The More Things Change, the More They Remain the Same?

Evaluating Strategic Leadership in Organizational Transformations

The final, definitive version of this article has been published in the Journal,

Leadership, 2/3, 2006, © SAGE Publications Ltd by SAGE

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The More Things Change, the More They Remain the Same?

Evaluating Strategic Leadership in Organizational Transformations

Kalle Pajunen

University of Tampere

Department of Management Studies

FI-33014, Finland

E-mail: kalle.pajunen@uta.fi

Published in Leadership

Citation: Pajunen, K. (2006). The more things change, the more they remain the same?

Evaluating strategic leadership in organizational transformations. Leadership, 2 (3): 341–366.

An earlier version of this paper received the Paul Hersey Award for Best Paper on

Leadership in the Academy of Management 2005 meeting.

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The More Things Change, the More They Remain the Same?

Evaluating Strategic Leadership in Organizational Transformations

Abstract

This study considers what has changed in strategic leadership during the last century and if

we could learn something from the past. These questions are addressed through an historical

case analysis of a Finnish pulp and paper industry leader, Gösta Serlachius. The findings

show that at the surface level the world of strategic leadership is likely to be transient and

contingent, but at the deeper level it seems to be based on much more stable elements. A

correct combination of absorptive and adaptive capacities merged with managerial wisdom

provided the basis for effective strategic leadership in the beginning of the 20th

century

similarly as it is suggested to do today. Indeed, the more things change, the more crucial is

the combination of these basic elements matching with the organizational environment. It is

concluded that historical studies can add substantially to the future strategic leadership

research.

Keywords: historical analysis, organizational transformations, qualitative inquiry,

turnarounds, strategic leadership.

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Introduction

During and especially after radical organizational transformations, the successful

performance of firms is often linked to the personalities of strategic leaders. They are

assumed to possess unique behaviors which are utterly different from and preferable to those

of predecessors and crucial for organizational survival (cf., Hegele & Kieser, 2001). As a

result, the academic and managerial literature has examined what kind of demographic,

personal, behavioral, or contextual factors relate to the realization of successful strategic

leadership in continuously transforming organizations (for a review see e.g., Boal &

Hooijberg, 2000; Canella & Monroe, 1997; House & Aditya, 1997).

Earlier research, however, has not critically considered (1) if strategic leadership has

truly changed during the last century of the modern industrial corporation and (2) if we could

learn something from the strategic leadership of the past? This study seeks to examine these

two questions through an historical case analysis of a Finnish pulp and paper industry leader,

Gösta Serlachius (b. 1876, d. 1942), and his activities during the successful turnaround

processes of the Kangas Paper Mill in 1904—1908 and the Kymi Corporation in 1908—

1912. The rationale for Serlachius being the research subject is simple: He was a strategic,

top-level leader in two big firms in a dominant industrial sector in Finland at the beginning of

the 20th

century, and his actions in both turnaround cases under analysis were successful.

In general, strategic leadership focuses on the people who have overall responsibility for

the organization as a whole (Hambrick, 1989). Contrary to supervisory theories of leadership,

that consider task- and person-oriented behaviors of leaders interacting with their

subordinates in organizations, theories of strategic leadership focus on the leadership of

organizations (Boal & Hooijberg, 2000; Storey, 2005). Visioning, strategic decision-making,

development of organizational key capabilities and, more broadly, the creation of meaning

and purpose for the organization are the key activities often associated with strategic

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leadership (Boal & Hooijberg, 2000; Cyert & March, 1963; Finkelstein & Hambrick, 1996;

House & Aditya, 1997). According to recent research, in order to be successful in these

activities, strategic leaders as their basic elements should have absorptive and adaptive

capacities combined with managerial wisdom (Boal & Hooijberg, 2000) or the right

combination of intelligence, creativity and wisdom (Sternberg, 2003).

This study seeks to approach the strategic leadership of Serlachius in four phases. First, a

three-part explorative research framework is outlined and research methodology and data

described. Second, the accounts of the main events of the turnaround processes of Kangas

and Kymi are given. Third, the strategic leadership of Serlachius is analyzed from the three

perspectives provided by the framework. Finally, these findings are discussed in the light of

more profound elements of strategic leadership.

Research framework

According to Pettigrew (1985; 1992), theoretically sound and practically useful research on

change should involve simultaneous analyses of the context, content, and process of change.

Building on the idea that an understanding of strategic leadership also requires a holistic

analysis, it is anticipated that Pettigrew‘s three-part framework can be modified for

leadership research and especially for the analysis of an individual strategic leader in

organizational transformation. Therefore, an exploratory research framework is proposed that

focuses on the organizational environment (context), a leader‘s demographic and personality

variables (content), as well as a leader‘s actual behavior during a given period of time

(process). These three elements constitute an integrated whole, but to understand such an

inclusive phenomenon as strategic leadership it must first be divided into manageable parts.

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The perspective of organizational environment

The purpose of context analysis is to give a picture of the prevailing organizational

environment in which the leader performs. While contextual influences have often been

neglected in leadership research, they have recently attracted increasing attention (e.g., Beyer

& Browning, 1999; Denis, Langley, & Cazale, 1996; Osborn et al. 2002; Pawar & Eastman,

1997; Shamir & Howell, 1999; Waldman, Ramírez, House, & Puranam, 2001). Indeed, as

Osborn, Hunt, and Jauch (2002) state, leadership is always embedded in its context.

Nevertheless, there is no generally accepted set of contextual factors that should be included

in such an analysis. Not all factors that may have an effect can be included, nor can the

choices always be made by following strictly predefined, objective rules. Thus, a more

profound understanding of contextual influences calls for detailed qualitative case studies and

process analyses (Bryman, Stephens, & à Campo, 1996; Hunt & Ropo, 1995).

To structure the analysis of the organizational environment, the context element can be

divided according to Pettigrew‘s (1987) suggestions into outer and inner components. The

outer component outlines the prevailing world view and the wider business environment. The

inner component, in turn, concentrates on clarifying the immediate environment of a firm by

studying the prevailing power and resource dependency relationships using resource

dependency theory (Pfeffer & Salancik, 1978). This internal context usually has a direct

influence on management‘s scope for action and thus requires careful attention.

The perspective of demographic and personality characteristics

The second part of the exploratory framework focuses on the strategic leader‘s personality

and demographic characteristics and their potential influence on organizational outcomes.

This has been a popular theme in studies on strategic leadership. Variables underlying the

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investigations have most often been a manager‘s age, tenure in a firm or in an industry,

education, language skills, reputation, and motivation.

Several scholars have argued that age may indicate a manager‘s flexibility and risk-

taking propensity (Child, 1974; Hambrick & Mason, 1984; Taylor, 1975). Grimm and Smith

(1991), for instance, argued that older managers often prioritize their career safety and the

constancy of the organizations‘ modes of operation. Younger managers, on the contrary, have

been found to be more growth and risk oriented and to pursue novel and innovative strategies

to seize perceived opportunities (Brouthers, Brouthers, & Werner, 2000).

The level of formal education, in turn, has been viewed as an indicator of managers‘

cognitive orientations. A generally accepted argument has been that educational level reflects

an individual‘s openness to change and propensity to identify and evaluate newer

alternatives. Wiersema and Bentel (1992), for example, found a positive relationship between

the educational level of managers and the amount of innovation and strategic change in their

organizations. Rajagopalan and Datta (1996), however, did not find a positive link between

levels of education and managers‘ orientation to pursue product differentiation strategies.

