©2004 by South-Western/Thomson Learning 1

Strategic LeadershipStrategic Leadership

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 2Chapter 2

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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

StrategicThinking

The Strategic Management ProcessThe Strategic Management Process

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

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Discussion QuestionsDiscussion Questions1. Why is strategic leadership

important?

2. How much discretion (or influence) do strategic leaders have?

3. How do characteristics of a top management team affect its functioning?

4. When should a CEO be hired from the outside? When from the inside?

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Discussion Questions (cont.)Discussion Questions (cont.)5. How important are strategic

leaders in: Determining strategic direction Exploiting and maintaining core

competencies Developing human capital Sustaining an effective corporate

culture Emphasizing ethical practices Establishing strategic controls

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Discussion Question 1Discussion Question 1

Why is strategic leadership important?

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Strategic LeadershipStrategic Leadership Strategic leadership involves:Strategic leadership involves:

– the ability to anticipate, envision, maintain the ability to anticipate, envision, maintain flexibility and empower others to create flexibility and empower others to create strategic changestrategic change

– multi-functional work that involves working multi-functional work that involves working through othersthrough others

– consideration of the entire enterprise rather consideration of the entire enterprise rather than just a sub-unitthan just a sub-unit

– a managerial frame of referencea managerial frame of reference

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SuccessfulSuccessfulStrategic ActionsStrategic Actions

Strategic Leadership and the Strategic Leadership and the Strategic Management ProcessStrategic Management Process

Effective StrategicEffective StrategicLeadershipLeadership

Strategic IntentStrategic Intent Strategic MissionStrategic Mission

shapes the formulation ofshapes the formulation of

andandinfluenceinfluence

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Strategic Leadership and the Strategic Leadership and the Strategic Management ProcessStrategic Management Process

StrategicStrategicCompetitivenessCompetitiveness

Above-Average ReturnsAbove-Average Returns

FormulationFormulationof Strategiesof Strategies

ImplementationImplementationof Strategiesof Strategies

SuccessfulSuccessfulStrategic ActionsStrategic Actions

yieldsyields

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Discussion Questions

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Discussion Question 2Discussion Question 2

How much discretion (or influence) do strategic leaders have?

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Factors Affecting Managerial Factors Affecting Managerial DiscretionDiscretion

External EnvironmentExternal Environment• Industry structureIndustry structure• Rate of market growthRate of market growth• Number and type of Number and type of

competitorscompetitors• Nature and degree of Nature and degree of

political/legal constraintspolitical/legal constraints• Degree to which products Degree to which products

can be differentiatedcan be differentiated

External EnvironmentExternal Environment

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Factors Affecting Managerial Factors Affecting Managerial DiscretionDiscretion

Characteristics of theCharacteristics of theOrganizationOrganization

Characteristics of the Characteristics of the OrganizationOrganization• SizeSize• AgeAge• CultureCulture• Availability of resourcesAvailability of resources• Patterns of interaction Patterns of interaction

among employeesamong employees

External EnvironmentExternal Environment

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Factors Affecting Managerial Factors Affecting Managerial DiscretionDiscretion

External EnvironmentExternal Environment

Characteristics of theCharacteristics of theOrganizationOrganization

ManagerialManagerialDiscretionDiscretion

Characteristics of the Characteristics of the ManagerManager• Tolerance for ambiguityTolerance for ambiguity• Commitment to the firm Commitment to the firm

and its desired strategic and its desired strategic outcomesoutcomes

• Interpersonal skillsInterpersonal skills• Aspiration levelAspiration level• Degree of self-confidenceDegree of self-confidence

Characteristics of theCharacteristics of theManagerManager Click

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Discussion Question 3Discussion Question 3

How do characteristics of a top management team affect its functioning?

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Top Management TeamsTop Management Teams The top management team is composed of The top management team is composed of

key managers who are responsible forkey managers who are responsible for– formulating andformulating and– implementingimplementing– the organization’s strategiesthe organization’s strategies

A heterogeneous top management team A heterogeneous top management team with varied expertise and knowledge can with varied expertise and knowledge can draw on multiple perspectives when draw on multiple perspectives when evaluating alternative strategies and evaluating alternative strategies and building consensusbuilding consensus

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CEO and Top Management Team CEO and Top Management Team PowerPower Board of directors is an important Board of directors is an important

governance mechanism for monitoring a governance mechanism for monitoring a firm’s strategic directionfirm’s strategic direction

Higher performance is normally expected Higher performance is normally expected when the board is more directly involved in when the board is more directly involved in shaping a firm’s strategic directionshaping a firm’s strategic direction

