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Copyright © 2012 Pearson Canada Inc. 0 Chapter 2 The Process of Strategic Leadership
Copyright © 2012 Pearson Canada Inc. 1 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. 2
Copyright © 2012 Pearson Canada Inc. 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. 3
Copyright © 2012 Pearson Canada Inc. Fit 4 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.
Copyright © 2012 Pearson Canada Inc. 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 5
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 6
Copyright © 2012 Pearson Canada Inc. Processes for Leading Planned Process Steps: 1. Assess performance 2. Describe the current strategy 3. Analyse the internal environment 4. Analyse the external environment 5. Assess fit 6. Provide alternative strategic solutions 7. Select a strategic solution 8. Implement the strategic solution 7
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 8
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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 terms of the business strategy diamond presented in Chapter 1: arenas, vehicles, differentiators, staging and pacing, and economic logic. 9
Copyright © 2012 Pearson Canada Inc. Processes for Leading 3. Analyze the Internal Environment Its resources and capabilities are what the business has to work with. These are combined in the functional activities of the value chain. 4. Analyze the External Environment The business operates in an evolving industry that is subject to competitive forces. The driving forces of evolution include politics, the economy, society, and technology. 10
Copyright © 2012 Pearson Canada Inc. Processes for Leading 5. Assess Fit Management has made many decisions about how certain resources and capabilities will be combined to satisfy a business 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. 11
Copyright © 2012 Pearson Canada Inc. Processes for Leading 7. Select a Strategic Solution Typically, selecting one strategic alternative over others is an exercise in judgment because the criteria used to assess each one 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 with the preparation of a plan of action. In this plan, the necessary strategic, organizational, and resource changes are identified. 12
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 13
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 14
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 15
Copyright © 2012 Pearson Canada Inc. Processes for Leading Visioned Process Steps: 1. Establish pre-conditions 2. Create the vision 3. Sell the vision 4. Enact the vision 16
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 17
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 18
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 19
Copyright © 2012 Pearson Canada Inc. Processes for Leading 4. Enact the Vision Leaders demonstrate their commitment to the vision by behaving in ways consistent with the vision and the values associated with it. 20
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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.” 21
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 22
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 23
Copyright © 2012 Pearson Canada Inc. Processes for Leading Discovered Process Steps: 1. Establish preconditions 2. Find ideas 3. Develop ideas 4. Prune/fertilize innovations 24
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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 need to do something different or differently. 25
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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 the business accepts and builds. 26
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 27
Copyright © 2012 Pearson Canada Inc. Processes for Leading 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. 28
Copyright © 2012 Pearson Canada Inc. The Human Influence on Strategic Leadership Processes The three major aspects of human behaviour affecting the 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. 29
Copyright © 2012 Pearson Canada Inc. Human Influence on Leadership Processes: Cognition Cognitive Bias Prior hypothesis Bias Escalating Commitment Reasoning by Analogy Representativeness Illusion of Control (Attribution) 30
Copyright © 2012 Pearson Canada Inc. 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 31
Copyright © 2012 Pearson Canada Inc. 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. 32
Copyright © 2012 Pearson Canada Inc. http://www.youtube.com/watch?v=qp0HIF3SfI4 33
Copyright © 2012 Pearson Canada Inc. 0 Chapter 2 The Process of Strategic Leadership.
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