Thus, formal qualifications alone may not tell much of a person‘s competencies. Instead,

studying abroad and interacting with people from different cultures is seen to be very

important for managers in global business (Kumar & Usunier, 2001) and managers should

see learning as a permanent way of being that is not restricted to mere formal institutions and

courses (Vaill, 1996). In other words, strategic leaders may need a broad educational

background but, more importantly, they need a receptive attitude to life-long learning.

Extensive research has also focused on executive tenure. The general opinion has been

that long-tenured managers tend to avoid making strategic changes in their organizations

(Finkelstein & Hambrick, 1990; Hambrick & Fukutomi, 1991). In addition, it has been

suggested that managers who have spent their whole career in the same company or industry

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may have a limited knowledge base and little desire to search for new strategies or pursue

new ideas (Katz, 1982; Rajagopalan & Datta, 1996).

Age, education and tenure are not the only demographic and personal attributes utilized

in strategic leadership research. High motivation, i.e., the willingness to expend effort and

persevere at an activity (e.g., O‘Reilly & Chatman, 1994), are likely be equally crucial

characteristics for a successful leader as is the case with trustworthiness. Indeed, there is a

widespread agreement on the importance of trust in interpersonal relationships (see e.g.,

Hosmer, 1995; Sheppard & Sherman, 1998; Williams, 2001).

The perspective of strategic behavior

The third component of the exploratory framework focuses on a strategic leader‘s realized

behavior. As Granovetter (1985) argues, most behavior is closely embedded in networks of

interpersonal relations and that is likely also to be the case in strategic leadership. Personal

information from trusted informants is usually cheaper, richer, and reliable. Geletkanycz and

Hambrick (1997) suggest that managers‘ extraindustry ties especially contribute information

that complements other forms of managerial information and experience. According to Boal

and Hooijberg (2000), a wide social network indicates a leader‘s social intelligence and

managerial wisdom, thus improving the understanding of the wider context within which the

firm operates.

Vision is also seen as an important component of the leadership process (Bass, 1985;

Conger & Kanungo, 1989). It refers to some future goal that the leader wants the organization

to achieve. Visions may include boundary breaking content as well as the view that it is

preferable to maintain an organization‘s status quo (Berson, Shamir, Avolio, & Popper,

2001). A practicable vision may be very simple: Concentrating on the basics and making

these things right. In fact, effective leaders may emphasize both instrumental and

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inspirational topics in their visions, since not grounding a vision in some level of practicality

can lead followers to view it as utopian (Berson et al., 2001).

In addition to the networking and visioning, the core activities of a strategic leader focus

on the strategy process. As Mintzberg (1989) argues, strategy can be understood as a pattern,

i.e., consistency in behavior over time. In the strategy process, there may be intentions that

are fully realized as well as fully unrealized strategies. In addition, the strategy may emerge.

Operational measures that are taken one by one converge over time into some sort of

consistency or pattern. However, hardly ever is the realized strategy solely deliberate or

solely one which emerges; rather, it is ―deliberately emerged‖.

The focus on strategy formation, instead of strategy formulation, leads us to study the

dynamic and contextual processes of leadership (Leavy, 1996). From this perspective

strategic leadership is needed to steer the strategy formation process. Strategic leaders should

adapt the organization to comply with their intended strategic direction. In this, as

emphasized by Markides (1999: 56), strategic leaders should answer three basic questions:

―Whom should the company target as customers? What products or services should the

company offer the targeted customers? How can the company do this efficiently?‖ Leaders‘

inability to make explicit choices on these three dimensions is a common cause of strategic

failure. Conversely, strategic innovation occurs when leaders identify new ways of answering

these questions and these new intentions are successfully realized (Markides, 1997). Thus, a

successful strategy formation process requires that the strategic leaders are not only capable

of consistent and comprehensive behavior but are also innovative and motivated towards

continuous adaptation.

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Method and data

This study of Gösta Serlachius can be considered as an interpretive historical case analysis

(Miles & Huberman, 1994). Using Stake‘s (1994) classification, the case is instrumental:

Serlachius is examined to provide insight into strategic leadership. Like case studies in

general, this study is not generalizable to populations, but generalizations may focus on a

theory. Such studies are seen to be especially appropriate for supporting the development of

theories in new topic areas and for providing new insights on topics already researched

(George & Bennett, 2005) and may elucidate in novel ways phenomena as complex as

leadership (Conger, 1998).

In the actual research process deductive and inductive logic worked together. The study

was deductive because the exploratory framework provided guidelines for analysis and it was

inductive because it seeks to advance the understanding of existing theory on the basis of

empirical findings. In other words, the framework that is built on theoretical knowledge of

previous studies shows what factors it may be relevant to look for (Ragin, 1994). Without

explicit concepts it is impossible to make sense of the complex nature of leadership and the

infinite amount of information that can be collected from a single case.

Data collection and analysis

The basic requirement for historical analysis is the availability of research data. Sometimes

there are no data or the data available may be inadequate. A common problem is also that

researchers‘ access to archives is limited. Fortunately, these problems did not occur in the

present study. The essential endeavor and starting point in the data collection and analysis

was to include all possible material providing information on the processes and Serlachius‘s

behavior. In so doing, it became possible to collect information of the same issue from

different perspectives, to obtain more detailed knowledge of the processes, and to evaluate

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the value of the information relayed by different sources. More generally, data triangulation

involves using independent pieces of information to obtain a better grasp of something that is

only partially known or understood (Denzin, 1978). If only one source of information

regarding a particular issue was available, the importance of that information was evaluated

using other means such as situating the individual piece of evidence within a larger context of

origin and function (see Bryant, 2000). Of course, such assessments were included in the

process of data collection and analysis whether or not there was abundant information.

The archives provided four main sources of research data. The first source was the

minutes of the board of directors‘ meetings, which also includes appendices concerning the

issues discussed. This was particularly valuable source of data regarding the Kymi

Corporation. While it is probable that the records do not provide information on all the issues

and events occurring in the organization, or may not record to the all opinions expressed in

the meetings, they provide surprisingly detailed information on the decisions and reasons

why a decision or suggestion was made. What is more, the minutes always report the person

who made the suggestion or presented the information. Accordingly, the evidence provided

by the minutes can be accepted to be at least approximately correct.

The second main source of the research data in the company archives was the minutes of

the creditors‘ and owners‘ meetings. While these meetings were only occasionally arranged,

the minutes offer another perspective on the issues discussed in the board as well as novel

information on the main stakeholders. This material also includes appendices with, among

other things, cost estimates, letters and reports as well as other internal documents. Since the

material was only meant for internal use of the organization, there is no predetermined reason

to suppose that the facts described in the documents are not correct. Of course, each piece of

evidence again merits its own appraisal.

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The third main source of evidence was the company and managerial correspondence.

The company correspondence as research data is somewhat asymmetric in respect of the

amount and information conveyed by the material. As a whole the correspondence consists of

thousands of letters (both dispatched and received). Most of them, however, are only short

documents regarding business transactions with little detailed information. Accordingly, the

amount of correspondence with a stakeholder, for example, cannot be seen as a direct

indicator of the nature of the relationship; rather, inferences have to be based on the content

of the correspondence. Managerial correspondence, in turn, was more detailed in respect of

the major issues in and around the organization. Moreover, the managerial correspondence

offers opportunities to compare information relayed between different individuals which also

facilitate the source criticism.

