Strategic Leadership: Creating a Learning Organization and an Ethical Organization Chapter Eleven McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives After reading this chapter, you should have a good understanding of: LO1 The three key interdependent activities in which all successful leaders must be continually engaged. LO2 Three elements of effective leadership: integrative thinking, overcoming barriers to change, and the effective use of power. LO3 The crucial role of emotional intelligence (EI) in successful leadership as well as its potential drawbacks. 11-2

Learning Objectives LO4 The value of creating and maintaining a learning organization in today’s global marketplace. LO5 The leader’s role in establishing an ethical organization. LO6 The difference between integrity-based and compliance-based approaches to organizational ethics. LO7 Several key elements that organizations must have to become an ethical organization. 11-3

Leadership: Three Interdependent Activities process of transforming organizations from what they are to what the leader would have them become Leadership should be Proactive Goal-oriented Focused on the creation and implementation of a creative vision 11-4

Three Interdependent Activities of Leadership 11-5

Setting a Direction Scan environment to develop Knowledge of all stakeholders Knowledge of salient environmental trends and events Integrate that knowledge into a vision of what the organization could become 11-6

Setting a Direction Required capacities Solve increasingly complex problems Be proactive in approach Develop viable strategic options 11-7

Designing the Organization A strategic leadership activity of building structures, teams, systems, and organizational processes that facilitate the implementation of the leader’s vision and strategies. 11-8

Designing the Organization Difficulties in implementing the leaders’ vision and strategies Lack of understanding of responsibility and accountability among managers Reward systems that do not motivate individuals and groups toward desired organizational goals Inadequate or inappropriate budgeting and control systems Insufficient mechanisms to coordinate and integrate activities across the organization 11-9

QUESTION XYZ's CEO scrapped the company's commission-based reward system because it was rewarding employees for inappropriate behavior. This is an example of  A. Setting a direction B. Designing the organization C. Unethical behavior D. Failure to maintain the status quo Answer: B. Designing the organization 11-10

Nurturing an Excellent and Ethical Culture Excellent and ethical organizational culture an organizational culture focused on core competencies and high ethical standards 11-11

Integrative Thinking Integrative thinking the process by which people reconcile opposing thoughts to identify creative solutions that provide them with more options and new alternatives In his book The Opposable Mind, Martin contends that people who can consider two conflicting ideas simultaneously, without dismissing one of the ideas or becoming discouraged about reconciling them, often make the best problem solvers because of their ability to creatively synthesize the opposing thoughts. 11-12

Integrative Thinking: The Process of Thinking and Deciding 11-13

Overcoming Barriers to Change Reasons why organizations are prone to inertia and slow to change Vested interests in the status quo Systemic barriers Behavioral barriers Political barriers Personal time constraints 1. Many people have vested interests in the status quo. People tend to be risk averse and resistant to change. There is a broad stream of research on “escalation,” wherein certain individuals continue to throw “good money at bad decisions” despite negative performance feedback. 12 2. There are systemic barriers. The design of the organization’s structure, information processing, reporting relationships, and so forth impede the proper flow and evaluation of information. A bureaucratic structure with multiple layers, onerous requirements for documentation, and rigid rules and procedures will often “inoculate” the organization against change. 3. Behavioral barriers cause managers to look at issues from a biased or limited perspective due to their education, training, work experiences, and so forth. Consider an incident shared by David Lieberman, marketing director at GVO, an innovation consulting firm: 4. Political barriers refer to conflicts arising from power relationships. This can be the outcome of a myriad of symptoms such as vested interests, refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences. 5. Personal time constraints bring to mind the old saying about “not having enough time to drain the swamp when you are up to your neck in alligators.” Gresham’s law of planning states that operational decisions will drive out the time necessary for strategic thinking and reflection. This tendency is accentuated in organizations experiencing severe price competition or retrenchment wherein managers and employees are spread rather thin. 11-14

The Effective Use of Power a leader’s ability to get things done in a way he or she wants them to be done. Organizational bases of power A formal management position that is the basis of a leader’s power. 11-15

A Leader’s Bases of Power 11-16

Emotional intelligence Emotional intelligence (EI) an individual’s capacity for recognizing his own emotions and those of others, including the five components of self awareness, self regulation, motivation, empathy, and social skills. 11-17

Five Components of Emotional Intelligence at Work 11-18

Inspiring and Motivating People with a Mission or Purpose Successful learning organizations Create a proactive, creative approach to the unknown Actively solicit the involvement of employees at all levels Enable all employees to use their intelligence and apply their imagination 11-19

Inspiring and Motivating People with a Mission or Purpose A Learning environment involves: Organization-wide commitment to change An action orientation Applicable tools and methods Guiding philosophy Inspired and motivated people with a purpose 11-20

