strategic leadership

Possible change in Top Management Team and Strategy Stable Strategy Top Management Team Composition Managerial Labor Market: CEO Succession Heterogeneous Homogeneous Internal CEO Succ

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Chapter 12 Strategic Leadership

Michael A Hitt

R Duane Ireland Robert E Hoskisson

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Chapter 3

Internal Environment

Chapter 2

External

Management

Process

The Strategic Management

Process

Strategic Intent

Strategic Mission

Strategic Competitiveness Above Average

Feedback

Strategy Formulation

Chapter 4

Business-Level

Strategy

Chapter 5

Competitive Dynamics

Chapter 6

Corporate-Level Strategy

Chapter 8

International Strategy

Chapter 9

Cooperative Strategies

Chapter 7

Acquisitions &

Restructuring

Strategy Implementation

Chapter 10

Corporate Governance

Chapter 11

Structure

& Control

Chapter 12

Strategic Leadership

Chapter 13

Entrepreneurship

& Innovation

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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

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Strategic Competitiveness Strategic Competitiveness

Effective Strategic Leadership

influence

shapes the formulation of

and

Successful Strategic Actions

Formulation

of Strategies

Formulation

of Strategies Implementation Implementation of Strategies of Strategies

Strategic Leadership

and the Strategic

Management Process

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Managerial Discretion

External Environment

Industry Structure

Rate of market growth

# and type of competitors

Political/Legal constraints

Product differentiation

Factors Affecting Managerial Discretion

Interpersonal skills

Tolerance for ambiguity

Commitment to the firm Aspiration levelSelf-confidence

Characteristics of the Manager

Employee interaction

Organizational Characteristics

Resource availability Size and age

Culture

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Top Management Teams

Top management teams are comprised of the 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 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

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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

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

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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

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

Managerial Labor Markets

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Effects of CEO Succession and Top Management Team Composition on Strategy

Top

Management

Team

Composition

Managerial Labor Market:

CEO Succession

Heterogeneous

Homogeneous

Internal CEO Succession

Stable Strategy

External CEO Succession

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Possible change in Top Management Team and Strategy

Stable Strategy

Top

Management

Team

Composition

CEO Succession

Heterogeneous

Homogeneous

Internal CEO Succession CEO SuccessionExternal

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Stable Strategy with Innovation

Stable Strategy

Ambiguous:

Top

Management

Team

Composition

CEO Succession

Heterogeneous

Homogeneous

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Strategic Change

Stable Strategy

Stable Strategy with Innovation

Ambiguous:

Top

Management

Team

Composition

CEO Succession

Heterogeneous

Homogeneous

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Strategic

Direction

Determining

Strategic

Direction

Exploiting &

Maintaining

Core

Competencies

Exploiting &

Maintaining

Core

Competencies

Developing Human Capital

Sustaining

an Effective Organizational Culture

Sustaining

an Effective Organizational Culture

Emphasizing Ethical Practices

Establishing Balanced Organizational Controls

Exercise of Effective Leadership

Effective Strategic Leadership

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• Strategic direction means the development of a long-term

vision of a firm’s 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

• Executives must structure the firm effectively to help achieve

Determining

Strategic

Direction

Determining Strategic Direction

Exploiting &

Maintaining Core Competencies

Exploiting &

Developing Human Capital

Sustaining

an Effective Organizational Culture

Sustaining

Emphasizing Ethical Practices

Establishing Balanced Organizational Controls

Effective Strategic Leadership

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Exploiting &

Maintaining

Core Competencies

Exploiting &

Sustaining

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

• 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

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Developing

Human

Capital

Exploiting &

Sustaining

entire workforce

• 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

• The effective development and management of the firm’s

human capital may be the primary determinant of a firm’s

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Sustaining an

Effective

Organizational

Culture

Exploiting &

Sustaining

• 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

• 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

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Every job in the company is essential and important

The benefits of business reengineering are

maximized when employees believe that:

All employees must create value through their work

Constant learning is a vital part of every person’s job

Teamwork is essential to implementation success

Problems are solved only when teams accept the

responsibility for the solution

Changing Culture and Reengineering

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Emphasizing

Ethical

Practices

Exploiting &

Sustaining

implementation processes

• Ethical companies encourage and enable people at all

organizational levels to exercise ethical judgment

• 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

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Establishing

Balanced

Organizational

Controls

Exploiting &

Sustaining

strategies are to be implemented and corrective actions taken

• 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

• Successful strategic leaders balance strategic control and

financial control (they do not eliminate financial control)

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