The fourth class of the research data consists of annual reports as well as financial and

production accounts. At the beginning of the 20th century the annual reports were not

intended for public distribution. Of course, the participants of the annual shareholder

meetings obtained copies of the reports and thereby the information diffused. In all, the

annual reports provided the ―official‖ description of the organization‘s performance, which

meant that the facts suggested need to be particularly critically evaluated by the researcher.

The detailed financial and production accounts, however, were only intended for the internal

use of the organization. Therefore, there is no specific reason to doubt their accuracy.

In addition of the company archives, the primary research data was also collected from

other archives. While the correspondence material in the company archives was useful in

supplementing the information offered by the minutes, even more intimate information was

provided by the personal correspondence of Gösta Serlachius. This material is located in the

archives of the Gösta Serlachius Art Museum. In these letters the managers openly discuss

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and share information regarding various issues. Thus, the correspondence, besides providing

unique information, supplements the evidence obtained from more formal sources.

The literature on Kangas and Kymi was used to reflect the evidence provided by the

archives (Ahvenainen, 1972a, 1972b, 1975; Hoving, 1947; Norrmén, 1928; Talvi, 1979;

Tuuri, 1999). The literature did not offer significant evidence that the archival material did

not show. This is understandable, since the histories of the firms can only provide relatively

short descriptions of the crises. I also consulted histories of the banks, other organizations,

and bibliographical information on each actor related processes if that was available.

Moreover, I examined how the leading financial magazine (Marcator) reported on the firms.

Finally, I used the official statistics of Finland and separate research reports (e.g., Hjerppe,

1996) concerning the growth of the economy and development of foreign trade in order to

define the economic and institutional contexts of the processes.

All documents related to Serlachius were identified and categorized according to their

information. These documents were then further analyzed using data triangulation and,

finally, the case study on Serlachius was documented. Indeed, the wide range of primary and

secondary sources made it possible to analyze Serlachius‘s characteristics and behavior from

different perspectives and thus to increase the reliability and validity of the analysis.

Strengths and limitations of the study

The study is subject to the limitations generally connected with historical research but also

has some specific limitations. First, the analysis concerns a single and successful turnaround

leader in the Finnish pulp and paper industry. It would be useful to study a larger sample

including leaders from different businesses, nations, and eras. Focusing on in-depth analysis

of one strategic leader at the beginning of the 20th

century, however, provided access to

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sources with precise information about the details of the leader‘s behavior and made it

possible to examine holistically how he dealt with the two separate turnaround processes.

Having access to the leader‘s correspondence also provided an opportunity to examine

the turnaround processes from the leader‘s perspective. This point of view contributed

substantially to data triangulation and resolved some of the concerns regarding retrospective

data (Golden, 1992). While this study is not statistically generalizable to other leaders, a

study such as this that moves from surface observations toward the underlying structures, also

moves from description to explanation, and thus toward better theory (Pentland, 1999). An

in-depth interpretative historical analysis can thus be seen as a relevant way to explain and

comprehensively understand the complexity of strategic leadership.

Turnaround processes

Kangas Paper Mill

The Kangas Paper Mill is one of the oldest paper manufacturers in Finland. It was established

in 1873 and is still operating at the same location. The mill was originally a specialized

producer of high quality paper. After the retirements of competent paper engineers, the

knowledge needed in the manufacturing of these grades of paper vanished. Therefore, during

the 1890s the mill also turned to the bulk production of grades such as newsprint. In the last

years of the 19th

century the firm had several unprofitable years. Financial problems were

usually solved through loans and by increasing equity capital.

In 1903 the firm was again in severe difficulties. These problems originated in part from

the bankruptcy of a major customer in 1901 that also caused financial loss for Kangas. The

creditors were no longer willing to cover the loss by providing extra finance. Instead, they

required that the firm should declared bankrupt, a new joint stock company founded, and

their claims changed into privileged shares of the new company. This was done. Kangas

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underwent a change of ownership got new managers and new credit. However, the

performance did not improve and the firm was soon in serious financial difficulties.

This time, the main creditor and the biggest owner, a commercial bank, Nordbanken

(NB), was no longer willing to put off the inevitable by simply providing extra finance. The

main creditors decided to put the firm into liquidation and conduct a thorough appraisal of the

firm‘s future prospects. This investigation was conducted by a group of three experts (Gösta

Björgenheim, Albert Snellman, and Anton Fredrikson) and the results were two-fold. They

found that Kangas was in an unsatisfactory condition in several respects, but they still

believed that the firm had the basic elements for successful performance in the future. After

the creditors, together with the main owners, had considered various options, they decided to

implement a turnaround. The investigators had pointed out that one obvious reason behind

the crisis had been incompetent management. Thus, in October 1904 new top managers,

Gösta Serlachius, Albert Snellman and Yrjö Pulkkinen were hired to manage the turnaround.

Serlachius was appointed CEO, and Snellman and Pulkkinen were to assist him. The

managers‘ mandate was short and simple: the firm had to become profitable. Because the

creditors and owners understood how difficult the situation was, they supported the change

and gave the managers an almost free hand to manage the firm. This already shows that the

actual operational as well as strategic power in the organization was devolved on Serlachius.

In 1904 the production results had been poor and the overall situation in the mill was

rather upsetting. For example, only one of the two paper machines was operational.

Conversely, Serlachius had a free hand to act and the stakeholders‘ mind-set made the change

possible. In an industrial organization of the early 20th

century the production process had a

prominent position. Therefore, Serlachius also focused his first thoughts on the Kangas‘

production. His conclusion in December 1904 was that the mill should focus on the area of

manufacturing that would best suit the potential of the firm. They could not manufacture all

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grades of paper at a competitive price. Serlachius decided that they should continue

manufacturing those paper grades that seemed to be most profitable, such as parchment

paper, but stop the production of other bulk products. Most importantly, Serlachius saw that

the future of Kangas was in the production of high quality paper.

This restructuring could not be implemented instantly. It required technical

improvements, practical experiments and training for the engineers. The change in the

production process started gradually, but in the spring of 1905 one machine was already

successfully manufacturing tobacco paper. Serlachius underlined that they should be able to

fulfill all the requirements and special needs of the customers, which called for careful

product development work. Tobacco paper manufacturing started to show positive financial

results in 1906 and 1907. Conversely, this meant that during 1905 and 1906 they also had to

concentrate resources on the production of silk and parchment paper that had fairly well

established markets. In order to improve the quality and performance in the manufacturing of

these grades, Serlachius made several machinery investments in 1905. Concentrating on high

quality paper seemed to be very successful since by the end of 1906 they systematically

declined orders for cheaper qualities.

While the production process had prominent position, the turnaround may not have been

possible without changes and innovations in other areas of the business. One such area was

sales and marketing. At the end of 1904 Serlachius and Snellman already started to

reconstruct the agency network of the company in Finland. As a result, the sales in Finland

were concentrated in the hands of two sales agents. In Russia the main sales agent was Anton

Lindeberg‘s company in St Petersburg. All in all, Kangas was dependent on the Lindeberg‘s

connections, and therefore the new management tried to strengthen this relationship. While

Russia was the main market area, Serlachius also tried to find new markets from the UK and

other parts of Western Europe as early as in December 1904. However, they could not

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achieve competitive prices from those areas and decided to focus on the markets of Russia

and Eastern Europe. This also entailed personal travel by managers to these areas.

