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
CorporateLevel Strategy
Chapter 10
Corporate
Governance
Chapter 9
Cooperative
Strategy
Chapter 12
Strategic
Leadership
Chapter 11
Organizational
Structure and
Controls
Strategic
Competitiveness
Above-Average
Returns
Feedback
2
Strategic Leadership

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
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
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
Manager
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

The top management team is composed of
key managers who are responsible for
– 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

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
 This is especially true when the CEO is
also chairman of the board of directors
 CEOs of long tenure can also wield
substantial power
 The most effective forms of governance
share power and influence among the
CEO and board of directors
11
Managerial Labor Markets

The internal labor market is comprised of
the career path alternatives available to a
firm’s managers
 Selecting internal candidates for
management positions helps to build on
valuable firm-specific knowledge
12
Managerial Labor Markets

The external labor market includes the
collection of career opportunities for
managers outside their firm
 Selecting an outsider often brings fresh
insights and may energize the firm with
innovative new ideas
13
Managerial Labor Markets
Homogeneous
Top Management
Team Composition
Heterogeneous
Managerial Labor Market:
CEO Succession
Internal CEO
External CEO
succession
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
 A charismatic leader can help achieve
strategic intent
 It is important not to lose sight of the
strengths of the organization when making
changes required by a new strategic
direction
 Executives must structure the firm
effectively to help achieve the vision
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
 Strategic leaders must verify that the
firm’s competencies are emphasized in
strategy implementation efforts
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
 Core competencies cannot be developed
or exploited effectively without developing
the capabilities of human capital
18
Developing Human Capital

Human capital refers to the knowledge
and skills of the firm’s entire workforce
 Employees are viewed as a capital
resource that requires investment
 No strategy can be effective unless the
firm is able to develop and retain good
people to carry it out
 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
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
 Shaping the firm’s culture is a central task
of effective strategic leadership
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
 Reengineering can facilitate this process
21
Sustaining an Effective
Organizational Culture
Changing Culture and Business
Reengineering

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

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
 Ethical companies encourage and enable
people at all organizational levels to
exercise ethical judgment
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
 Leaders set the tone for creating an
environment of mutual respect, honesty
and ethical practices among employees
25
Establishing Balanced
Organizational Controls

Organizational controls provide the
parameters within which strategies are to
be implemented and corrective actions
taken
 Financial controls are often emphasized in
large corporations and focus on shortterm financial outcomes
 Strategic control focuses on the content
of strategic actions, rather than their
outcomes
26
Establishing Balanced
Organizational Controls

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