Chief executive officers can gain so much Chief executive officers can gain so much power that they are virtually independent of power that they are virtually independent of oversight by the board of directorsoversight by the board of directors

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CEO and Top Management Team CEO and Top Management Team PowerPower This is especially true when the CEO is This is especially true when the CEO is

also chairman of the board of directorsalso chairman of the board of directors CEOs of long tenure can also wield CEOs of long tenure can also wield

substantial powersubstantial power The most effective forms of governance The most effective forms of governance

share power and influence among the CEO share power and influence among the CEO and board of directorsand board of directors

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Discussion Question 4Discussion Question 4

When should a CEO be hired from the outside? When from the inside?

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Managerial Labor MarketManagerial Labor Market The internal labor market is comprised of The internal labor market is comprised of

the career path alternatives available to a the career path alternatives available to a firm’s managersfirm’s managers

Selecting internal candidates for Selecting internal candidates for management positions helps to build on management positions helps to build on valuable firm-specific knowledgevaluable firm-specific knowledge

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Managerial Labor MarketsManagerial Labor Markets The external labor market includes the The external labor market includes the

collection of career opportunities for collection of career opportunities for managers outside their firmmanagers outside their firm

Selecting an outsider often brings fresh Selecting an outsider often brings fresh insights and may energize the firm with insights and may energize the firm with innovative new ideasinnovative new ideas

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Managerial Labor MarketsManagerial Labor Markets

StrategicStrategicchangechange

StableStablestrategystrategy

Stable strategyStable strategywith innovationwith innovation

Managerial Labor Market:Managerial Labor Market:CEO SuccessionCEO Succession

Internal CEOInternal CEOsuccessionsuccession

External CEOExternal CEOsuccessionsuccession

Top ManagementTop ManagementTeam CompositionTeam Composition

HeterogeneousHeterogeneous

HomogeneousHomogeneous

Ambiguous:Ambiguous:possible change inpossible change intop managementtop managementteam and strategyteam and strategy

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Discussion Questions

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Discussion Question 5Discussion Question 5How important are strategic leaders in:

Determining strategic direction Exploiting and maintaining core

competencies Developing human capital Sustaining an effective corporate

culture Emphasizing ethical practices Establishing strategic controls

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Exercise of Effective Strategic Exercise of Effective Strategic LeadershipLeadership

EstablishingEstablishingbalancedbalancedorganizationalorganizationalcontrolscontrols

EmphasizingEmphasizingethicalethicalpracticepractice

DevelopingDevelopinghumanhumancapitalcapital

Exploiting andExploiting andmaintainingmaintainingcorecorecompetenciescompetencies

SustainingSustainingan effectivean effectiveorganizationalorganizationalcultureculture

DeterminingDeterminingstrategicstrategicdirectiondirection

Effective StrategicEffective StrategicLeadershipLeadership

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Determining Strategic DirectionDetermining Strategic Direction Strategic direction means the development Strategic direction means the development

of a long-term vision of a firm’s strategic of a long-term vision of a firm’s strategic intentintent

A charismatic leader can help achieve A charismatic leader can help achieve strategic intentstrategic intent

It is important not to lose sight of the It is important not to lose sight of the strengths of the organization when making strengths of the organization when making changes required by a new strategic changes required by a new strategic directiondirection

Executives must structure the firm Executives must structure the firm effectively to help achieve the visioneffectively to help achieve the vision

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Exploiting and Maintaining Core Exploiting and Maintaining Core CompetenciesCompetencies Core competencies are resources and Core competencies are resources and

capabilities that serve as a source of capabilities that serve as a source of competitive advantage for a firm over its competitive advantage for a firm over its rivalsrivals

Strategic leaders must verify that the Strategic leaders must verify that the firm’s competencies are emphasized in firm’s competencies are emphasized in strategy implementation effortsstrategy implementation efforts

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Exploiting and Maintaining Core Exploiting and Maintaining Core CompetenciesCompetencies In many large firms, and certainly in In many large firms, and certainly in

related-diversified ones, core related-diversified ones, core competencies are exploited effectively competencies are exploited effectively when they are developed and applied when they are developed and applied across different organizational unitsacross different organizational units

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

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Developing Human CapitalDeveloping Human Capital Human capital refers to the knowledge and Human capital refers to the knowledge and

skills of the firm’s entire workforceskills of the firm’s entire workforce Employees are viewed as a capital resource Employees are viewed as a capital resource

that requires investmentthat requires investment No strategy can be effective unless the firm is No strategy can be effective unless the firm is

able to develop and retain good people to able to develop and retain good people to carry it outcarry it out

