Strategic leadership

Chapter 12: Strategic Leadership (SL)
 Overview:
 Strategic leadership & top-level managers importance
 Top management teams and effects on firm
 Managerial succession process
 Value of strategic leadership in determining firm’s
strategic direction
 Importance of strategic leaders in managing firm’s
 Organizational culture and actions to sustain it
 Ethical practices: establishment and emphasis
 Importance and use of organizational controls
The Strategic Management Process
Strategic Leadership and Style
 Strategic leadership: the ability to anticipate,
envision, maintain flexibility, and empower others
to create strategic change as necessary
 Multifunctional task that involves
Managing through others
Managing an entire enterprise rather than a functional unit
Corporate, business, and international strategies
Coping with change from internal and external environments
Attracting and managing human (includes intellectual)
Being able to meaningfully influence others
 Strategic leaders make a major difference in how
well a firm performs
Strategic Leadership and the Strategic
Management Process
 Effective strategic leadership is
the foundation for successfully
using the strategic management
 Strategic leaders:
Shape the formation of vision and
Facilitate strategy formulation and
strategy implementation
Are needed for the achievement of
strategic competitiveness and
above-average returns.
The Role of Top-Level Managers
 Top level managers play a critical role in strategy
formulation and implementation
Their strategic decisions influence how an organization is designed
and how goals are achieved
Top managers also develop structure, culture, reward systems,
and policies/SOPs
 Having a top management team with superior managerial
skills is critical (and can be a source of CA and AAR)
 Managers make a difference because of the discretion (or
latitude for action) they use when making strategic
 This discretion influences firm outcomes like performance
 A manager’s decision-making discretion is determined by
several factors
The Role of Top-Level Managers
 Top Management Teams (TMT)
 In most firms there is a team of strategic leaders called
the top management team
 A team is needed to deal with the complexity of
challenges and the need for substantial amounts of
information and knowledge to make strategic decisions
 TMT composed of key individuals who are responsible
for selecting and implementing firm’s strategies
Usually includes officers of the corporation (VP and above)
and members of BOD
TMT characteristics must fit strategy and strategy
TMTs affect firm performance and strategic change
The Role of Top-Level Managers
 TMTs, Firm Performance & Strategic Change
Top managers need to operate the internal organization and deal with
the external environment and stakeholders groups
A heterogeneous TMT can facilitate this
 Managerial group of individuals with different functional
backgrounds, experiences, and education
 Introduce a variety of perspectives and can lead to better decisions
 Tend to "think outside of the box," leading to more creative decision
making, innovation, and strategic change
 Offers various areas of expertise and promotes debate
Having a top management team that functions cohesively and having
members with expertise in the firms core functions and businesses is
also important
The Role of Top-Level Managers
 The CEO & TMT Power
TMT characteristics can give the CEO’s team power relative to the
board of directors and can influence the amount of strategic
leadership the board provides
Can affect CEO discretion and the ability to appoint board members
CEO Duality and longer tenure can also lead to greater CEO power
The relative degrees of power held by the board and TMT should be
appropriate for the organization
TMT characteristics must fit strategy and strategy implementation
Managerial Succession
 The choice of executives is a critical decision with
important implications for the firm’s performance
 Organizations select managers and strategic leaders from
two types of managerial labor markets
Internal Managerial Labor Market – opportunities for managerial
positions to be filled from within the firm
External Managerial Labor Market – opportunities for managerial
positions to be filled by candidates from outside of the firm
 Impacts company performance and the ability to embrace
change in today's competitive landscape
 Succession, top management team composition and
strategy are related
Effects of CEO Succession and Top
Management Team Composition on Strategy
Managerial Succession
 Benefits of Internal Managerial Labor Market
Leads to continuity and continued commitment to firm’s vision,
mission, and strategies
Insiders are familiar with company products, markets,
technologies, and operating procedures
Reduces turnover of existing personnel many of whom possess
valuable firm-specific knowledge
Favored when the firm is performing well
 Benefits of External Managerial Labor Market
Long tenure with the same firm is thought to reduce innovation
Outsiders bring diverse knowledge bases and social networks,
which offer the potential for synergy and new competitive
Exercise of Effective Strategic Leadership:
Key Strategic Leadership Actions
Key Strategic Leadership Actions
 Determining Strategic Direction
 Involves specifying the vision and the strategy to
achieve this vision over time
Vision is a picture of what the firm wants to be and in broad
terms what it wants to ultimately achieve
Strategic direction is framed within the context of the
opportunities and threats over next 3-5 years
Includes a core ideology and an envisioned future
Should serve to motivate, “push”, and guide the
Key Strategic Leadership Actions
 Effectively Managing the Firm’s Resource Portfolio
Includes financial, organizational (competencies and capabilities)
and human capital
Firms resources must be managed in a way that is consistent and
supportive of strategy
They also must be allocated as efficiently and effectively as
possible so that each area or part of the firm has what it needs for
strategy implementation
Changing strategy will likely call for the reallocation of resources
and the movement of people and other resources from one area to
Financial resources are managed through the budgeting and
resource allocation process
Key Strategic Leadership Actions
 Effectively Managing the Firm’s Resource Portfolio
Core competencies and competitive capabilities should be
developed in a strategy supportive fashion
Firms should build their strategy around things they are good at doing
and/or become good at doing things that are supportive of strategy
A firm’s human capital, which refers to the knowledge and skills of
a firm’s entire workforce, should also fit its strategy.
