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2004 by South-Western/Thomson Learning 1

Strategic LeadershipStrategic Leadership

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 2Chapter 2


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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 1Chapter 1

Introduction toIntroduction to

Strategic ManagementStrategic ManagementStrategicThinking

The Strategic Management ProcessThe Strategic Management Process

Chapter 4Chapter 4

The InternalThe Internal

OrganizationOrganization

Chapter 6Chapter 6

Competitive Rivalry andCompetitive Rivalry and

Competitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9

International StrategyInternational Strategy

Chapter 3Chapter 3

The ExternalThe External

EnvironmentEnvironment

Chapter 5Chapter 5

BusinessBusiness--LevelLevel

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11

Corporate GovernanceCorporate Governance

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 7Chapter 7

CorporateCorporate--Level StrategyLevel Strategy


Cooperative StrategyCooperative Strategy


Strategic EntrepreneurshipStrategic Entrepreneurship

Strategic

Analysis

Creating

Competitive

Advantage

Monitoring

And Creating

Entrepreneurial

Opportunities


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Discussion QuestionsDiscussion Questions1. Why is strategic leadership

important?

2. How much discretion (or influence)do strategic leaders have?

3. How do characteristics of a topmanagement team affect its

functioning?4. When should a CEO be hired from

the outside? When from the inside?

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More discussion questions

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Discussion Questions (cont.)Discussion Questions (cont.)5. How important are strategic

leaders in: Determining strategic direction

Exploiting and maintaining corecompetencies

Developing human capital

Sustaining an effective corporate

culture Emphasizing ethical practices

Establishing strategic controls

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Here


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Discussion Question 1Discussion Question 1

Why is strategic leadershipimportant?


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Strategic LeadershipStrategic Leadership Strategic leadership involves:Strategic leadership involves:

the ability to anticipate, envision, maintainthe ability to anticipate, envision, maintainflexibility and empower others to createflexibility and empower others to create

strategic changestrategic change multimulti--functional work that involves workingfunctional work that involves working

through othersthrough others

consideration of the entire enterprise ratherconsideration of the entire enterprise ratherthan just a subthan just a sub--unitunit

a managerial frame of referencea managerial frame of reference


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SuccessfulSuccessful

Strategic ActionsStrategic Actions

Strategic Leadership and theStrategic Leadership and the

Strategic Management ProcessStrategic Management ProcessEffective StrategicEffective Strategic

LeadershipLeadership

Strategic IntentStrategic Intent Strategic MissionStrategic Mission

shapes the formulation ofshapes the formulation of

andand

influenceinfluence


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Strategic Leadership and theStrategic Leadership and the

Strategic Management ProcessStrategic Management Process

StrategicStrategic

CompetitivenessCompetitiveness

AboveAbove--Average ReturnsAverage Returns

FormulationFormulation

of Strategiesof Strategies

ImplementationImplementation

of Strategiesof Strategies

SuccessfulSuccessful

Strategic ActionsStrategic Actions

yieldsyieldsClick

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Discussion

Questions


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Discussion Question2


How much discretion (or influence)do strategic leaders have?


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Factors Affecting ManagerialFactors Affecting Managerial

DiscretionDiscretionExternal EnvironmentExternal Environment

Industry structureIndustry structure

Rate of market growthRate of market growth Number and type ofNumber and type of

competitorscompetitors

Nature and degree ofNature and degree of

political/legal constraintspolitical/legal constraints Degree to which productsDegree to which products

can be differentiatedcan be differentiated

External EnvironmentExternal Environment


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DiscretionDiscretion

Characteristics of theCharacteristics of theOrganizationOrganization

Characteristics of theCharacteristics of the

OrganizationOrganization

SizeSize AgeAge

CultureCulture

Availability of resourcesAvailability of resources

Patterns of interactionPatterns of interactionamong employeesamong employees

External EnvironmentExternal Environment


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DiscretionDiscretionExternal EnvironmentExternal Environment

Characteristics of theCharacteristics of theOrganizationOrganization

ManagerialManagerial

DiscretionDiscretion

Characteristics of theCharacteristics of the

ManagerManager

T

olerance for ambiguityT

olerance for ambiguity Commitment to the firmCommitment to the firm

and its desired strategicand its desired strategic

outcomesoutcomes

Interpersonal skillsInterpersonal skills Aspiration levelAspiration level

Degree of selfDegree of self--confidenceconfidenceCharacteristics of theCharacteristics of the

ManagerManager ClickHere Return to Discussion Questions


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How do characteristics of a topmanagement team affect itsfunctioning?


