Chapter 2

Leading Strategically Through Effective Vision and Mission

Individual Strategic Leaders and Influences on Their Decisions

Key Terms Strategic Leadership – the ability to

anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary

Qualities of Legendary CEOs

Visionary have a clear view of what they want to accomplish

Transformational act as agents of change

Strategic Leadership

Multifunctional Managerial InfluentialChange tolerantUncertainty tolerantMotivational

Skill Hierarchy

Strategic Leadership Style

Directive approach

Collaborative approach

Delegation

Effective Leadership Style

Several examples of well-known CEOs are mentioned throughout the chapter to illustrate their leadership styles. Who do you think has the most effective leadership style and why?

Managerial Discretion and Decision Biases

Key TermsDiscretion – latitude for actionHeuristics – rules of thumb used in

decision makingHubris – excessive pride, leading

to a feeling of invincibility

Enhancing Leadership Effectiveness

Matching backgrounds to existing challenges

Having an orientation to action Minimizing decision-making biases Maneuvering around constraints

on managerial decision making

Minimizing Decision-Making Biases

Awareness of biases

Open decision-making environment

Use of real options analysis

Diverse top management team

Constraints on Decision Making

Decision-Making Biases

Reliance on a limited set of heuristics

Reliance on previously formed beliefs

Focus on limited objectives

Exposure to limited decision alternatives

Insensitivity to outcome probabilities

Illusion of control

Hubris

Hubris refers to the excessive pride that leads to a feeling of invincibility

Hubris can magnify the effects of decision-making biases

Top Management Teams

Key Term Top Management Team – group

composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies

Factors that Influence the Effectiveness of Top Management Teams

Top management team heterogeneity

The CEO and top management team power

Executive succession processes

Top Management Team Heterogeneity

Key Term

Heterogeneous Top Management Team – managerial group composed of individuals with different functional backgrounds, experiences, and educations

Heterogeneous Top Management Team

Introduces a variety of perspectives Has a greater propensity for strong

competitive action Tends to "think outside of the box," leading to

more creative decision making, innovation, and strategic change

Offers various areas of expertise to identify environmental opportunities, threats, or the need for change

Promotes debate

Heterogeneous Top Management Team Challenges

Cohesion

Communication

Comprehensive examination of threats and opportunities

The CEO and Top Management Team Power

Key Terms

CEO Duality – the structure in which the CEO serves as chair of the board of directors to achieve power relative to the board

Independent Board Leadership Structure – the structure in which the board's ability to monitor top-level managers' decisions and actions (particularly in terms of financial performance) is enhanced by employing two different people to serve as CEO and board chair

The CEO and Top Management Team Power

Key Terms

Stewardship Theory – suggests that top managers want to do the right thing for the firm's shareholders and that reducing the amount of interference with their actions will increase the profit potential of the firm

Top Management Power

Members of top management can use their social and business ties with directors

Powerful CEOs can appoint members of the top management team or other sympathetic associates to serve on the board

CEO duality CEO tenure

CEO Duality

Is more common in the United StatesOccurs most often in the largest firmsReceives scrutiny from increased

shareholder activism Is criticized for causing poor

performance and slow response to change

Executive Succession Processes

Key Terms Internal Managerial Labor Market –

opportunities for managerial positions to be filled from within the firm

External Managerial Labor Market – opportunities for managerial positions to be filled by candidates from outside of the firm

Benefits of Internal Labor Market

Continuity

Continued commitment

Familiarity

Reduced turnover

Retention of "private knowledge"

External Labor Market

Long tenure with the same firm is thought to reduce innovation

Outsiders bring diverse knowledge bases and social networks, which offer the potential for synergy and new competitive advantage

Effect of CEO Succession and Top Management Team on Strategy

Key Strategic Leadership Responsibilities and Actions

Positioning

Key Terms Scope – breadth of a firm's activities

across products, markets, geographic regions, core technologies, and value creation stages

Five Elements of Strategy

Acquire, Develop, and Manage Key Resources

Key Terms Organizational Culture – complex set

of ideologies, symbols, and core values that are shared throughout the firm and influence the way business is conducted

HR Practices Linked to Strategic Success

Managing intellectual capital Investing in capital resourcesBuilding effective commitments to

organizational goals Incorporating international experience

into the skill sets of employees

HR Practices Linked to Strategic Success (cont.)

Employing effective training and development programs to promote strategic vision and cohesion

Establishing effective reward plans Instituting continuous learningLeveraging the firm's expanding

knowledge base

Effective Cultural Qualities

Entrepreneurial opportunism Employee autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness

Overcoming Cultural Difficulties

Effective communication

Effective problem solving

Effective staffing

Effective performance appraisals

Effective reward systems

Mintzberg’s Managerial Roles

Determine and Communicate Strategic Direction

Key Terms Strategic Direction – definition of a firm's

image and character over time, framed within the context of the conditions in which the company operates

Sustainable Development – concept that a firm can and should operate without adversely influencing its environment

Novartis’ Mission Statement

Novartis Stakeholders

Customers

Employees

Shareholders

Society

Long-Term Vision

A core ideology to motivate employees through the company's heritage

An envisioned future to encourage employees to stretch beyond their comfort zones

Guiding Employee Decision Making

Strategic direction

Values and ethical practices

Actions for an Ethical Culture

Employ ethical strategic leaders Establish and communicate specific goals to describe the

firm's ethical standards Continuously revise and update the code of conduct based

on stakeholder input Disseminate the code of conduct to all stakeholders to inform

them of ethical standards and practices Develop and implement methods and procedures to use in

achieving the firm's ethical standards Create and use explicit reward systems to recognize bold

acts that demonstrate ethical behavior and decision making Create a work environment in which all people are treated

with dignity

Strategy Implementation

I/O economics framework – develops structures, systems, and programs to reinforce the external positioning of the business

Resource model – makes optimal use of and supports the resources and capabilities that provide a competitive advantage

Stakeholder perspective – includes activities such as collecting information from stakeholders, assessing their needs and desires, integrating this knowledge into strategic decisions, effectively managing internal stakeholders, and forming interorganizational relationships with external stakeholders

Balanced Controls

Key Terms Controls – formal, information-based

procedures used by managers to maintain or alter patterns in organizational activities

Balanced Scorecard – framework that allows strategic leaders to verify that they have established both financial and strategic controls to assess firm performance

Control Systems

Financial Controls focus on short-term financial outcomes produce risk-averse managerial decisions

Strategic Controls focus on the content of strategic actions encourage decisions that incorporate

moderate and acceptable levels of risk

Controls in Balanced Scorecard Framework

Ethical Questions

What are the ethical issues influencing managerial discretion? Has the current business environment changed the influence of ethics on managerial discretion? If so, how?

Ethical Questions

Is there a difference between stakeholders’ current view of an ethical strategic leader and the early 1990s perspective of an ethical strategic leader? If so, describe the differences between the two views.

Ethical Questions

What should a newly appointed CEO from the external managerial labor market do to understand a firm’s ethical climate? How important are the CEO’s efforts to understand this climate?

Ethical Questions

Are ethical strategic leaders more effective than unethical strategic leaders? If so, why? If not, why not?

Ethical Questions

Assume that you are working in an organization that you believe has an unethical culture. What actions could you take to change that culture to make it more ethical?

Ethical Questions

Is corporate downsizing ethical? If not, why not? If corporate downsizing is ethical, what can strategic leaders do to mitigate the negative effects associated with reducing the size of their firm’s labor force?