Competing For Advantage Part I – Strategic Thinking Chapter 2 – Strategic Leadership

Managerial Discretion 1) Discretion – latitude for action or decision making How much influence do you really have? 2) Hubris – excessive pride, leading to a feeling of invincibility

Constraints on Decision Making

Decision-Making Biases Reliance on previously formed beliefs Focus on limited objectives Exposure to limited decision alternatives Insensitivity to outcome probabilities Illusion of control Reliance on a limited set of heuristics or rules of thumb

Top Management Teams Group composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies

Factors that Influence the Effectiveness of Top Management Teams Top management team heterogeneity The CEO and top management team power Executive succession processes

Heterogeneous Top Management Team Introduces a variety of perspectives Has a greater propensity for strong competitive action Tends to "think outside of the box," leading to more creative decision making, innovation, and strategic change Offers various areas of expertise to identify environmental opportunities, threats, or the need for change Promotes debate

Heterogeneous Top Management Team Challenges Cohesion Communication Comprehensive examination of threats and opportunities

The CEO and Top Management Team Power CEO Duality - CEO also serves as chair of the board of directors to achieve power relative to the board Independent Board Leadership Structure – the structure in which the board's ability to monitor top-level managers' decisions and actions (particularly in terms of financial performance) is enhanced by employing two different people to serve as CEO and board chair

CEO Duality Is more common in the United States Occurs most often in the largest firms Is criticized for causing poor performance and slow response to change

Top Management Power Members of top management can use their social and business ties with directors Powerful CEOs can appoint members of the top management team or other sympathetic associates to serve on the board CEO tenure

Executive Succession Processes Process can be internal or external

Benefits of Internal Labor Market Continuity Continued commitment Familiarity Reduced turnover Retention of "private knowledge"

Benefits of External Labor Market Since tenure with the same firm is thought to reduce innovation, outsiders can bring diverse knowledge bases new social networks ….which may offer new synergies and new competitive advantages

Effect of CEO Succession and Top Management Team on Strategy

What is strategic effectiveness? Consistent, long-term goals and objectives Consistent, long-term goals and objectives Reflects and understanding of the environment Takes resources into consideration Effectively implemented Strategic Effectiveness (fit)

Strategic Vision vs. Mission A strategic vision concerns “where we are going” or ”what do we want to be.” Markets to be pursued Future product/ market/ customer/ technology focus Kind of company management is trying to create The mission statement focuses on its “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

Mission Statements Boundaries of the current business Fundamental purpose that sets it apart from other firms of its type Conveys Who we are, What we do, and Why we are here

Objectives Turns mission into performance outcomes Organizations produce what is measured Long and Short term

Control Systems Financial Controls focus on short-term financial outcomes produce risk-averse managerial decisions Strategic Controls focus on the content of strategic actions encourage decisions that incorporate moderate and acceptable levels of risk

Current financial results are “lagging indicators” reflecting results of past decisions and actions— good profitability now does not translate into stronger capability for delivering better financial results later However, meeting or beating strategic performance targets signals growing competitiveness & strength in the marketplace, thus developing the capability for better financial performance in the years ahead Good strategic performance is thus a “leading indicator” of a company’s capability to deliver improved future financial performance Leading versus Lagging Indicators

Controls in Balanced Scorecard Framework