Copyright © 2012 Pearson Canada Inc. 0 Chapter 2 The Process of Strategic Leadership.

Copyright © 2012 Pearson Canada Inc. 1

Chapter 2 The Process of Strategic

Leadership

Copyright © 2012 Pearson Canada Inc. 2

LEARNING OBJECTIVES

1. Explain how strategic leadership is essential to strategy formulation and implementation.

2. Understand the planned approach to strategic leadership.

3. Understand the visioned approach to strategic leadership.

4. Understand the discovered approach to strategic leadership.

5. Understand the relationship among the three processes of strategic leadership.

6. Understand the importance of fit and misfit.

7. Explain how cognition, power and politics, and values and ethics affect strategic decision making.

Copyright © 2012 Pearson Canada Inc.

Top Management

Strategic Leadership

• Managing an overall enterprise and influencing key organizational outcomes.

• The top management team, typically led by the chief executive officer (CEO or president), is responsible for

managing the strategy of the business.

• Failure to use this authority can lead to lack of direction and internal conflict.

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Fit

• Condition in which all decisions made by management may support each other but at a minimum do not contradict each other.

• An implicit assumption of top management is that when various decisions “fit together,” the organization will perform better.

• The idea of fit has also been called alignment and coherence.

• Without fit, decisions contradict each other, causing confusion, ineffectiveness, and inefficiency.

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Fit

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Misfits

• A business always has a strategy because strategy is defined in terms of the decisions that management has made about the arena,

differentiators, economic logic, staging, and vehicles.

• However, the strategy might not be a good one because it does not fit with the environment or because decisions about the resources and organization of the business do not fit with the strategy.

• Misfits that are strategically important will cause poor performance of the business now or in future.


Processes for Leading

Three leadership approaches that top management can use to develop and administer strategy:

1. The Planned Process

2. The Visioned Process

3. The Discovered Process

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THE PLANNED PROCESS

• With the planned process, top management assumes that it can determine through keen analysis what will happen in the future and then design a strategy that will produce the best performance.

• It leads management in drawing up a plan of action that puts the strategy in place by moving the business from where it is in terms of resources and organization to where it needs to be.

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Planned Process Steps:

1. Assess performance2. Describe the current strategy3. Analyse the internal environment4. Analyse the external environment5. Assess fit6. Provide alternative strategic solutions7. Select a strategic solution8. Implement the strategic solution

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Value of the Planned Process

• The planned process implies relatively high certainty about what needs to be done so it works well in static and stable situations such as those found in mature industries.

• It can also be called the designed approach because management has crafted a strategic approach to the situation

facing the business.

• Keen analysis is able to identify where problems lie and what actions need to be taken.

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How the Planned Process Works

1. Assess Performance

The first step in any strategic analysis is always to determine how well the business has been performing.

2. Describe the Current Strategy

The essential decisions about strategy are described in termsof the business strategy diamond presented in Chapter 1:arenas, vehicles, differentiators, staging and pacing, and economic logic.

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3. Analyze the Internal Environment

Its resources and capabilities are what the business has towork with. These are combined in the functional activitiesof the value chain.

4. Analyze the External Environment

The business operates in an evolving industry that is subjectto competitive forces. The driving forces of evolution include politics, the economy, society, and technology.

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5. Assess Fit

Management has made many decisions about how certain resources and capabilities will be combined to satisfy abusiness strategy chosen to position a business in a selected environment.

6 . Provide Alternative Strategic Solutions

Sometimes the strategic alternatives that the business can pursue are clear to top management because it has spent a lot of time thinking about the situation and what might be done. Other times the management team has to design alternative solutions.

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7. Select a Strategic Solution

Typically, selecting one strategic alternative over others is anexercise in judgment because the criteria used to assess eachone differs. From an analytical perspective, the right answer is based on the strength of the argument given the underlying facts and analysis.

8 . Implement the Strategic Solution

The final step is putting the solution in place, which starts withthe preparation of a plan of action. In this plan, the necessary strategic, organizational, and resource changes are identified.

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Weaknesses of the Planned Process

• The planned/ designed process assumes that the information needed is available for analysis and can be used to produce a rational decision.

• But the necessary tools, concepts, and information are not always available to do complete analysis.

• And it gets worse when one recognizes that uncertainty, complexity, and ambiguity are common when dealing with strategic situations.

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THE VISIONED PROCESS

• A vision of where strategy will be taking the company is provided by top management.

• In practice, the vision statement ranges from a word, to a statement three pages long, or even a picture.

• Better statements are usually simple and brief, thus easily understood and remembered.

