Strategic management Ch12 Strategic Leadership - Lachowicz

8/3/2019 Strategic management Ch12 Strategic Leadership - Lachowicz

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Hitt Chapter 12 - StrategicLeadership

MGNT428 Summer 2006

Dr. Tom Lachowicz, Instructor


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Learning Objectives

After completing this Chapter you should havethe strategic management knowledge neededto:

Define strategic leadership and describe top-level managersimportance as a resource.

Define top management teams and explain their effects on firmperformance.

Describe the internal and external managerial labor markets andtheir effects on developing and implementing strategies.

Discuss the value of strategic leadership in determining the

firms strategic direction.


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Learning Objectives (contd)

Upon completion of this Chapter you shouldhave the knowledge you need to:

Describe the importance of strategic leaders in managingthe firms resources, with emphasis on exploiting and

maintaining core competencies, human capital, and socialcapital.

Define organizational culture and explain what must be

done to sustain an effective culture. Explain what strategic leaders can do to establish and

emphasize ethical practices.

Discuss the importance and use of organizational controls.


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Figure 1.1

Copyright 2004 South-Western. All rights reserved.

The StrategicManagement

Process


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Strategic Leadershipand the

Strategic

Management Process

Adapted fromFigure 12.1

Effective StrategicLeadership

Strategic Intent StrategicMission

SuccessfulStrategic Actions

Formulation ofStrategies

Implementationof Strategies

StrategicCompetitiveness

Above-average Returns

Shapes theFormulation of

and

Influences

YieldsYields


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Strategic Leadership

Requires the managerial ability to: Anticipate and envision

Maintain flexibility

Empower others to create strategic change asnecessary

Strategic leadership is: Multi-functional work that involves working through

others Consideration of the entire enterprise rather than just

a sub-unit

A managerial frame of reference


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Strategic Leadership (contd)

Effective strategic leaders: Manage the firms operations effectively

Sustain a high performance over time

Make better decisions than their competitors

Make candid, courageous, pragmatic decisions

Understand how their decisions affect the internal systems inuse by the firm

Solicit feedback from peers, superiors and employees abouttheir decisions and visions


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Managers as anOrganizational Resource

Managers often use their discretion whenmaking strategic decisions andimplementing strategies

Factors affecting the amount of decision-making discretion include:

External environmental sources

Characteristics of the organization

Characteristics of the manager


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Factors AffectingManagerialDiscretion

Adapted from Figure 12.2

SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,Strategic Leadership: Top Executives and Their Effects on

Organizations, St. Paul, MN:West Publishing Company.

ExternalEnvironment

ManagerialDiscretion

External Environment Industry structure

Rate of market growth

Number and type ofcompetitors

Nature and degree ofpolitical/legal constraints

Degree to which productscan be differentiated


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ExternalEnvironment

Characteristics ofthe Organization


Characteristics of theOrganization

Size

Age

Culture

Availability of resources

Patterns of interaction

among employees


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ExternalEnvironment

Characteristics ofthe Organization


Characteristics ofthe Manager

Characteristics of theManager

Tolerance for ambiguity

Commitment to the firmand its desired strategicoutcomes

Interpersonal skills

Aspiration level Degree of self-confidence


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Top Management Teams

Composed of the key managers who areresponsible for selecting and implementing thefirms strategies

A heterogeneous top management team:

Has varied expertise and knowledge

Can draw on multiple perspectives

Will evaluate alternative strategies

Builds consensus


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Firm Performance andStrategic Change

Heterogeneous top management teams: Have difficulty functioning effectively as a team

Require effective management of the team to

facilitate the process of decision making but

Are associated positively with innovation and strategicchange

May force the team or members to think outside ofthe box and be more creative

Have greater capacity to provide effective strategicleadership in formulating strategy

CEO d T M T


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CEO and Top Management TeamPower

Higher performance is achieved whenboard of directors are more directlyinvolved in shaping strategic direction

A powerful CEO may: Appoint sympathetic outside board members

Have inside board members who report to the CEO

Have significant control over the boards actions May also hold the position of chairman of the board

(CEO duality)


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CEO and Top Management Power

Duality often relates to poor performanceand slow response to change CEOs of long tenure can also wield substantial power

CEOs can gain so much power that they are virtuallyindependent of oversight by the board of directors

The most effective forms of governance

share power and influence among theCEO and board of directors


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Managerial Labor Market

Organizations select managers andstrategic leaders from two types ofmanagerial labor markets:

Internal managerial labor market:advancement opportunities related tomanagerial positions within a firm

External managerial labor market: careeropportunities for managers in organizationsother than the one for which they currentlywork

M i l L b M k t


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Managerial Labor Market(contd)

Advantages of internal managerial labormarket include:

Experience with the firm and industry

environment

Familiarity with company products, markets,technologies, and operating procedures

Produces lower turnover among existingpersonnel

M i l L b M k t


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Managerial Labor Market(contd)

Advantages of the external manageriallabor market include

Long tenured insiders may be stale in the

saddle

Outsiders may bring fresh perspectives

ec s o uccess on an op


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ec s o uccess on an opManagement Team Composition on