In February 1905 Serlachius started fairly extensive sales promotion through an

advertising campaign in the Finnish press and at the beginning of 1906 this campaign was

expanded to the new financial journal Mercator. In 1905 the main message of the

advertisements in order to move the old stocks was the competitive price of the paper, but in

1906 the advertisements were already fully focused on high quality. Interestingly, Kangas

was the only paper manufacturer to advertise in Finland. In addition to public promotion,

Serlachius sent personal letters to existing and potential customers with information and

samples of their paper.

The third area of changes, namely cutting costs, started in the beginning of 1905. The

basis of the cost cutting was in the new cost accounting and profitability calculation systems

that were also closely connected to the new production strategy. These ideas were

progressive, since not until in the 1920s were these methods presented in the Finnish

accounting textbooks. Most likely, Serlachius had adopted these methods when traveling

around the USA and visiting various industrial corporations 1903–1904. In addition,

Serlachius actively discussed and exchanged opinions on these calculations with the

managers of Mänttä Paper Mill. The profitability calculations and advertisement campaigns

were closely linked to the offloading of the stockpiled paper at the end of 1904 and the

beginning of 1905, and were thereafter used to control the size of the stocks and to

manufacture orders just in time.

The creditors had promised that they would provide additional financial support in 1905.

However, in the fall of that year, in his letter to Gösta Björkenheim, Serlachius stated that

while the situation was far from stable, they had no need for additional credit. In 1906 the

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firm already showed profit and this development continued during the following years. ROI

and other financial indicators also showed improved results.

In the summer of 1907 Serlachius reported to Lindeberg that the order book was full for

over three months and, in practice, could get almost any price for the paper they wished.

Serlachius emphasized that they had been able to make their paper to be in vogue fashion.

Moreover, in 1907 they were ready to make the first substantial repayments of the loan. This

trend continued in 1908. Thus, regarding both finance and production, the organization had

managed to complete a successful turnaround.

Kymi Corporation

The Kymi Corporation was formed in 1904 as a result of a merger of three pulp and paper

companies: Kymi, Voikkaa, and Kuusankoski mills. The firm was the biggest industrial

enterprise in the country. Although each of these three factory combinations had its own

managers, the chairman of the board of directors and the biggest owner of the firm, Rodolf

Elving, had full control over all decisions in the corporation. One of the main reasons for the

merger had been to achieve economies of scale in production. Elving immediately continued

this expansive ideology and started a major investment program including, among other

things, three new paper machines. These investments were mainly financed by bank loans,

but also personally by the main owners.

In 1906 fire destroyed the paper machines of the Kymi mill. The burned mill was

quickly repaired. The insurance compensated some of the damage, but the firm had to borrow

considerable sums of money and arrange a privileged subscription of shares. In the fall of

1907, new machines were operational, but at the time the firm was already facing new

problems including declining paper markets. A poor harvest in Russia caused difficulties

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throughout the country. This, among other things, led the Russian government to strengthen

the policy of censorship and to close down several newspapers.

Regardless of the deteriorating situation, the firm did not instantly reduce its

manufacturing volume. The paper stocks in Russia increased day after day. This would not

have caused problems if the business cycle had soon changed, but no quick recovery came

about. Not until in December 1907 was the decision made to discontinue paper production in

the Kymi factory and to reduce pulp production. The firm received a loan from the banks.

However, it was used up as early as in the beginning of 1908. Negotiations continued with

the different banks, but did not lead to any solution. As the crisis deepened, the biggest banks

were no longer willing to keep the Kymi Corporation afloat with extra finance. In January

1908 a question arose if all the operations of the firm should be closed down.

In the beginning of February 1908, Albert Snellman as a representative of the creditors

asked if Gösta Serlachius would be willing to be involved in the investigation of the Kymi

Corporation situation together with Snellman and Gösta Björkenheim. Serlachius‘s response

was positive. After the turnaround of Kangas, Kymi provided a second challenging arena to

apply his skills. The results of the thorough investigation of the firm‘s conditions and future

prospects showed that Kymi was in serious difficulties, but also that it had prospects for

profitable production and that it deserved the support of the banks. Therefore, on the third of

March 1908, the creditors decided to take charge of the firm and officially declared that all its

payment transactions should be discontinued.

The creditors‘ intervention included an extensive rescheduling program of the old loans

and payments as well as new credit to keep the business going. While the representatives of

the Bank of Finland were not totally satisfied with the arrangement, they accepted the

contract without further negotiations and clarifications because such events ―might endanger

the existence of the organization… and lead to severe social and economic conflicts.‖

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According to the creditors‘ and shareholders‘ decision Gösta Björkenheim, Gösta

Serlachius, and Gustaf Langenskiöld were appointed to manage the firm. Björkenheim

became chairman of the board of directors and Serlachius vice chairman. The new

management team was given a free hand to manage the firm. The only predefined

instructions were that they would not be allowed to construct new mills and they should be

most frugal in their activities. Neither had they predetermined roles in the management team.

In practice, Langenskiöld concentrated on legal maters while Björkenheim and Serlachius

were responsible for other matters. It soon became clear that the firm needed a CEO who

would bear the responsibility for the management of all the mills. This assignment was

offered to Serlachius, but he was not willing to take on it because of his other responsibilities.

The financial arrangements with the banks were the main issue during March, but

already in April the members of the management team were able to fully concentrate their

efforts on the other questions. The investigation had already shown that the accounting

system of the firm suffered from serious deficiencies. Serlachius decided that they had to

reorganize the entire system. The new system improved the ability to evaluate what the most

economical qualities of paper were for different machines. These changes promptly improved

the efficiency of the manufacturing process. Moreover, Serlachius had already paid attention

to the raw material costs and introduced the heating by coal.

The managers explicitly stated that their intention was to reduce the number of factory

workers to a minimum. The job cuts were substantial in 1908 and 1909, when almost a

thousand workers lost their jobs. They were not totally inhuman since the dismissed workers

were allowed to continue living in company housing if they were already living there. This

also served the company‘s purposes as a form of a labor force reserve. Since 1909 the firm

began to systematically improve the services and living conditions of the workers.

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A third series of events also started in April 1908 with the aim of renegotiating the

contracts with sales agents both in Finland and abroad as well as reorganizing the sales

districts in order to make the sales system more controllable. During the negotiations with the

agents in the summer of 1908, the managers emphasized that they could not afford to take

excessively big risks and that the agents should work as carefully as possible. The basic lines

of their future sales policy included, first of all, offloading of the stockpiled paper, increasing

of the sales volume, accurate and fast payments and, finally, a gradual increase in prices. The

last of these is particularly interesting, since they did not try to beat down the prices. This, of

course, did not mean that they would not sell the paper from stock at a reduced price.

The fourth broad issue that Serlachius and Björkenheim started to consider in April 1908

was possible cooperation or the formation of a common price agreement with other Finnish

paper mills selling paper to Russia. First, however, a contract with other newsprint producers

about the sales quotas on the Finnish markets was renewed. The agreement concerning the

Russian markets was more complicated and did not lead to such a straightforward solution. In

any case, this was a start for forthcoming negotiations.

In addition, technical improvements were started in the mills during the summer of 1908.