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Value of the Visioned Process

• The visioned process provides a strategic intent that calls for managers to set ambitious goals and then to develop the resources and capabilities needed to achieve those goals.

• The tension between where the business wants to be and where it is both energizes people and encourages their creativity.

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Visioned Process Steps:

1. Establish pre-conditions 2. Create the vision 3. Sell the vision 4. Enact the vision

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1. Establish Pre-Conditions

Six conditions need to be achieved before visioning can be conducted successfully:

First, the organization has to have top managers who feel responsible for the direction of the company.

Second, those members engaged in visioning need the relevant information to construct the vision.

Third, members need to understand why the vision is being created.

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Fourth, open and clear communication is needed so that creative ideas and individual differences can be discussed.

Fifth, the key stakeholders in the business need to be identified so that their interests are considered when setting the vision.

Sixth and finally, all members need to understand that the vision is a prediction and that conditions may require changes to the vision.

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2. Create the Vision

Creating the vision starts with a lot of analysis, thinking, and discussion and typically culminates with a seemingly sudden crystallization of a vision in one “eureka-like” flash.

3. Sell the Vision

Those involved in creating the vision can be excited about it, but it will not have much meaning to other stakeholders until the vision is sold to them.

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4. Enact the Vision

Leaders demonstrate their commitment to the vision bybehaving in ways consistent with the vision and the values associated with it.

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Weaknesses of the Visioned Process

• A weakness to this approach is that the vision is an abstraction that may not be concrete enough

to be useful by itself.

• Translating it into behaviours for workers at all levels of the organization is hard work.

• Furthermore, even an abstract vision is not always possible when the future is unknowable. But a concrete vision can be a problem when management gets caught in the “tunnel vision trap.”

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THE DISCOVERED PROCESS

• People throughout the company have generated strategic ideas from which top management has selected some to further.

• The discovered process assumes that the environment is too complex and/ or rapidly changing for consensus about the strategy to be reached.

• When this is the case, strategy needs to emerge through an iterative and evolutionary process that is continually

redefining the strategy.

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The Value of the Discovered Process

• The discovered process produces a business strategy that evolves over time as the business adapts to changes in society, technology, and politics.

• The business that adapts quickly is able to “beat” other businesses to opportunities as they appear.

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Discovered Process Steps:

1. Establish preconditions 2. Find ideas 3. Develop ideas 4. Prune/fertilize innovations

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1. Establish Pre-Conditions

For the discovered process to work, top management needs to establish a culture that supports innovation.

2. Find Ideas

Ideas that contribute to the development of strategy can come from anywhere in the organization as individuals see the needto do something different or differently.

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3 . Develop Ideas

Initially, ideas may not be well formed or well informed. They have to be refined and improved.

4 . Prune/ Fertilize Innovations

Management imposes some rationale on the innovations thebusiness accepts and builds.

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Weaknesses of the Discovered Process

Innovation can be stymied in at least four different ways:

• First, a strong hierarchy working with an elaborate and bureaucratic (top-down) control system gives managers

greater ability to block ideas and innovations that do not fit with their own views.

• Second, a strong organizational culture that prefers stability can limit innovation by challenging new ideas and demeaning

them based on previous experience.

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• Third, individuals in the organization may not have the necessary mindset for innovation.

• Fourth, championing an idea requires individuals with certain talents. They have to overcome cultural inertia and political barriers by inspiring others to support their new ideas.

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The Human Influence on Strategic Leadership Processes

The three major aspects of human behaviour affectingthe processes are:

1. Cognitive biases 2. Power and politics 3. Values and ethics

Complexity abounds. Rational decision making is constrained by complexity, time and our human nature. We’re not robots.

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Human Influence on Leadership Processes: Cognition

Cognitive Bias

Prior hypothesis Bias

Escalating Commitment

Reasoning by Analogy

Representativeness

Illusion of Control (Attribution)

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Human Influence: Power and Politics

Power is necessary (to get others to do things)

Leaders must use power

“Politics” deals with complex, aggregate relationships between people in organizations (rivalries, contests, pressure groups, lobbies, cliques).

Group Think

Mandates

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Human Influence: Values and Ethics

Decision makers make judgments based on what is desirable and undesirable. These judgments are partly based on the decision maker’s values – relatively enduring beliefs that we hold about how one “should” act.

Difficulty arises when we try to determine “which” values are right.

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http://www.youtube.com/watch?v=qp0HIF3SfI4

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Copyright © 2012 Pearson Canada Inc. 0 Chapter 2 The Process of Strategic Leadership.

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