Chapter 12

Strategic Leadership

Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson

©2003 Southwestern Publishing Company 1

Strategic Inputs
Chapter 2
The External
The Strategic
Environment
Strategic Intent
Strategic Mission
Management
Chapter 3
The Internal
Environment
Process
Strategy Formulation Strategy Implementation
Chapter 5 Chapter 11
Chapter 4 Chapter 6 Chapter 10
Competitive Rivalry Organizational
Strategic Actions

Business-Level Corporate- Corporate

and Competitive Structure and
Strategy Level Strategy Governance
Dynamics Controls

Chapter 7
Chapter 8 Chapter 9 Chapter 12
Acquisition and
International Cooperative Strategic
Restructuring
Strategy Strategy Leadership
Strategies
Strategic Outcomes

Strategic
Competitiveness
Above-Average
Returns
2
Feedback
Strategic Leadership
 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

3
Strategic Leadership and the
Strategic Management Process
Effective Strategic
Leadership
shapes the formulation of

Strategic Intent Strategic Mission

and
influence

Successful
Strategic Actions
4
Strategic Leadership and the
Strategic Management Process
Successful
Strategic Actions

Formulation Implementation
of Strategies of Strategies
yields

Strategic
Competitiveness
Above-Average Returns 5
 Factors Affecting Managerial
Discretion
External Environment External Environment
• Industry structure
• Rate of market growth
• Number and type of
competitors
• Nature and degree of
political/legal constraints
• Degree to which products
can be differentiated

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 Factors Affecting Managerial
Discretion
External Environment Characteristics of the
Organization
• Size
Characteristics of the
Organization • Age
• Culture
• Availability of resources
• Patterns of interaction
among employees

7
 Factors Affecting Managerial
Discretion
External Environment Characteristics of the
Manager
• Tolerance for ambiguity
Characteristics of the
Organization • Commitment to the firm
and its desired strategic
Characteristics of the outcomes
Manager • Interpersonal skills
• Aspiration level
• Degree of self-confidence
Managerial
Discretion
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Top Management Teams
 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
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Top Management Teams
 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

10
Strategic Leadership
 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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Managerial Labor Markets
 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

12
Managerial Labor Markets
 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

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 Managerial Labor Markets
Managerial Labor Market:
CEO Succession
Internal CEO External CEO
succession succession
Ambiguous:
Stable possible change in
Homogeneous
strategy top management
Top Management team and strategy
Team Composition
Stable strategy Strategic
Heterogeneous
with innovation change
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Exercise of Effective Strategic
Leadership
Determining
Establishing strategic Exploiting and
balanced direction maintaining
organizational core
controls competencies
Effective Strategic
Leadership
Emphasizing Developing
ethical Sustaining human
practice an effective capital
organizational
culture 15
Determining Strategic Direction
 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 the vision
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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
 Strategic leaders must verify that the
firm’s competencies are emphasized in
strategy implementation efforts

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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
 Core competencies cannot be developed
or exploited effectively without developing
the capabilities of human capital

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Developing Human Capital
 Human capital refers to the knowledge
and skills of the firm’s 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
ability to formulate and implement
strategies successfully 19
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
 Shaping the firm’s culture is a central task
of effective strategic leadership

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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
 Reengineering can facilitate this process

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Sustaining an Effective
Organizational Culture
Changing Culture and Business
Reengineering
 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

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

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

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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
 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
 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
 Strategic control focuses on the content
of strategic actions, rather than their
outcomes
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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

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 Strategic and Financial Controls in a
Balanced Scorecard Framework
Perspectives Criteria
Financial • Cash flow
• Return on equity
• Return on assets

Customer • Assessment of ability to anticipate

customers needs
• Effectiveness of customer service
practices
• Percentage of repeat business
• Quality of communications with
customers
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 Strategic and Financial Controls in a
Balanced Scorecard Framework
Perspectives Criteria
Internal Business • Asset utilization improvements
Process • Improvements in employee morale
• Changes in turnover rates

Learning and • Improvements in innovation ability

Growth • Number of new products compared
to competitors
• Increases in employees’ skills

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