However, the biggest open issue was what they should to do with the closed Kymi mill. The

managers were convinced that they should try to restart the whole mill as soon as possible.

This, of course, necessitated an increase in order volume. According to Björkenheim, they

should monitor the development of the paper markets in Russia very closely and gradually

restart the machines. Most importantly, they could no longer produce paper to be held in

stock. The agents were likewise ordered to accept only direct orders so that the managers

could control the manufacturing processes more carefully. After the negotiations with the

agents and the creditors, the first of Kymi‘s paper machines was finally started in September.

21

The issue of a competent chief executive officer was resolved in November 1908, when

Serlachius started as a CEO. He negotiated an agreement that allowed him to continue in his

other leading positions in the paper mills of Mänttä, Kangas, and Leppäkoski. These

connections were not considered to be obstacles because Serlachius asserted that the firms

were not the direct competitors of the Kymi Corporation despite the obvious fact that some of

them actually produced similar grades of paper. Even supposing that this was no problem in

1908, it became one of the main reasons why Serlachius left Kymi in 1912.

As the CEO Serlachius did not only focus on the production processes but also on sales

and marketing. In February 1909, he made a personal visit to St Petersburg, Moscow, and

Rostow to meet the important customers and inspect the paper stocks of the agents. In his

report, Serlachius describes the customers‘ wishes and complaints in detail. The development

and future prospects of the Russian economy and the political situation influencing the

prevailing state of affairs on the paper markets were also closely addressed.

Russia continued to be the main market area for paper, but Serlachius had a clear aim to

extend the firm‘s clientele to more stable areas, namely Britain. The idea was to find new

customers for newsprint. The price of newsprint in Britain was lower than in Russia, but

focusing on a restricted sales area is risky for a bulk products manufacturer. Therefore, the

extension can be seen as a farsighted strategic decision.

The demand for paper began to increase early in 1909 and the second of the Kymi

factory‘s paper machines was started up. In July a decision was taken to restart the third

machine. An interesting point is also that Serlachius tried to make the firm more coherent so

that Kymi, Voikkaa and Kuusankoski would be in equal positions. In January 1910, for

example, a common engineering office was founded that would serve the needs of all mills.

Significant changes in production processes were also introduced. Moreover, in the summer

of 1909, Serlachius presented an idea of a collective logging company to be founded together

22

with the other four forest industry firms operating in the Kymi River area. The main purposes

of the logging company were to acquire the timber needed for its members, reduce the cost of

acquisitions, and at the same time avoid internecine competition.

The year 1910 also saw some changes. Concrete results were achieved by installing

innovative fibre recovery units in the paper machines, introduced by Serlachius. The firm‘s

financial situation and order volume improved during the spring of 1910 and finally in April

a reimbursement plan was introduced. Björkenheim stated that, ―if the creditors accepted the

plan the firm could be considered saved‖. Of course, there were many risks. Radical changes

in the Russian customs or unfavorable decisions by the banks could change the situation.

However, the creditors were satisfied with the plan and it was approved in May 1910.

The year 1911 followed the same lines: Improvements were made in all areas and

statistics. A collusive contract with the other Finnish newsprint producers for Russian

markets was also finally concluded and the reorganization of the agencies in Russia

continued. Altogether, the state of Kymi, both regarding finance and production, was secure

in 1912. The organization had managed to achieve a successful turnaround, though the formal

decision to end the creditors‘ administration was not made until June 1914, just before the

outbreak of the First World War.

The three perspectives on the strategic leadership of Serlachius

Organizational environments

At the beginning of the 20th

century Finland was an autonomous grand duchy under the rule

of the Russian Tsar. Finland had, among other things, its own parliament, laws, and a strong

national identity, even though the country was under the pressure of Russification. Finland‘s

trade focused on both Russia and Western Europe. Russia was the main market area,

primarily because the export duties for Finnish products were lower than those for the

23

products of other countries. This was a notable advantage especially for paper manufacturers

like Kangas and Kymi. Russia‘s domestic policy, however, was rather unstable. Thus, relying

entirely on the Russian markets was not an ideal situation in the long run (Kuisma, 1993).

At a national level, Finland‘s economic development was mainly positive. During the

years 1902–1912, gross domestic production (GDP) increased at an average annual rate of

2.3%, but the range of fluctuation was wide, between 0.65% and 5.6%, with GDP only

declining by 0.33% in 1908. This was also the most difficult year for the Kymi Corporation.

The gross production of the pulp and paper industry paralleled GDP, with 1908 the only

negative year (Hjerppe, 1996).

The business environment of the pulp and paper industry as a whole was clearly

competitive, though there were already some preliminary signs of forthcoming cooperation.

As in Germany (cf., Chandler, 1990), commercial banks played a key role in providing funds

for capital-intensive industries. As in Kangas and Kymi, representatives of banks sat on the

boards of several enterprises and had a notable influence on their decision-making as well as

the formation of possible cooperative relationships.

Kangas concentrated more on fine paper manufacturing, whereas Kymi was clearly a

mass-producer of newsprint. Thus, they were not direct competitors. On the domestic market,

they had some Finnish competitors. Since both Kangas and Kymi exported a major part of

their production, their main competitors were in most cases paper manufacturers from

Sweden, Russia, the UK, and Central Europe. The government did not circumscribe

competition, but as a legislative force, it had the full potential to raise customs tariffs, which

would have had a critical influence on export earnings.

As a whole, business activity at the beginning of the 20th

century was not as chaotic,

hectic, and extensive as today. In managerial work, the doctrines of scientific management

and its predecessors were starting to exert an effect even in Finland. Salaried full-time

24

managers were already common and managerial hierarchies were developing (cf., Chandler,

1990). These trends were also evident at Kangas and Kymi.

Regarding the implementation of leadership activities in the industrializing society, the

outer context may also have had an influence as a form of fluctuating political situation that

culminated eventually in 1917 with Finland gaining its independence. First of all, as a result

of Russification actions by imperial Russia around the turn of the century, the parliament of

Finland lost to some extent its appeal as a forum for the development of Finnish society.

Industrial corporations and business life in general, which were not controlled as tightly by

the Russian Tsar as the political organs, were seen to be more promising arenas in which to

exert influence in societal questions, too. Thus, several competent political leaders tried to

find positions in Finnish business life (Polvinen, 1989). In other words, the importance of

firms and their managers generally increased in society.

Second, the defeat of Russia in the Russo-Japanese War (1904-1905) and the subsequent

general strike opened the general political discussion and enabled the organization of the

labour movement, but at the same time the unrest increased among the workers. In fact, it has

been claimed that the mental attitude among the working population was occasionally almost

anarchistic (Kuisma, 1993). As a result of all these matters, including the fact that the top

manager had a patriarchal position in most of the industrial organizations, the need and

potential for the implementation of leadership activities was favorable.

An explicit way to approach the prevailing inner organizational environment during the

turnaround processes is to analyze the ownership and debt relationships. The ownership of

Kangas was divided among several groups and individuals. There were no majority

stockholders. On the other hand, NB (40 percent) and the Bank of Finland (20 percent)

together constituted such a coalition. The main issue, however, was that the main owners

were also the main creditors. In that respect, NB‘s position as the biggest creditor and owner

25

was especially important. Furthermore, two forest industry companies as well as two

individuals (Anton Lindeberg and Gösta Björkenheim) were important stockholders and

creditors. Other minority stockholders‘ and creditors‘ claims relative to the previous groups

were so low that Kangas was not, de facto, dependent on them.