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Top Management

Teams

Top Management

Teams

The top management team is composed ofThe top management team is composed of

key managers who are responsible forkey managers who are responsible for

formulating andformulating and implementingimplementing

the organizations strategiesthe organizations strategies

A heterogeneous top management teamA heterogeneous top management team

with varied expertise and knowledge canwith varied expertise and knowledge candraw on multiple perspectives whendraw on multiple perspectives when

evaluating alternative strategies andevaluating alternative strategies and

building consensusbuilding consensus


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CEO and Top Management TeamCEO and Top Management Team

PowerPower Board of directors is an importantBoard of directors is an important

governance mechanism for monitoring agovernance mechanism for monitoring a

firms strategic directionfirms strategic direction

Higher performance is normally expectedHigher performance is normally expected

when the board is more directly involved inwhen the board is more directly involved in

shaping a firms strategic directionshaping a firms strategic direction

Chief executive officers can gain so muchChief executive officers can gain so muchpower that they are virtually independent ofpower that they are virtually independent of

oversight by the board of directorsoversight by the board of directors


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CEO and Top Management TeamCEO and Top Management Team

PowerPower This is especially true when the CEO isThis is especially true when the CEO is

also chairman of the board of directorsalso chairman of the board of directors

CEOs of long tenure can also wieldCEOs of long tenure can also wieldsubstantial powersubstantial power

The most effective forms of governanceThe most effective forms of governance

share power and influence among theshare power and influence among the

CEO and board of directorsCEO and board of directors

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When should a CEO be hired fromthe outside? When from theinside?


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Managerial Labor MarketManagerial Labor Market The internal labor market is comprised ofThe internal labor market is comprised of

the career path alternatives available to athe career path alternatives available to afirms managersfirms managers

Selecting internal candidates forSelecting internal candidates formanagement positions helps to build onmanagement positions helps to build onvaluable firmvaluable firm--specific knowledgespecific knowledge


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Managerial Labor MarketsManagerial Labor Markets The external labor market includes theThe external labor market includes the

collection of career opportunities forcollection of career opportunities formanagers outside their firmmanagers outside their firm

Selecting an outsider often brings freshSelecting an outsider often brings freshinsights and may energize the firm withinsights and may energize the firm withinnovative new ideasinnovative new ideas


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Managerial Labor MarketsManagerial Labor Markets

StrategicStrategic

changechange

StableStable

strategystrategy

Stable strategyStable strategy

with innovationwith innovation

Managerial Labor Market:Managerial Labor Market:

CEO SuccessionCEO Succession

Internal CEOInternal CEO

successionsuccession

External CEOExternal CEO

successionsuccession

Top ManagementTop ManagementTeam CompositionTeam Composition

HeterogeneousHeterogeneous

HomogeneousHomogeneous

Ambiguous:Ambiguous:

possible change inpossible change in

top managementtop management

team and strategyteam and strategy

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Discussion

Questions


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2

1


Discussion Question5How important are strategic

leaders in: Determining strategic direction

Exploiting and maintaining core

competencies Developing human capital

Sustaining an effective corporate

culture Emphasizing ethical practices

Establishing strategic controls


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Exercise of Effective StrategicExercise of Effective Strategic


EstablishingEstablishing

balancedbalanced

organizationalorganizational

controlscontrols

EmphasizingEmphasizingethicalethical

practicepractice

DevelopingDevelopinghumanhuman

capitalcapital

Exploiting andExploiting and

maintainingmaintaining

corecore

competenciescompetencies

SustainingSustaining

an effectivean effective

organizationalorganizational

cultureculture

DeterminingDetermining

strategicstrategic

directiondirection

Effective StrategicEffective Strategic



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Determining Strategic DirectionDetermining Strategic Direction

Strategic direction means the developmentStrategic direction means the developmentof a longof a long--term vision of a firms strategicterm vision of a firms strategicintentintent

A charismatic leader can help achieveA charismatic leader can help achievestrategic intentstrategic intent

It is important not to lose sight of theIt is important not to lose sight of thestrengths of the organization when makingstrengths of the organization when making

changes required by a new strategicchanges required by a new strategicdirectiondirection

Executives must structure the firmExecutives must structure the firmeffectively to help achieve the visioneffectively to help achieve the vision


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Exploiting and Maintaining CoreExploiting and Maintaining Core

CompetenciesCompetencies Core competencies are resources andCore competencies are resources and

capabilities that serve as a source ofcapabilities that serve as a source ofcompetitive advantage for a firm over itscompetitive advantage for a firm over its

rivalsrivals Strategic leaders must verify that theStrategic leaders must verify that the

firms competencies are emphasized infirms competencies are emphasized instrategy implementation effortsstrategy implementation efforts


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Exploiting and Maintaining CoreExploiting and Maintaining Core

CompetenciesCompetencies In many large firms, and certainly inIn many large firms, and certainly in

relatedrelated--diversified ones, corediversified ones, corecompetencies are exploited effectivelycompetencies are exploited effectively

when they are developed and appliedwhen they are developed and appliedacross different organizational unitsacross different organizational units

Core competencies cannot be developedCore competencies cannot be developedor exploited effectively without developingor exploited effectively without developing

the capabilities of human capitalthe capabilities of human capital


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Developing Human CapitalDeveloping Human Capital Human capital refers to the knowledgeHuman capital refers to the knowledge

and skills of the firms entire workforceand skills of the firms entire workforce

Employees are viewed as a capitalEmployees are viewed as a capital

resource that requires investmentresource that requires investment No strategy can be effective unless theNo strategy can be effective unless the

firm is able to develop and retain goodfirm is able to develop and retain goodpeople to carry it outpeople to carry it out

