©2003 Southwestern Publishing Company 1 Strategic Leadership Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Chapter 12

2 Strategy Implementation Chapter 11 Chapter 11 Organizational Structure and Structure and Controls Chapter 10 Chapter 10 Corporate Governance Chapter 12 Chapter 12 Strategic Leadership Strategy Formulation Strategic Competitiveness Above-Average Returns Strategic Intent Strategic Intent Strategic Mission Strategic Mission Chapter 2 Chapter 2 The External The External Environment Chapter 3 Chapter 3 The Internal The Internal Environment The Strategic Management Process Feedback Strategic Inputs Strategic Actions Strategic Outcomes Chapter 6 Chapter 6 Corporate- Level Strategy Level Strategy Chapter 9 Chapter 9 Cooperative Strategy Chapter 5 Chapter 5 Competitive Rivalry Competitive Rivalry and Competitive and Competitive Dynamics Chapter 8 Chapter 8 International Strategy Chapter 4 Chapter 4 Business-Level Strategy Chapter 7 Chapter 7 Acquisition and Acquisition and Restructuring Strategies

3 Strategic Leadership Strategic leadership involves: Strategic leadership involves: –the ability to anticipate, envision, maintain flexibility and empower others to create strategic change –multi-functional work that involves working through others –consideration of the entire enterprise rather than just a sub-unit –a managerial frame of reference

4 Successful Strategic Actions Strategic Leadership and the Strategic Management Process Effective Strategic Leadership Strategic Intent Strategic Mission shapes the formulation of and influence

5 Strategic Leadership and the Strategic Management Process StrategicCompetitiveness Above-Average Returns Formulation of Strategies Implementation Successful Strategic Actions yields

6 Factors Affecting Managerial Discretion External Environment Industry structureIndustry structure Rate of market growthRate of market growth Number and type of competitorsNumber and type of competitors Nature and degree of political/legal constraintsNature and degree of political/legal constraints Degree to which products can be differentiatedDegree to which products can be differentiated External Environment

7 Factors Affecting Managerial Discretion Characteristics of the Organization Characteristics of the Organization SizeSize AgeAge CultureCulture Availability of resourcesAvailability of resources Patterns of interaction among employeesPatterns of interaction among employees External Environment

8 Factors Affecting Managerial Discretion External Environment Characteristics of the Organization Manager ManagerialDiscretion Characteristics of the Manager Tolerance for ambiguityTolerance for ambiguity Commitment to the firm and its desired strategic outcomesCommitment to the firm and its desired strategic outcomes Interpersonal skillsInterpersonal skills Aspiration levelAspiration level Degree of self-confidenceDegree of self-confidence

9 Top Management Teams The top management team is composed of key managers who are responsible for The top management team is composed of key managers who are responsible for –formulating and –implementing –the organization’s strategies A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus

10 Top Management Teams A top management team must also be able to function effectively as a team in order to implement strategies A top management team must also be able to function effectively as a team in order to implement strategies –a heterogeneous team makes this more difficult –a heterogeneous team, however, is associated positively with innovation and strategic change

11 Strategic Leadership Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors This is especially true when the CEO is also chairman of the board of directors This is especially true when the CEO is also chairman of the board of directors CEOs of long tenure can also wield substantial power CEOs of long tenure can also wield substantial power The most effective forms of governance share power and influence among the CEO and board of directors The most effective forms of governance share power and influence among the CEO and board of directors

12 Managerial Labor Markets The internal labor market is comprised of the career path alternatives available to a firm’s managers The internal labor market is comprised of the career path alternatives available to a firm’s managers Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge

13 Managerial Labor Markets The external labor market includes the collection of career opportunities for managers outside their firm The external labor market includes the collection of career opportunities for managers outside their firm Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas

14 Managerial Labor Markets Strategicchange Stablestrategy Stable strategy with innovation Managerial Labor Market: CEO Succession Internal CEO succession External CEO succession Top Management Team Composition HeterogeneousHomogeneous Ambiguous: possible change in top management team and strategy

