3 KNOWLEDGE OBJECTIVES● Define strategic leadership and describe top-level managers’ importance.● Explain what top management teams are and how they affect firm performance.● Describe the managerial succession process using internal and external managerial labor markets.● Discuss the value of strategic leadership in determining the firm’s strategic direction.
4 INTRODUCTION● Effective strategic leadership is the foundation for successfully using the strategic management process.● Strategic leaders guide the firm in ways that result in forming a vision and mission.● This guidance often finds leaders thinking of ways to create goals that stretch everyone in the organization to improve performance.● Moreover, strategic leaders facilitate the development of appropriate strategic actions and determine how to implement them.● Leaders can make a major difference in how a firm performs.
5 STRATEGIC LEADERSHIP AND STYLE Strategic leadership: the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessaryMultifunctional taskManaging through othersManaging an entire enterprise rather than a functional subunitCoping with change that is increasing in the global economyMost critical skill: attracting and managing human (includes intellectual) capitalNOTE: Many examples of well-known CEOs are mentioned throughout the chapter to illustrate their leadership styles.
7 STRATEGIC LEADERSHIP AND STYLE EFFECTIVE STRATEGIC LEADERS Build strong ties with external stakeholders to gain access to information and adviceUnderstand how their decisions impact their firmSustain above-average performanceAttract and manage human capitalDo not delegate decision-making responsibilitiesInspire and enable others to do excellent work and realize their potentialPromote and nurture innovation through transformational leadership
9 TOP MANAGEMENT TEAM, FIRM PERFORMANCE, AND STRATEGIC CHANGE Heterogeneous team: individuals with varied functional backgrounds, experiences, and educationTeam members: bring a variety of strengths, capabilities, and knowledge and provide effective strategic leadership when faced with complex environments and multiple stakeholder relationships to manage
10 MANAGERIAL SUCCESSION DEFINITION: preselect and shape the skills of tomorrow’s leadersInternal managerial labor market: opportunities for managerial positions to be filled from within the firmExternal managerial labor market: opportunities for managerial positions to be filled by candidates from outside of the firmThis decision impacts company performance and the ability to embrace change in today's competitive landscapeSuccession, top management team composition, and strategy are intimately related
11 EFFECTS OF CEO SUCCESSION AND TOP MANAGEMENT TEAM COMPOSITION ON STRATEGY
12 MANAGERIAL SUCCESSION Benefits of Internal Managerial Labor Market ContinuityContinued commitmentFamiliarityReduced turnoverRetention of “private knowledge”Favored when the firm is performing well
13 MANAGERIAL SUCCESSION Benefits of External Managerial Labor Market Long tenure with the same firm is thought to reduce innovationOutsiders bring diverse knowledge bases and social networks, which offer the potential for synergy and new competitive advantagesFresh paradigmsNote: Opportunity cost for firms: Women as strategic leaders have been somewhat overlooked
15 ENTREPRENEURIAL MIND-SET: FIVE DIMENSIONS AUTONOMYEmployees are allowed to take actions that are free of organizational constraints; permits individuals and groups to be self-directed
16 ENTREPRENEURIAL MIND-SET: FIVE DIMENSIONS AUTONOMYReflects a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, or technological processesCultures with a tendency toward innovativeness encourage employees to think beyond existing knowledge, technologies, and parameters to find creative ways to add valueINNOVATIVENESS
17 ENTREPRENEURIAL MIND-SET: FIVE DIMENSIONS AUTONOMYReflects a willingness by employees and their firm to accept risks when pursuing entrepreneurial opportunitiesExamples of RISKSAssuming significant levels of debtAllocating large amounts of resources to projects that may not be completedINNOVATIVENESSRISK TAKING
18 ENTREPRENEURIAL MIND-SET: FIVE DIMENSIONS AUTONOMYAbility to be a market leader rather than a followerProactive organizational cultures constantly use processes to anticipate future market needs and to satisfy them before competitors learn how to do soINNOVATIVENESSRISK TAKINGPROACTIVENESS
19 ENTREPRENEURIAL MIND-SET: FIVE DIMENSIONS AUTONOMYINNOVATIVENESSRISK TAKINGPropensity to take actions that allow the firm to consistently and substantially outperform its rivals.PROACTIVENESSCOMPETITIVEAGGRESSIVENESS
20 KEY STRATEGIC LEADERSHIP ACTIONS Establishing Balanced Organizational ControlsControls: formal, information-based procedures used by managers to maintain or alter patterns in organizational activitiesControls help strategic leaders:● Build credibility● Demonstrate the value of strategies to the firm’s stakeholders● Promote and support strategic change