The effective development andThe effective development andmanagement of the firms human capitalmanagement of the firms human capitalmay be the primary determinant of a firmsmay be the primary determinant of a firmsability to formulate and implementability to formulate and implement

strategies successfullystrategies successfully


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Sustaining an EffectiveSustaining an Effective

Organizational CultureOrganizational Culture An organizational culture consists of aAn organizational culture consists of a

complex set of ideologies, symbols, andcomplex set of ideologies, symbols, andcore values that is shared throughout thecore values that is shared throughout the

firm and influences the way it conductsfirm and influences the way it conductsbusinessbusiness

Shaping the firms culture is a central taskShaping the firms culture is a central taskof effective strategic leadershipof effective strategic leadership


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Organizational CultureOrganizational Culture An appropriate organizational cultureAn appropriate organizational culture

encourages the development of anencourages the development of anentrepreneurial orientation amongentrepreneurial orientation among

employees and an ability to change theemployees and an ability to change theculture as necessaryculture as necessary

Reengineering can facilitate this processReengineering can facilitate this process


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Organizational CultureOrganizational Culture

Entrepreneurial opportunities are an

important source of growth andinnovation

Five characteristics of an entrepreneurialorientation are

A

utonomy Innovativeness

Risk taking

Proactiveness

Competitive aggressiveness

Entrepreneurial OrientationEntrepreneurial Orientation


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Organizational CultureOrganizational CultureChanging Culture and BusinessChanging Culture and Business

ReengineeringReengineering T

he benefits of business reengineeringT

he benefits of business reengineeringare maximized when employees believeare maximized when employees believethat:that: every job in the company is essential andevery job in the company is essential and

importantimportant

all employees must create value through theirall employees must create value through theirworkwork


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Organizational CultureOrganizational CultureChanging Culture and BusinessChanging Culture and BusinessReengineeringReengineering

Constant learning is a vital part of everyConstant learning is a vital part of everypersons jobpersons job

Teamwork is essential to successfulTeamwork is essential to successfulimplementationimplementation

Problems are solved only when teamsProblems are solved only when teamsaccept the responsibility for the solutionaccept the responsibility for the solution


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Emphasizing Ethical PracticesEmphasizing Ethical Practices Ethical practices increase theEthical practices increase the

effectiveness of strategy implementationeffectiveness of strategy implementationprocessesprocesses

Ethical companies encourage and enableEthical companies encourage and enablepeople at all organizational levels topeople at all organizational levels toexercise ethical judgmentexercise ethical judgment


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Emphasizing Ethical PracticesEmphasizing Ethical Practices To properly influence employee judgmentTo properly influence employee judgment

and behavior, ethical practices mustand behavior, ethical practices mustshape the firms decisionshape the firms decision--making processmaking process

and be an integral part of anand be an integral part of anorganizations cultureorganizations culture

Leaders set the tone for creating anLeaders set the tone for creating anenvironment of mutual respect, honestyenvironment of mutual respect, honesty

and ethical practices among employeesand ethical practices among employees


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Establishing BalancedEstablishing Balanced

Organizational ControlsOrganizational Controls Organizational controls provide theOrganizational controls provide the

parameters within which strategies are toparameters within which strategies are tobe implemented and corrective actionsbe implemented and corrective actions

takentaken Financial controls are often emphasized inFinancial controls are often emphasized in

large corporations and focus on shortlarge corporations and focus on short--term financial outcomesterm financial outcomes

Strategic control focuses on the contentStrategic control focuses on the contentof strategic actions, rather than theirof strategic actions, rather than theiroutcomesoutcomes


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Establishing BalancedEstablishing Balanced

Organizational ControlsOrganizational Controls Successful strategic leaders balanceSuccessful strategic leaders balance

strategic control and financial controlstrategic control and financial control(they do not eliminate financial control)(they do not eliminate financial control)

with the intent of achieving more positivewith the intent of achieving more positivelonglong--term returnsterm returns


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Strategic and Financial Controls in aStrategic and Financial Controls in a

Balanced Scorecard FrameworkBalanced Scorecard FrameworkPerspectivesPerspectives CriteriaCriteria

FinancialFinancial Cash flowCash flow

Return on equityReturn on equity

Return on assetsReturn on assets

CustomerCustomer Assessment of ability to anticipateAssessment of ability to anticipate

customers needscustomers needs

Effectiveness of customer service

Effectiveness of customer servicepracticespractices

Percentage of repeat businessPercentage of repeat business

Quality of communications withQuality of communications with

customerscustomers


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Strategic and Financial Controls in aStrategic and Financial Controls in a

Balanced Scorecard FrameworkBalanced Scorecard FrameworkPerspectivesPerspectives CriteriaCriteria

Internal BusinessInternal Business

ProcessProcess

Asset utilization improvementsAsset utilization improvements

Improvements in employee moraleImprovements in employee morale

Changes in turnover ratesChanges in turnover rates

Learning andLearning and

GrowthGrowth

Improvements in innovation abilityImprovements in innovation ability

Number of new products comparedNumber of new products compared

to competitorsto competitors Increases in employees skillsIncreases in employees skills

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