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©2003 Southwestern Publishing Company 1
Strategic LeadershipStrategic Leadership
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
Chapter 12Chapter 12
2
Strategy ImplementationStrategy Implementation
Chapter 11Chapter 11OrganizationalOrganizationalStructure and Structure and
ControlsControls
Chapter 10Chapter 10CorporateCorporate
GovernanceGovernance
Chapter 12Chapter 12StrategicStrategic
LeadershipLeadership
Strategy FormulationStrategy Formulation
StrategicStrategicCompetitivenessCompetitivenessAbove-AverageAbove-Average
ReturnsReturns
Strategic IntentStrategic IntentStrategic MissionStrategic Mission
Chapter 2Chapter 2The ExternalThe ExternalEnvironmentEnvironment
Chapter 3Chapter 3The InternalThe InternalEnvironmentEnvironment
The Strategic The Strategic Management Management ProcessProcess
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Chapter 6Chapter 6Corporate-Corporate-
Level StrategyLevel Strategy
Chapter 9Chapter 9CooperativeCooperative
StrategyStrategy
Chapter 5Chapter 5Competitive RivalryCompetitive Rivalry
and Competitiveand CompetitiveDynamics Dynamics
Chapter 8Chapter 8InternationalInternational
StrategyStrategy
Chapter 4Chapter 4Business-LevelBusiness-Level
StrategyStrategy
Chapter 7Chapter 7Acquisition andAcquisition andRestructuringRestructuring
StrategiesStrategies
3
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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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
Characteristics of theCharacteristics of theManagerManager
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
9
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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Top Management TeamsTop Management Teams A top management team must also be able A top management team must also be able
to function effectively as a team in order to to function effectively as a team in order to implement strategiesimplement strategies– a heterogeneous team makes this more difficulta heterogeneous team makes this more difficult– a heterogeneous team, however, is associated a heterogeneous team, however, is associated
positively with innovation and strategic changepositively with innovation and strategic change
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Strategic LeadershipStrategic Leadership Chief executive officers can gain so much Chief executive officers can gain so much
power that they are virtually independent power that they are virtually independent of oversight by the board of directorsof oversight by the board of directors
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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Managerial Labor MarketsManagerial Labor Markets 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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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
17
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
18
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
19
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
20
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
21
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
22
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 flowCash flow• Return on equityReturn on equity• Return on assetsReturn on assets
CustomerCustomer • Assessment of ability to anticipate Assessment of ability to anticipate customers needscustomers needs
• Effectiveness of customer service Effectiveness of customer service practicespractices
• Percentage of repeat businessPercentage of repeat business• Quality of communications with Quality of communications with
customerscustomers
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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 improvementsAsset utilization improvements• Improvements in employee moraleImprovements in employee morale• Changes in turnover ratesChanges in turnover rates
Learning and Learning and GrowthGrowth
• Improvements in innovation abilityImprovements in innovation ability• Number of new products compared Number of new products compared
to competitorsto competitors• Increases in employees’ skillsIncreases in employees’ skills
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