Strategy

Figure 12.3

E i f Eff ti St t i


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Exercise of Effective StrategicLeadership

Figure 12.4

K S i L d hi A i


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Key Strategic Leadership Actions:Determining Strategic Direction

Determining strategic direction involvesdeveloping a long-term vision of the firms

strategic intent Five to ten years into the future

Philosophy with goals

The image and character the firm seeks

Ideal long-term vision has two parts: A Core ideology

An Envisioned future


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Key Strategic Leadership Actions:Exploiting and Maintaining

Core Competencies

Core competencies

Resources and capabilities of a firm that serve as asource of competitive advantage over its rivals

Leadership must verify that the firms competencies

are emphasized in strategy implementation efforts

Firms must continuously develop or even changetheir core competencies to stay ahead of competitors


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Key Strategic Leadership Actions:Developing Human Capital and

Social Capital

Human capital

The knowledge and skills of the firms entireworkforce are a capital resource that requiresinvestment both in training and development andknowledge management.

Social capital

Relationships inside and outside the firm that help itaccomplish tasks and create value for customers and

shareholders.


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Key Strategic Leadership Actions:Sustaining an Effective

Organizational Culture Organizational culture

The complex set of ideologies, symbols and

core values shared through the firm, thatinfluences the way business is conducted

Entrepreneurial orientation Personal characteristics that encourage or discourage

entrepreneurial opportunities

Autonomy Proactiveness

Innovativeness Risk taking


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Key Strategic Leadership Actions:Sustaining an Organizational Culture

(contd.)

Changing a firms organizational culture ismore difficult than maintaining it

Effective strategic leaders recognize when change inculture is needed

Shaping and reinforcing culture requires: Effective communication

Problem solving skills Selection of the right people

Effective performance appraisals

Appropriate reward systems

K St t i L d hi A ti


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Key Strategic Leadership Actions:Emphasizing Ethical Practices

Effectiveness of processes used toimplement the firms strategies increases

when based on ethical practices.

Ethical practices create social capital andgoodwill for the firm.


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Key Strategic Leadership Actions:

Emphasizing Ethical Practices

Actions that develop an ethicalorganizational culture include:

Establishing and communicating specific goals todescribe the firms ethical standards

Continuously revising and updating the code ofconduct

Disseminating the code of conduct to all stakeholdersto inform them of the firms ethical standards and

practices


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Key Strategic Leadership Actions:

Emphasizing Ethical Practices (contd.)

Actions that develop an ethicalorganizational culture include:

Developing and implementing methods andprocedures to use in achieving the firms ethical

standards

Creating and using explicit reward systems that

recognize acts of courage Creating a work environment in which all people are

treated with dignity


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Key Strategic Leadership Actions:Establishing Organizational Controls

Controls Formal, information-based procedures used by

managers to maintain or alter patterns inorganizational activities

Controls help strategic leaders to: Build credibility

Demonstrate the value of strategies to the firmsstakeholders

Promote and support strategic change


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Balanced Scorecard


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Key Strategic Leadership Actions:Establishing Balanced

Organizational Controls Balanced Scorecard

Framework used to verify that the firm hasestablished both strategic and financial controls to

assess its performance Prevents overemphasis of financial controls at the

expense of strategic controls

Four perspectives of balanced scorecard Financial - Customer

Internal business processes

Learning and growth


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Customer

Strategic and Financial Controls in aBalanced Scorecard Framework


Financial Cash flow Return on equity Return on assets

Assessment of ability to anticipatecustomer needs

Effectiveness of customer service needs Percentage of repeat business

Quality of communications with customers


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Learningand

Growth

Improvements in innovation ability Number of new products compared to

competitors

Increases in employees skills

Strategic and Financial Controls in aBalanced Scorecard Framework


InternalBusinessProcesses

Asset utilization improvements Improvements in employee morale Changes in turnover rates

Other commonl emplo ed


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Other commonly employedStrategic Controls

SixSigmaat manyorganizations simply means ameasure of quality that strivesfor near perfection.

Six Sigmais a disciplined,data-driven approach andmethodology for eliminatingdefects (driving towards sixstandard deviations betweenthe mean and the nearestspecification limit) in any

process -- from manufacturingto transactional and fromproduct to service.

The basic objective of theSixSigmamethodology is theimplementation of ameasurement-based strategythat focuses on processimprovement and variation

reduction through theapplication ofSix Sigmaimprovement projects.

This is accomplished throughthe use ofSix Sigmamethodologies of DMAIC andDMADV.

The Six SigmaDMAICprocess: (define, measure,analyze, improve, control.)


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Lean Manufacturing Lean productionis aimed at the elimination of waste in every area of

production including customer relations, product design, suppliernetworks and factory management.

Its goal is to incorporate less human effort, less inventory, less time todevelop products, and less space to become highly responsive to customerdemand while producing top quality products in the most efficient andeconomical manner possible.

Principles of aLean Enterprise:

Zero waiting time

Zero Inventory

Scheduling -- internal customer pull instead of push system

Batch to Flow -- cut batch sizes

Line Balancing

Cut actual process times

Strategic management Ch12 Strategic Leadership - Lachowicz

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