21 KEY STRATEGIC LEADERSHIP ACTIONS Establishing Balanced Organizational Controls● Financial ControlsFocus on short-term financial outcomesProduce risk-averse managerial decisions because financial outcomes may be caused by events beyond managers’ direct control● Strategic ControlsFocus on the content of strategic actions rather than their outcomesEncourage decisions that incorporate moderate and acceptable levels of risk
22 KEY STRATEGIC LEADERSHIP ACTIONS Establishing Balanced Organizational ControlsTHE BALANCED SCORECARDFramework to evaluate if firms have achieved the appropriate balance among the strategic and financial controls to attain the desired level of firm performanceMost appropriate for evaluating business-level strategies; it can also be used with the other strategies firms implement (e.g., corporate-level, international, and cooperative)Prevents overemphasis of financial controls at the expense of strategic controls
23 KEY STRATEGIC LEADERSHIP ACTIONS Establishing Balanced Organizational ControlsTHE BALANCED SCORECARD● Premise is that firms jeopardize their future performance when financial controls are emphasized at the expense of strategic controls● This is because financial controls focus on historical outcomes, and do not address future performance drivers● An overemphasis on financial controls may promote managerial behavior that sacrifices long-term, value-creating potential for short-term performance gains● An appropriate balance of strategic controls and financial controls, rather than an overemphasis on either, allows firms to achieve higher levels of performance
24 KEY STRATEGIC LEADERSHIP ACTIONS Establishing Balanced Organizational ControlsTHE BALANCED SCORECARDFour perspectives of the balanced scorecard Financial Customer Internal Business Processes Learning and Growth
25 STRATEGIC CONTROLS AND FINANCIAL CONTROLS IN A BALANCED SCORECARD FRAMEWORK
26 Translating Vision and Strategy: Four Perspectives FINANCIAL“To succeed financially, how should we appear to our shareholders?”ObjectivesMeasuresTargetsInitiativesCUSTOMERINTERNAL BUSINESS PROCESS“To achieve our vision, how should we appear to our customers?”ObjectivesMeasuresTargetsInitiatives“To satisfy our shareholders and customers, what business processes must we excel at?”Vision andStrategyObjectivesMeasuresTargetsInitiativesLEARNING AND GROWTH“To achieve our vision, how will we sustain our ability to change and improve?”ObjectivesMeasuresTargetsInitiatives4
27 The Balanced Scorecard Focuses on Factors that Create Long-Term Value Traditional financial reports look backwardReflect only the past: spending incurred and revenues earnedDo not measure creation or destruction of future economic valueThe Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example:Customer Focus: satisfy, retain and acquire customers in targeted segmentsBusiness Processes: deliver the value proposition to targeted customersinnovative products and serviceshigh-quality, flexible, and responsive operating processesexcellent post-sales supportOrganizational Learning & Growth:develop skilled, motivated employees;provide access to strategic informationalign individuals and teams to business unit objectivesProcessesCustomersPeople.3
28 Financial Perspective Learning & Growth Perspective The Four Perspectives Apply to Mission Driven As Well As Profit Driven OrganizationsProfit DrivenMission DrivenWhat must we do to satisfy our shareholders?What do our customers expect from us?What internal processes must we excel at to satisfy our shareholder and customer?How must our people learn and develop skills to respond to these and future challenges?Financial PerspectiveCustomer PerspectiveInternal PerspectiveLearning & Growth PerspectiveWhat must we do to satisfy our financial contributors?What are our fiscal obligations?Who is our customer?What do our customers expect from us?What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission?How must our people learn and develop skills to respond to these and future challenges?Answering these questions is the first step to develop a Balanced Scorecard6
29 A Model for Strategic Planning Environmental Scan Strengths Weaknesses Opportunities ThreatsA Model forStrategicPlanningValuesMission &VisionStrategic IssuesStrategic PrioritiesObjectives, Initiatives, and Evaluation
30 Why Measure?To determine how effectively and efficiently the process or service satisfies the customer.To identify improvement opportunities.To make decisions based on FACT and DATA
31 Measurements Should: Translate customer expectations into goals. Evaluate the quality of processes.Track our improvement.Focus our efforts on our customers.Support our strategies.
32 Targets Targets need to be set for all measures Should have a “solid basis”Give personnel something for which to aimIf achieved will transform the organizationCareful not to develop measures/targets ina fragmented approach:i.e. Asking people to increase customer satisfaction has to be backed up with the knowledge, tools, and means to achieve that target.