Using the terms of resource dependence theory (Pfeffer & Salancik, 1978), it can be seen

that the firm was heavily dependent on liquid assets as its central resources. Thus, NB, as the

main holder of this resource, possessed significant power over the firm. Without NB‘s

contributions, the survival of Kangas would have been unlikely. However, as the biggest

owner, NB was also at substantial risk of suffering significant losses in case of bankruptcy,

even though its liabilities were preferential.

The Kymi Corporation had a fragmented ownership structure. In contrast to Kangas, the

banks held almost no company shares and there were no major owners existed. The biggest

creditors were NB, the Bank of Finland, and Privatbanken. NB‘s share of the total sum of the

demands was about 30 percent. The Bank of Finland‘s share comprised about 25 percent and

Privatbanken held nearly 20 percent. Consequently, this group of three banks was responsible

for a major part of the Kymi Corporation‘s financing and possessed significant power over

the firm. The claims of other creditors relative to these banks were marginal. The situation of

the banks was thus similar to NB‘s situation with Kangas. They were at risk of suffering

significant losses in case of bankruptcy, and therefore opted to save the firm.

Overall, in addition to the fact that the outer context of both turnaround processes was

rather favourable, or at least did not hamper the realization successful strategic leadership of

Serlachius, the internal organizational environments can be seen to be fairly advantageous for

the successful strategic leadership, too. The governing organizational groups had understood

that the changes were necessary and their financial support also enabled the implementation

of needed actions. Moreover, they gave the managers sufficient freedom of action.

26

Demographic and personality characteristics

Gösta Serlachius was 28 years old when he accepted the position of CEO at Kangas, and he

was still young when he was appointed to the Kymi Corporation four years later. The average

age for the appointment of industrial managers in Finland was 42 years at beginning of the

20th

century and the recruitment age was lower in the first half of the 20th

century than in the

second half (Fellman, 2001). Consequently, managers‘ ages at the beginning of the 20th

century contrast with those of managers today. However, even in his own day, Serlachius was

clearly younger than the average CEO. With respect to age, Serlachius was thus a good

example of a potential turnaround leader.

At the beginning of the 20th

century, the levels and degrees of formal education were

rather different from those of today and the general standard of education was relatively low

in Finland. There was no formal management education at all and only one institute for

engineering studies, one university, and a cadet school (Fellman, 2000). Thus, practical

experience was often the most important teacher, even though the sons of wealthy families

were able to obtain higher scientific education in Continental Europe or the United States.

Pure one-to-one comparison between the beginning and the end of the 20th

century, however,

is not feasible.

Gösta Serlachius matriculated from high school in 1895. He subsequently studied two

years of law at the university, but did not graduate. Nor did he have a formal engineering

education. However, Serlachius traveled to the UK in 1897 for a long period of study and

training. In 1902—1903, he studied paper technology and machine industry at the

Technologisches Gewerbe-Museum of Vienna in Austria. Serlachius also traveled around the

United States in 1903—1904, where he gained further new ideas and worthwhile skills from

the paper industry and business management (Ahvenainen, 1975).

27

During these periods, he had also acquired excellent language skills. He communicated

fluently in English, German, and Swedish. These were the languages also needed in Kangas‘s

and Kymi‘s businesses. In addition, Serlachius had familiarized himself with different

industrial organizations, the most modern ideas, and a vast number of important people.

Personal relations were, indeed, crucially important when competing in international markets.

All in all, because formal education for managers was not available in Finland, Serlachius

obtained the diverse skills and knowledge needed by a leader through practical experience

and study both in Finland and abroad. This international, modern, and wide educational

background, albeit mostly informal, provided him with a good basis for work as a CEO and

especially as a turnaround leader. It also provides an excellent example for modern

management training of how important working and studying in other cultures can be in the

global business environment.

Because of his youth, Serlachius‘s working experience in industry was relatively short.

In 1898, Serlachius began to practise paper mill management in his uncle‘s firm in Mänttä,

Finland. He worked there for a period of four years. His assignment in Kangas was, thus,

only his second full-time position and his first position as a CEO (Ahvenainen, 1975). By the

time of his assignment to the Kymi Corporation, Serlachius had already acquired much

experience in the industry as well as recent merits as a turnaround leader. In Finland,

managers‘ average employment before their first CEO assignments was typically 19 years at

the beginning of the 20th

century (Fellman, 2000). Thus, Serlachius‘s tenure was noticeably

shorter than that of the average CEO. Comparison between the results of modern leadership

research and Serlachius indicates that in the case of employment, too, Serlachius is a good

example of a successful strategic leader in a turnaround situation.

Serlachius‘s motivation to lead was evident. First of all, extensive studies abroad and

familiarity with modern ideas are usually the qualities that are connected with a motivated

28

person. Second, when Serlachius heard about the problems at Kangas, he immediately

offered to manage the crisis company (Norrmén, 1928). He had a clear desire to apply his

skills and knowledge in practice, and Kangas offered an excellent opportunity to demonstrate

his abilities.

All in all, Serlachius was an ambitious young leader. After the turnaround at Kangas, he

had the option to either continue his work or to return to the Mänttä Paper Mill. Instead, he

chose a much more challenging assignment at Kymi. This clearly indicates that Serlachius‘s

ambition and motivation were still high. Serlachius‘s personal correspondence with other

managers, and especially with Gösta Björkenheim in 1912, reflects the importance of trust

and honesty in the relationships between the managers as well as in general business life. As

shown in the following analysis of Serlachius‘s social and professional networks, he

considered trust and openness to be important in dealings with stakeholders.

Strategic behavior

Since constructing a wide social and professional network is a time-consuming process,

younger managers are often at a disadvantage. However, Serlachius‘s position was in this

respect already relatively good when he started at Kangas. Because of his family background,

Serlachius had a name that was well-known and respected among the small industrial elite of

Finland. This was clearly an advantage. During his assignment at the Mänttä Paper Mill, he

became acquainted with the firm‘s management and stakeholders. In Mänttä, Serlachius also

befriended Albert Snellman, a bank manager, who subsequently became his fellow manager

and first direct link to the world of finance. In addition, during his studies and tours abroad,

he had established business relationships with many paper traders and various machine

manufacturers. The correspondence between them indicates that Serlachius also maintained

29

these relationships. He was, for example, the Northern European representative of an

American firm that manufactured water meters and hydraulic controllers for paper factories.

Serlachius‘s appointment in Kangas offered him a unique opportunity to build and

expand his social network. He became, of course, acquainted with all the important

stakeholders of Kangas. In addition, he made contacts with the financial institutions and

representatives of the forest industry in Finland and abroad. Serlachius was particularly active

in his professional correspondence with the Mänttä Paper Mill and the Kaukas Corporation.

Inside the organization, he enjoyed excellent relations with the other managers. In fact, the

working relationship between Serlachius and Snellman developed into a deep friendship that

lasted until the unexpected death of Snellman in 1912.

At the beginning of his assignment at Kangas, Serlachius had a good reputation and

certain merits, but within only a few years he was able to convince wider industrial spheres

and to acquire concrete experience in turnaround management. The governing groups of the

Kymi Corporation were almost the same as those at Kangas. Thus, the respect and trust of

these groups elevated Serlachius to the top management of the biggest industrial corporation

in Finland. During his assignment with the Kymi Corporation, his social network expanded

further. Already at Kangas Serlachius had toward the potential market areas and at Kymi he

continued the same policy to establish further personal connections.

