styles.  They are motivating followers to exceed expectations other have of them, continuously enrich capabilities, and place interests of the organization above their own.  They develop/communicate a vision for the organization and formulate a strategy to achieve that vision.  They make followers aware of need to achieve valued organizational outcomes and encourage them to strive for high levels of achievement.  They have a high degree of integrity and character; they have emotional intelligence and are effective in promoting/nurturing innovation. Role of Top-Level Managers  Involved with making decisions associated with first selecting and then implementing firm’s strategies. o Use discretion (latitude for action)-differs significantly across industries. o Primary factors that determine amount of decision-making discretion held by manager are:  External environment sources (industry structure, rate of market growth, degree to which products can be differentiated, etc.)  Characteristics of organization (size, age, resources, and culture)  Characteristics of manager (commitment to firm and its strategic outcomes, tolerance for ambiguity, skills in working with different people, and aspiration levels) o B/c strategic leaders’ decisions are intended to help firm outperform competitors, how managers exercise discretion when making decisions is critical to firm’s success and affects or shapes firm’s culture.  Top-level managers’ roles in verifying that firm effectively uses strategic mgmt. process are complex/challenging.





Top Management Teams: composed of individuals who are responsibility for making certain firm uses strategic mgmt. process (requires the use of process), for purpose of selecting/implementing strategies. o Includes officers of corporation (title of VP or service as a member of BoDs) o Quality of top mgmt. team’s decisions affect firm’s ability to innovate/change in ways that contribute to its efforts to earn above-average returns. o Using team to make decisions about how firm will compete helps to avoid potential problem when decisions are made by CEO alone: managerial hubris. Top Management Teams, Firm Performance, and Strategic Change o Job of top-level managers is complex and requires broad knowledge of firm’s internal organization and three key parts of its external environment: general, industry, and competitor environments.  Firms try to form top mgmt. team with knowledge and expertise needed to operate the internal organization and who can deal with firm’s stakeholders and competitors.  Firms need to structure top mgmt. team to best utilize members’ expertise  Heterogeneous top mgmt. team: composed of individuals with different functional backgrounds, experience, and education. o Having international experience is critical aspect of heterogeneity that is desirable in top mgmt. teams, given globalized nature of markets in which most firms compete in now. o Members of hetero top mgmt. team benefit from discussing different perspectives. Discussions often engender, increase quality of team’s decisions, members learn from each other and develop better decisions.  Higher-quality decisions lead to stronger firm performance. o Effectiveness of top mgmt. teams is influenced by value gained when members of these teams work together cohesively.  The more hetero and larger the top mgmt. teams, the more difficult it is for team to cohesively implement strategies effectively.  Communication difficulties among top-level managers with different backgrounds and cognitive skills can negatively affect strategy implementation efforts.  As a result, group of top executive with diverse backgrounds may inhibit process of decision making if it is not effectively managed. o Top mgmt. teams in these cases fail to comprehensively examine threats/opportunities, leading to suboptimal decision. CEO need to attempt to achieve behavioral integration among team members. o Having members w/ substantive expertise in firm’s core businesses is important to top mgmt. team’s effectiveness.  Eventual effect on decisions depend not only on their expertise and way team is managed but also on context in which they make decisions. o Characteristics of top mgmt. teams and personalities of CEO and other team members are related to innovation and strategic change.  Hetero top mgmt. teams are positively associated with innovation/strategic change o Firms that could benefit by changing their strategies are more likely to make those changes if they have top mgmt. teams with diverse backgrounds and expertise.

Key Strategic Leadership Actions  Most effective strategic leadership create viable options in making decisions regarding each of key strategic leadership actions:

o Determining Strategic Direction: specifying vision and strategy or strategies to achieve this vision over time; framed w/in context of conditions that strategic leaders expect their firm to face in roughly the next 3-5 years.  Ideal long-term strategic direction has two parts: core ideology and envisioned future.  Core ideology motivates employees through company’s heritage while envisioned future encourages then to stretch beyond their expectations of accomplishment and requires significant change/progress to be realized.  Envisioned future serves guide to many aspects of firm’s strategy implementation process (motivation, leadership, employee engagement, & organizational design).  Strategic direction includes host of actions.  Sometimes work of strategic leaders doesn’t result in selecting strategy that helps firm reach vision-happens when top mgmt. team members and that CEOs are too committed to status quo.  Actions taken to implement strategies to achieve the vision should be fluid, largely so firm can deal with unexpected opportunities/threats that surface by external environment.  Ability to adjust strategies as appropriate is caused by aversion is common in firms that have performed well in past and for CEOs who have been in their jobs for extended periods of time. o Charismatic CEOs may foster stakeholders’ commitment to new vision and strategic decision.  Important for firm not to lose sight of its strengths/weaknesses when making changes required by new strategic decision.  Most effective charismatic CEO leads firm in ways that are consistent with its culture and with actions permitted by its capabilities and core competencies.  Being ambicultural can facilitate efforts to determine firm’s strategic direction and select/use strategies to reach it. it means that strategic leaders are committed to identifying the best organizational activities to take particularly when implementing strategies, regardless of their cultural origin. o Help firms succeed in short term as foundation for reaching its visions in the longer term. o Effectively Managing the Firm’s Resource Portfolio (is another strategic leadership action)  Firm’s resources are categorized as financial capital, human capital, social capital, and organizational capital/culture.  Effective strategic leaders recognize importance of managing each type of resource and the integration of them. o They manage resource portfolio by organizing resources into capabilities, structuring firm to facilitate using those capabilities and choosing strategies through which capabilities can eb successfully leveraged to create value for customers.  Developing Human Capital and Social Capital  Human capital: knowledge/skills of firm’s entire workforce. (employees viewed as capital resource requiring continuous investment) o Individuals; knowledge and skills are proving to be critical to success of many global industries and industries w/in countries.  As dynamics of competition accelerate, people are only truly sustainable source of competitive advantage.

o In all organization types, human capital’s increasing importance suggests significant role for firm’s HR mgmt. function.  HRM practices facilitate selecting/implementing firm’s strategies. o Effective T&D programs increase probability that some of firm’s human capital will become effective strategic leaders.  Link b/w effective programs and firm success is becoming stronger b/c knowledge gained by participating in programs is integral to forming and sustaining firm’s competitive advantage.  Programs inculcate common set of core values and present systematic view of organization, thus promoting its vision and helping form an effective organizational culture. o Effective T&D programs contribute positively to firm’s effort to form core competencies, helps strategic leaders improve skills critical to completing other tasks associated with effective strategic leadership  Building human capital is vital to effective execution of strategic leadership.  When investments in human capital are successful, outcome is workforce capable of learning continuously and expand knowledge to link to strategic success. o Effective strategic leaders recognize importance of learning from success and from failure when helping firm use strategic mgmt. process. o Viewing employees as a resource to be maximized facilitates successful implementation of firm’s strategies (rather than as a cost to be minimized)  Critical issue for employees: fairness in layoffs and how they are treated in their jobs, relative to their peers.  Social capital: relationships inside and outside firm that help in efforts to accomplish tasks and create value for stakeholders. o Critical asset given that employees must cooperate with one another and others, including suppliers/customers, to complete their work. o External social capital is critical to firm success -few if any companies possess all resources needed to successfully compete against its rivals.  Social capital can be built in strategic alliances as firms share complementary resources. Resource sharing must be effectively managing to ensure that partner trusts firm and is willing to share its resources.  Social capital created this way yields many benefits like being more ambidextrous, having access to multiple capabilities, and having flexibility to respond to threats.  Firm’s culture affects its ability to retain quality human capital and maintain strong internal social capital. o Sustaining an Effective Organizational Culture  Organizational culture: complex set of ideologies, symbols, and core values that are shared throughout firm and influences how firm conducts business.  Entrepreneurial Mind-Set  Organizational culture often encourages (or discourages) strategic leaders and those with whom they work from pursuing (or not pursuing) entrepreneurial opportunities (for both for-profit and not-for-profit organizations).