The effective development and management of The effective development and management of the firm’s human capital may be the primary the firm’s human capital may be the primary determinant of a firm’s ability to formulate and determinant of a firm’s ability to formulate and implement strategies successfullyimplement strategies successfully

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Sustaining an Effective Sustaining an Effective Organizational CultureOrganizational Culture An organizational culture consists of a An organizational culture consists of a

complex set of ideologies, symbols, and complex set of ideologies, symbols, and core values that is shared throughout the core values that is shared throughout the firm and influences the way it conducts firm and influences the way it conducts businessbusiness

Shaping the firm’s culture is a central task Shaping the firm’s culture is a central task of effective strategic leadershipof effective strategic leadership

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Sustaining an Effective Sustaining an Effective Organizational CultureOrganizational Culture An appropriate organizational culture An appropriate organizational culture

encourages the development of an encourages the development of an entrepreneurial orientation among entrepreneurial orientation among employees and an ability to change the employees and an ability to change the culture as necessaryculture as necessary

Reengineering can facilitate this processReengineering can facilitate this process

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Sustaining an Effective Sustaining an Effective Organizational CultureOrganizational Culture

Entrepreneurial opportunities are an important source of growth and innovation

Five characteristics of an entrepreneurial orientation are– Autonomy– Innovativeness– Risk taking– Proactiveness– Competitive aggressiveness

Entrepreneurial OrientationEntrepreneurial Orientation

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Sustaining an Effective Sustaining an Effective Organizational CultureOrganizational CultureChanging Culture and Business Changing Culture and Business

ReengineeringReengineering The benefits of business reengineering The benefits of business reengineering

are maximized when employees believe are maximized when employees believe that:that:– every job in the company is essential and every job in the company is essential and

importantimportant– all employees must create value through their all employees must create value through their

workwork

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Sustaining an Effective Sustaining an Effective Organizational CultureOrganizational CultureChanging Culture and Business Changing Culture and Business ReengineeringReengineering Constant learning is a vital part of every Constant learning is a vital part of every

person’s jobperson’s job Teamwork is essential to successful Teamwork is essential to successful

implementationimplementation Problems are solved only when teams Problems are solved only when teams

accept the responsibility for the solutionaccept the responsibility for the solution

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Emphasizing Ethical PracticesEmphasizing Ethical Practices Ethical practices increase the Ethical practices increase the

effectiveness of strategy implementation effectiveness of strategy implementation processesprocesses

Ethical companies encourage and enable Ethical companies encourage and enable people at all organizational levels to people at all organizational levels to exercise ethical judgmentexercise ethical judgment

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Emphasizing Ethical PracticesEmphasizing Ethical Practices To properly influence employee judgment To properly influence employee judgment

and behavior, ethical practices must and behavior, ethical practices must shape the firm’s decision-making process shape the firm’s decision-making process and be an integral part of an and be an integral part of an organization’s cultureorganization’s culture

Leaders set the tone for creating an Leaders set the tone for creating an environment of mutual respect, honesty environment of mutual respect, honesty and ethical practices among employeesand ethical practices among employees

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Establishing Balanced Establishing Balanced Organizational ControlsOrganizational Controls Organizational controls provide the Organizational controls provide the

parameters within which strategies are to parameters within which strategies are to be implemented and corrective actions be implemented and corrective actions takentaken

Financial controls are often emphasized in Financial controls are often emphasized in large corporations and focus on short-large corporations and focus on short-term financial outcomesterm financial outcomes

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

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Establishing Balanced Establishing Balanced Organizational ControlsOrganizational Controls Successful strategic leaders balance Successful strategic leaders balance

strategic control and financial control strategic control and financial control (they do not eliminate financial control) (they do not eliminate financial control) with the intent of achieving more positive with the intent of achieving more positive long-term returnslong-term returns

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Strategic and Financial Controls in a Strategic and Financial Controls in a Balanced Scorecard FrameworkBalanced Scorecard FrameworkPerspectivesPerspectives CriteriaCriteria

FinancialFinancial • Cash flow• Return on equity• Return on assets

CustomerCustomer • 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 Strategic and Financial Controls in a Balanced Scorecard FrameworkBalanced Scorecard FrameworkPerspectivesPerspectives CriteriaCriteria

Internal Business Internal Business ProcessProcess

• Asset utilization improvements• Improvements in employee morale• Changes in turnover rates

Learning and Learning and GrowthGrowth

• Improvements in innovation ability• Number of new products compared

to competitors• Increases in employees’ skills