Key Elements of a Learning Organization 11-21

QUESTION The "top down" perspective of empowerment  A. Encourages intelligent risk-taking B. Trusts people to perform C. Encourages cooperative behavior D. Delegates responsibility Answer: D. Delegates responsibility 11-22

Empowering Employees at All Levels Top-down perspective Start at the top. Clarify the organization’s mission, vision, and values. Clearly specify the tasks, roles, and rewards for employees. Delegate responsibility. Hold people accountable for results. 11-23

Empowering Employees at All Levels Bottom-up View Start at the bottom by understanding needs of employees Teach employees skills of self-management Build teams to encourage cooperative behavior Encourage intelligent risk taking Trust people to perform 11-24

Accumulating and Sharing Internal knowledge “Open book” management Numbers on each employee’s work performance and production costs are generated daily Information is aggregated once a week from top level to bottom level Extensive training in how to use and interpret the numbers 11-25

Gathering and Integrating External Information Internet accelerates the speed with which useful information can be located Employees can use “garden variety” traditional sources to acquire external information Benchmarking Focus directly on customers for information 11-26

Challenging the Status Quo and Enabling Creativity Create a sense of urgency Establish a “culture of dissent” Foster a culture that encourages risk taking Cultivate culture of experimentation and curiosity 11-27

Best Practices: Learning from Failures 11-28

Creating an Ethical Organization Organizational ethics the values, attitudes, and behavioral patterns that define an organization’s operating culture and that determine what an organization holds as acceptable behavior. 11-29

Creating An Ethical Organization Ethical orientation the practices that firms use to promote an ethical business culture, Includes ethical role models, corporate credos and codes of conduct, ethically-based reward and evaluation systems, and consistently enforced ethical policies and procedures. Organizational ethics is a direct reflection of its leadership Unethical business practices Involves tacit, if not explicit, cooperation of others Reflect the values, attitudes, and behavior pattern that define the organization’s operating culture Driving forces of ethical organizations Ethical values Integrity 11-30

Creating An Ethical Organization Ethical values Shape the search for opportunities Shape the design organizational systems Shape the decision-making process used by individuals and groups Provide a common frame of reference that serves as a unifying force 11-31

Example: Wal-Mart Ethics for Managers Meet with your direct reports as a group periodically to review the Guiding Principles and this Statement of Ethics. Where there is a conflict between our ethics and business objectives, our ethics must always come first. Lead by example, and encourage your associates to act with integrity in all dealings to avoid even the appearance of a violation of our business standards. If an ethics issue arises with one of your associates, make sure other associates in your area are not making the same mistake. Source: walmartstores.com 11-32

Integrity-Based versus Compliance-Based Approaches Compliance-based ethics programs programs for building ethical organizations that have the goal of preventing, detecting, and punishing legal violations. Essential links between organizational integrity and individual integrity Cannot be high-integrity organizations without high-integrity individuals Individual integrity is rarely self-sustaining Organizational integrity, resting on a concept of Purpose Responsibility Ideals 11-33

Integrity-Based versus Compliance-Based Approaches Integrity-based ethics programs programs for building ethical organizations that combine a concern for law with an emphasis on managerial responsibility for ethical behavior, 11-34

Integrity-based Ethics Programs Integrity-based Ethics Programs include: enabling ethical conduct; examining the organization’s and members’ core guiding values, thoughts, and actions; and defining the responsibilities and aspirations that constitute an organization’s ethical compass. 11-35

Approaches to Ethics Management 11-36

Key Elements of Highly Ethical Organizations Role models Corporate credos and codes of conduct Reward and evaluation systems Policies and procedures Role Models Leaders are role models for their organizations Leaders must be consistent in their words and deeds Values and character of leaders become transparent to an organization’s employees Effective leaders take responsibility for ethical lapses within the organization Corporate credos and codes of conduct Provide a statement and guidelines for norms, beliefs and decision making Provide employees with clear understanding of the organizations position regarding employee behavior Provide the basis for employees to refuse to commit unethical acts Contents of credos and codes of conduct must be known to employees Reward and evaluation systems Inappropriate reward systems may cause individuals at all levels of the organization to commit unethical acts that they might not otherwise do Penalties in terms of damage to reputations, human capital erosion, and financial loss are typically much higher than any gains that could be obtained through such unethical behavior Policies and procedures Policies and procedures can specify proper relationships with a firm’s customers and suppliers Policies and procedures can guide employees to behavior ethically Policies and procedures must be reinforced Effective communication Enforcement Monitoring Sound corporate governance practices 11-37

The Goolsby Leadership Model 11-38