15 Exercise of Effective Strategic Leadership Establishingbalancedorganizationalcontrols EmphasizingethicalpracticeDevelopinghumancapital Exploiting and maintainingcorecompetencies Sustaining an effective organizationalculture Determiningstrategicdirection Effective Strategic Leadership

16 Determining Strategic Direction Strategic direction means the development of a long-term vision of a firm’s strategic intent Strategic direction means the development of a long-term vision of a firm’s strategic intent A charismatic leader can help achieve strategic intent A charismatic leader can help achieve strategic intent It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction Executives must structure the firm effectively to help achieve the vision Executives must structure the firm effectively to help achieve the vision

17 Exploiting and Maintaining Core Competencies Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals Strategic leaders must verify that the firm’s competencies are emphasized in strategy implementation efforts Strategic leaders must verify that the firm’s competencies are emphasized in strategy implementation efforts

18 Exploiting and Maintaining Core Competencies In many large firms, and certainly in related-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units In many large firms, and certainly in related-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital

19 Developing Human Capital Human capital refers to the knowledge and skills of the firm’s entire workforce Human capital refers to the knowledge and skills of the firm’s entire workforce Employees are viewed as a capital resource that requires investment Employees are viewed as a capital resource that requires investment No strategy can be effective unless the firm is able to develop and retain good people to carry it out No strategy can be effective unless the firm is able to develop and retain good people to carry it out The effective development and management of the firm’s human capital may be the primary determinant of a firm’s ability to formulate and implement strategies successfully The effective development and management of the firm’s human capital may be the primary determinant of a firm’s ability to formulate and implement strategies successfully

20 Sustaining an Effective Organizational Culture An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business Shaping the firm’s culture is a central task of effective strategic leadership Shaping the firm’s culture is a central task of effective strategic leadership

21 Sustaining an Effective Organizational Culture An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary Reengineering can facilitate this process Reengineering can facilitate this process

22 Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering The benefits of business reengineering are maximized when employees believe that: The benefits of business reengineering are maximized when employees believe that: –every job in the company is essential and important –all employees must create value through their work

23 Sustaining an Effective Organizational Culture Changing Culture and Business Reengineering Constant learning is a vital part of every person’s job Constant learning is a vital part of every person’s job Teamwork is essential to successful implementation Teamwork is essential to successful implementation Problems are solved only when teams accept the responsibility for the solution Problems are solved only when teams accept the responsibility for the solution

24 Emphasizing Ethical Practices Ethical practices increase the effectiveness of strategy implementation processes Ethical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment

25 Emphasizing Ethical Practices To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees

26 Establishing Balanced Organizational Controls Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken Financial controls are often emphasized in large corporations and focus on short- term financial outcomes Financial controls are often emphasized in large corporations and focus on short- term financial outcomes Strategic control focuses on the content of strategic actions, rather than their outcomes Strategic control focuses on the content of strategic actions, rather than their outcomes

27 Establishing Balanced Organizational Controls Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns

28 Strategic and Financial Controls in a Balanced Scorecard Framework PerspectivesCriteria Financial Cash flowCash flow Return on equityReturn on equity Return on assetsReturn on assets Customer Assessment of ability to anticipate customers needsAssessment of ability to anticipate customers needs Effectiveness of customer service practicesEffectiveness of customer service practices Percentage of repeat businessPercentage of repeat business Quality of communications with customersQuality of communications with customers

29 Strategic and Financial Controls in a Balanced Scorecard Framework PerspectivesCriteria Internal Business Process Asset utilization improvementsAsset utilization improvements Improvements in employee moraleImprovements in employee morale Changes in turnover ratesChanges in turnover rates Learning and Growth Improvements in innovation abilityImprovements in innovation ability Number of new products compared to competitorsNumber of new products compared to competitors Increases in employees’ skillsIncreases in employees’ skills