This can be accomplished by:
 Hiring people who fit the organization and its strategy
 An effective training and development program
Investments should be made to acquire and develop the firm’s human
Key Strategic Leadership Actions
 Sustaining an Effective Organizational Culture
 Organizational culture: consists of a complex set of
ideologies, symbols, and core values shared throughout the
firm and influence the way business is conducted
Shapes the context within which the firm formulates and
implements it's strategies.
Also helps to regulate and control employees’ behavior
There are many things that make up a company’s culture
and many places that is comes from
Once developed, a company’s culture tends to last because:
Organizations hire people who fit the firm and its culture
Employees learn by observing the behavior of others and through
socialization and systematic indoctrination of cultural values
Storytelling of company legends and ceremonies that honor
employees who display cultural ideals
Visibly rewarding those who follow cultural norms
Key Strategic Leadership Actions
 Sustaining an Effective Organizational Culture
 Cultures can vary in strength depending on the degree to
which they are imbedded in company practices and norms.
 Firms must match culture to strategy, as a culture that
promotes attitudes and behaviors that are well-suited to
strategy will help in the achievement of strategic
competitiveness and above average returns.
Related firms should develop cooperative cultures
Unrelated firms should develop competitive cultures
Cost leaders should value economy, frugality and efficiency
Differentiators should value innovation, quality, and excellence
Changing culture can be difficult but can be accomplished if
the appropriate strategic leadership is in place
Key Strategic Leadership Actions
 Emphasizing Ethical Practices
Ethical practices can be used control employee judgment and
They should shape the firms decisions making process and are an
integral part of organizational culture
Strategic leaders should:
 Establish and communicate ethics related goals
 Continuously revise, update, and disseminate the firm’s code of
 Develop and implement ethical policies and procedures
 Use rewards to recognize ethical behavior
 Create an appropriate work environment
Ethical practices can be used to control ethical behavior to make
sure people are behaving in the "right" way
Key Strategic Leadership Actions
 Establishing Balanced Organizational Controls
Strategic leaders are responsible for the development and effective
use of strategic and financial controls
Controls provide the parameters for implementing strategies as
well as the corrective actions to be taken when implementation
related adjustments are required
The challenge is to achieve an appropriate balance of financial and
strategic controls
The Balanced Scorecard
 Framework that allows strategic leaders to verify that they have
established both financial and strategic controls to assess firm
 Underlying premise is that firms jeopardize their future
performance possibilities when financial controls are emphasized
at the expense of strategic controls
 An appropriate balance of strategic and financial controls allows
firms to achieve higher level of performance.
 Uses multiple perspectives
Strategic Controls and Financial Controls
in a Balanced Scorecard Framework
Key Strategic Leadership Actions
 Developing Policies and Procedures
Policies and procedures - are written or unwritten standards or
styles of behavior that govern how people act and lead people to
behave in predictable ways
Can facilitate good strategy implementation:
Can increase efficiency because they standardize work behavior
and specify the best way to accomplish a task
Provide top down guidance about how certain things need to be
They help ensure consistency in how strategy critical activities are
Different types of firms make use of different types and numbers of
policies and procedures
Firms need to create a strong supportive fit between policies and
procedures and strategy
Key Strategic Leadership Actions
 Developing Reward Systems
It can be argued that rewards are the single most powerful tool for
winning the commitment of employees to effective strategy
Rewards are an important tool used to achieve behavioral control.
Firms should create a results oriented system in which those
achieving objectives are generously rewarded and those not
achieving objectives are not rewarded
Rewards and incentives should also be tied to strategy:
 Cost leaders should reward people for being efficient and for
identifying ways to reduce costs
 Differentiators should reward people for being innovative
The bottom line is that firms need to reward and motivate people in
ways that are supportive of strategy and strategy implementation
Key Strategic Leadership Actions
 McKinsey 7-S Strategy Implementation Framework
 Basic Premise: there are seven internal aspects of an organization
that need to be aligned if the organization is to be successful.
These seven elements are interdependent and can be categorized as
either "hard" or "soft" elements.
They are interdependent to the extent that making changes to one
affects all of the others.
For an organization to perform well each of these elements must fit
with and be consistent with one another.
These elements include:
Strategy, Structure, Systems, Shared Values, Style, Staff , and Skills
 (source:
Key Strategic Leadership Actions