At Kangas, Serlachius orientated himself by tracing the firm‘s history; when the firm had

been profitable and when it had been making losses. There is no official statement of

Serlachius‘s vision, but he explicitly emphasized that the firm had to concentrate on the area

of business that would be the most advantageous for the firm‘s existing potential. Thus,

Serlachius‘s vision for Kangas was clear and grounded in reality. Although it is difficult to

find an explicit vision in the case of the Kymi Corporation, Serlachius clearly had a similar

idea as at Kangas to maximize the potential of Kymi. In both cases the predefined basic

30

vision was that the firms had to be saved. Altogether, Serlachius believed that the managers

and all important stakeholders should have a consensual view of the firms‘ future.

The main events of the strategy processes were described in the detailed accounts of the

turnaround processes. Briefly, at Kangas the vision of Serlachius was realized as a strategic

decision to completely discontinue the production of newsprint, concentrate more on fine

paper, and invest in the quality of the paper. Successful implementation of these changes

called not only for alterations to the paper machines but also required great perseverance and

continuous development work. Slowly but surely, these changes were finally realized.

Second, Serlachius introduced and applied new accounting cost management methods that

also improved the implementation of cost reductions. Such actions are usually urgent if

expenses exceed income, as was the case at Kangas. However, it was not enough for

Serlachius to merely introduce new ideas; they had to be constantly developed and

consistently implemented. The third series of actions in the strategy formation of Kangas‘s

turnaround process was the development of sales and marketing, both in Finland and abroad.

Taken together, these findings show that Serlachius responded to basic strategic questions

regarding customers, products, and the overall efficiency of the organizations and

consistently implemented innovative operational moves.

The umbrella strategy of the Kymi Corporation, conversely, had already been in use for

some time before the difficulties began to appear in increasing the overall production

capacity and finding economies of scale. Even the paper machines were geared to bulk

production. A rapid change into a completely new line of production would have been very

time-consuming or even impossible to implement. Consequently, Serlachius, together with

his co-managers, decided to purposefully continue to develop the existing production system,

even though they also left the door open for the possible production of new grades.

31

Nevertheless, the basic goal or vision was to make the production more effective, more

economical, and better quality.

As had occurred earlier at Kangas, cost minimization measures were the first steps taken

in the realization of Kymi‘s turnaround process. Serlachius also introduced comprehensive

cost and profitability accounting systems similar to those used at Kangas. The strategy

formation of Kymi also included considerable changes in sales and marketing. Overall,

Serlachius had again successfully responded to the basic strategic questions. Despite the

rather all-inclusive nature of Kymi‘s turnaround process, however, the strategic position of

the firm did not change fundamentally. Kymi was mainly competing in newsprint markets

where economies of scale and cost efficiency were still crucial requirements for success.

To sum up, in both cases, as a result of consistent and analytical operational behavior

leading to the realization of comprehensive strategies, the turnaround processes were

successful. Such strategies have been found to be typical in uncertain environments (Miller &

Toulouse, 1998), which characterize turnaround situations (e.g., Barker & Duhaime, 1997;

Robbins & Pearce, 1992). It has to be emphasized that in both cases Serlachius explicitly

responded to the basic strategic questions (Markides, 1999) and analytically guided the

strategy formation processes. Of course, Serlachius could not manage these turnarounds

without the unreserved cooperation of other managers. At Kangas, he was obviously the

driving force in the process, but the assistance of Albert Snellman was important. Similarly,

in the case of Kymi, other members of the top management team, especially Gösta

Björkenheim, had significant roles. Thus, the management of the turnarounds and the

formation of the strategies were not purely playgrounds for Serlachius, but rather interactive

processes involving several individuals and groups.

Discussion: The deeper level of Serlachius’s strategic leadership

32

After the case descriptions and the exploration of Serlachius‘s strategic leadership from the

three perspectives, we may now consider what these findings reveal about the more

fundamental determinants or essence of strategic leadership and in so doing provide answers

to the research questions: (1) has strategic leadership changed radically during the last

century and (2) can we learn something from the strategic leadership of the past?

According to recent research, the essence of strategic leadership lies in the ability to

learn, the ability to change, and managerial wisdom (Boal & Hooijberg, 2000) or the right

combination of intelligence, creativity and wisdom (Sternberg, 2003). These elements are

often highlighted in organizational transformations when the managers, trying to create

meaning and purpose for the organizations, may need to revitalize or even significantly

change the business model on which the whole organizational effort is based, to take

advantage of emerging strategic opportunities and threats, and to monitor and balance the

needs of different stakeholders (Storey, 2005). Altogether, the examination of these deeper

elements of strategic leadership necessitates a longitudinal perspective similar to that

provided by the analysis of Serlachius, enabling us to consider and compare his activities

during the periods of pre-Kangas, Kangas, and Kymi.

Absorptive capacity

The findings presented in the previous sections reveal Serlachius‘s ability to learn in many

respects. First of all, through his broad, international educational background he acquired

knowledge of the state of the art of paper making technology and machinery as well as new

production and cost accounting methods. Moreover, he acquired a knowledge of different

cultures and good strong language skills, and built up personal connections with foreign

organizations, which were (and still are) extremely important capabilities for the top manager

of a pulp and paper industry company. Serlachius‘s ability to acquire this knowledge already

33

tells something about his ability to absorb important knowledge, but his capacity becomes

more evident given that he was also able to utilize and apply that knowledge.

Both at Kangas and Kymi the management of turnaround processes and the refocusing

of the firm strategies were greatly enhanced by Serlachius‘s innovative mind and technical

knowledge. He was able to manage the technical development of the production processes

and utilize the most modern ideas and machines with which he had become acquainted on his

travels. During the turnarounds he also actively searched for information and new ideas

outside the direct environments of the organizations through discussions with the managers of

other firms and by meeting existing and potential customers.

If we more closely compare Serlachius‘s activities at Kangas and Kymi, we see that he

applied similar ideas, though in a slightly modified form, in both firms. However, he was also

able to see that something that did not work at Kangas provided better changes for Kymi, as

was the case, for example, in the expansion of the market areas. As already suggested by

Cohen and Levinthal (1990: 136) regarding absorptive capacity, ―prior knowledge permits

the exploitation of new knowledge [and] some portion of that prior knowledge should be very

closely related to the new knowledge to facilitate assimilation, and some fraction of that

knowledge must be fairly diverse, although still related, to permit effective, creative

utilization of the new knowledge‖. This quotation describes Serlachius‘s situation in both

organizations fairly accurately, although at Kymi his closely related prior knowledge had

increased considerably. Altogether, Serlachius absorptive capabilities were obvious.

Adaptive capacity

The findings of the analysis also enable us to consider Serlachius‘s ability to change. In

general, the adaptive capacity may closely relate to a person‘s ability to learn, since learning

34

always entails that something will, or is allowed to, change. Thus, the basis for successful

absorption and adaptation is largely in openness to new things.

Serlachius‘s openness, or almost eagerness, to change was evident in his personal life

already before he started at Kangas. One reflection of this was his genuine enthusiasm for a

CEO assignment in an organization that was in the depths of a crisis. Most obviously,

however, despite the fact that Serlachius was ready to make changes, the implementation of

these changes necessitated that the inner environments of the organizations, i.e. the main

stakeholders, allowed the rapid changes to happen.