o Entrepreneurial opportunities are vital source of growth and innovation. Key action for strategic leaders to take is to encourage and promote innovation by pursuing entrepreneurial opportunities. o To encourage innovation, invest in opportunities as real options-invest in an opportunity to provide potential option of taking advantage of opportunity at some point in the future. o Companies are more likely to achieve success they desire by using strategic entrepreneurship when their employees have entrepreneurial mind-set.  Five dimensions characterize firm’s entrepreneurial mind-set that influence actions firm takes to be innovative when using strategic mgmt. process: o 1. Autonomy: allows employees to take action that are free of organization constraints and encourages them to do so. o 2. Innovativeness: reflects firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, or technological processes. o 3. Risk taking: reflects willingness by employees and their firm to accept measured levels of risks when pursuing entrepreneurial opportunities o 4. Proactiveness: firm’s ability to be market leader, not a follower; constantly use processes to anticipate future market needs and to satisfy them before competitors learn how to do so. o 5. Competitive aggressiveness: firm’s propensity to take actions that allow it to consistently and substantially outperform its rivals.  Changing Organizational Culture and Restructuring  More difficult than maintaining it, however effective strategic leaders recognize when change is needed. o Support selecting strategies that differ from those the firm has implemented historically. o Shaping/reinforcing new culture requires effective communication and problem solving, along with selecting right people, engaging in effective performance appraisals and using appropriate reward systems.  Cultural changes succeed only when firm’s CEO, key top mgmt. team members, and middle-level managers actively support them.  Middle-level managers need to be highly disciplined to energize culture and foster alignment with firm’s vision/mission.  Managers must be sensitive to effects of other changes on organizational culture. o Emphasizing Ethical Practices  Effectiveness of processes used to implement firm’s strategies increase when they are based on ethical practices.  Ethical companies encourage/enable people at all levels to act ethically when taking actions to implement strategies.  Ethical practices/judgment on which they are based creates “social capital” in organization, increasing the goodwill available to individuals and groups in organization.  To properly influence employees’ judgment and behavior, ethical practices must shape firm’s decision-making process and be integral part of organizational culture. 

Values-based culture is most effective means of ensuring employees comply with firm’s ethical standards.  Developing such a culture requires constant nurturing and support in corporations located in countries throughout world.  Strategic leaders and others in organization are most likely to integrate ethical values into decisions when company has explicit ethical codes-encourages ethical decision making as foundation for using strategic mgmt. process.  Strategic leaders can take several actions to develop/support ethical organizational culture including:  Establishing/communicating specific goals to describe firm’s ethical standards  Continuously revising and updating codes of conduct, based on inputs from people throughout firm and from other stakeholders.  Disseminating code of conduct to all stakeholders to inform them of firm’s ethical standards and practices.  Developing/implementing methods/procedures to use in achieving firm’s ethical standards  Creating and using explicit reward systems that recognize acts of courage  Creating work environment in which all people are treated with dignity.  *Effectiveness of these actions increases when they are taken simultaneously and are mutually supportive. When strategic leaders and other throughout organization fail to take actions, problems are likely to occur. o Establishing Balanced Organizational Controls  Organizational controls are viewed as part of strategic mgmt. process related to implementation.  Controls are necessary to help ensure firms achieve their desired outcomes.  Formal, info-based procedures used by managers to maintain or alter patterns in organizational activities  Help strategic leaders build credibility, demonstrate value of strategies to firm’s stakeholders and promote/support strategic change.  Provide parameters for implementing strategies and corrective actions to be taken when implementation-related adjustments are required.  Balanced Scorecard: tool firms use to determine if they are achieving appropriate balance when using strategic/financial controls as means of positively influencing performance.  Appropriate to use when evaluating business-level strategies and can be used with other strategies firms implement  Underlying premise: firms jeopardize future performance when financial controls are emphasized at expense of strategic controls. o Decisions balancing short-term goals with long-term goals generally lead to higher performance  Four perspectives are integrated to form balanced scorecard: o Financial (growth, profitability, and risk from shareholder’s perspective) o Customer (amount of value customers perceive was created by firm’s products) o Internal business process (focus on priorities for various business processes that create customer and shareholder satisfaction) 





o Learning and growth (concerned with firm’s effort to create climate that supports change, innovation, and growth) Finds firms seeking to understand how it responds to shareholders, how customers view it, what processes to emphasize to successfully use its competitive advantage, and what it can do to improve its performance in order to grow. o Firms tends to emphasize strategic controls when assessing performance relative to learning and growth perspective  Tendency is to emphasize financial controls when assessing performance in terms of financial perspective. Proper balance b/w controls are vital in that “wealth creation for organizations where strategic leadership is exercised is possible b/c these leaders make appropriate investments for future viability (through strategic control), while maintaining appropriate level of financial stability in present (financial control). o Most corporate restructuring is designed to refocus firm on its core businesses, allowing top executives to reestablish strategic control of their separate business units. o Successfully using strategic control frequently is integrated with appropriate autonomy for various subunits to gain competitive advantage in their respective markets.  Strategic control can be used to promote sharing of both tangible and intangible resources among interdependent businesses within firm’s portfolio. o Autonomy provided allows flexibility necessary to take advantage of specific marketplace opportunities. Strategic leadership promotes simultaneous use of strategic control and autonomy....