If we consider Serlachius‘s activities during the turnarounds of Kangas and Kymi

separately, we may conclude that many or even most of his decisions and actions seemed to

be fairly operational. However, as the above findings show, not only did these actions

successfully respond to the urgent needs to create cash flow for the organizations, they also in

combination substantially redirected the firm strategies. Indeed, one of the most interesting

findings was that Serlachius clearly responded to the basic questions of strategic management

concerning customers, products, and the overall efficiency of the organizations. He refocused

the production strategies in terms of the products and their attributes, he charted the needs of

existing and potential customers, and he searched for new market opportunities and areas.

The simultaneous implementation of the strategic changes in all these areas, so that these

changes also supported each other, serves as convincing proof of Serlachius‘s adaptive

capabilities.

Managerial wisdom

Managerial wisdom or wisdom in general results from a combination of several components.

In the context of strategic leadership, according to Boal and Hooijberg (2000), the critical and

interrelated components of managerial wisdom include the ability to understand social actors

35

and their relationships (also known as social intelligence), the ability to perceive variation in

the environment, and the ability to take the right action at the right time.

Serlachius‘s ability to construct and maintain social and professional networks is one

example of his social intelligence. Both at Kangas and Kymi, his understanding of the various

claims of stakeholders and close communication with these actors enhanced the support of

the stakeholders and increased his own managerial freedom. Of course, Serlachius had his

own interests too, but he understood that these interests were tied to the long-term success of

the organizations and their main stakeholders. Thus, maintaining the consensus of long-term

goals with the co-managers and important stakeholders was a critical task for Serlachius. In

addition, Serlachius had an understanding of the wider context in which the firms were

embedded. His travel reports from Russia and the UK show that he followed and tried to

predict how the political environments developed. The customs policies of these countries

had a direct influence on profit margins. In addition, in Russia the unstable political situation

raised other concerns. For example, the level of censorship had a direct effect on the number

of newspapers published, which in turn had a direct effect on the future newsprint orders

from the customers.

In retrospect, it would be easy to say that Serlachius did the right things at the right time.

Nevertheless, he also made mistakes. At Kymi, for example, he decided to start tobacco paper

manufacturing. It had been a success at Kangas and Serlachius probably expected that it

would be a success at Kymi, too. Unfortunately, this experiment flopped. However,

Serlachius was wise enough to stop production at the right time, before it began to show loss

– An important facet of managerial wisdom. Altogether, the components of managerial

wisdom were manifest in Serlachius‘s leadership.

36

Strategic leadership

Managerial wisdom, the ability to learn, and the ability to change may be the basic elements

of strategic leadership. However, they are only elements. In order for strategic leadership to

be realized successfully, these elements need to be correctly combined. In other words, in

addition to having many of these capabilities and managerial wisdom, their combination

should also match the organization and the broader environment.

The three steps of this analysis, from the main events of the two turnaround processes

through the three perspectives to Serlachius‘s leadership and, finally, to the discussion of

these findings in terms of the deeper level of strategic leadership have shown that, indeed, the

basic elements of strategic leadership may not have changed much during the last century.

Serlachius possessed personal attributes and clearly implemented courses of action that were

similar to those claimed in the literature to be typical for today‘s successful strategic

leadership in organizational transition.

Most importantly, at the deeper level where the essence of leadership is suggested to lie,

Serlachius can be seen as an example of the ideal compatibility of the combination of

capabilities and managerial wisdom with the organizational contexts. He had new and

creative ideas that were feasible in the prevailing organizational situation. He had strategic

flexibility to implement these ideas, and he had wisdom to keep the crucial stakeholders

convinced of these ideas and the future performance of the firms. Such successful strategic

leadership, however, is not the rule today, which is partly why strategic leaders of

organizations are equally surrounded by myths, though at the deeper level they may not be so

different from the leaders of the past.

While these results suggest that the deeper elements of strategic leadership have

remained much the same during the last hundred years, we may not conclude that the actions

and decisions arising from these basic elements are similar in all situations. On the contrary,

37

strategic leadership may assume a very different form in different contexts. A correct

combination of absorptive and adaptive capabilities together with managerial wisdom only

provides the bases enhancing the likelihood of the realization of effective leadership.

In the light of these results, we may conclude that historical studies can add to the

strategic leadership research at least in two critical ways. First, as this study has shown, they

may help us to uncover the deeper levels of strategic leadership and thereby to better

understand the essence of the phenomenon. Second, historical studies allow us to consider

how strategic leadership develops in one context and what changes in the leadership activities

when the context changes. In particular, historical studies provide a perspective extending

across several years that is often necessary in order to observe processual and structural

aspects of leadership. As Lawrence (1984: 311) states, a historical perspective ―pushes

thinking about alternative explanations for phenomena, helps identify more and less stable

concepts, and expands research horizons by suggesting new ways of studying old questions

and controlling for longitudinal, cohort, and period effects‖. Accordingly, the answer to the

second research question is positive.

Conclusion

Strategic leadership research is clearly on ongoing process. This study has tried to provide

further perspectives on this endeavor by considering what has truly changed in the

phenomenon known as strategic leadership. The answer to this question turned out to be

twofold. If we consider the level of leadership activities, i.e., what strategic leaders should do

in a particular context in order to be effective, the world is likely to be transient and

contingent. The behavior of a strategic leader that has been connected to the successful

performance of an organization in the past may lead to the opposite results if followed in

other circumstances. However, if we move to the deeper level, to the essence of the

38

phenomenon, strategic leadership seems to be based on much more stable elements. The right

combination of absorptive and adaptive capacities, combined with managerial wisdom,

provided the basis for effective strategic leadership at the beginning of the 20th

century

similarly as it is suggested to do today. Indeed, the more things change, the more crucial is

the combination of these basic elements matching the organizational context.

Findings from a single case study are not, of course, statistically generalizable. A rich

case analysis, however, is especially appropriate for challenging conventional thinking as

well as building deep structural explanations and theories (Langley, 1999; Pentland, 1999;

Ragin, 1994; Tsoukas, 1989). Thus, this study seeks essentially to expand the research

horizons and encourage further studies to focus on the issues of change and relative stability

as well as surface and deep structures that surround and underlie the strategic leadership

phenomenon. Different businesses, nations, and eras provide fruitful viewpoints to consider

these issues. The extensive use of archival material can also contribute to leadership research

and especially to research that seeks to examine the deep structures. In addition, the history of

strategic leadership offers excellent examples of success stories, but it is also full of failures

from which we can learn.

To conclude, this paper should also motivate researchers with interests other than

strategic leadership to look beyond the rapidly changing surface of visible phenomena—to

look more extensively for deep-level structures and mentalities that may not change with

every year or decade. For example, a management fad of the 1980s may not have been useful

for a firm in the 1990s, but in the new millennium the same firm may find it more than

relevant. It may not be fashion, but it works for the firm. The time has changed, but the

deeper structures have remained the same.

39

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Appendix

Archival references

Finnish Archives of Business Records

The archives of the Kangas Paper Mill

Company correspondence 1904–1909

Records of creditors‘ and owners‘ meetings 1904–1912 (also includes annual reports,

cost estimates, and other internal documents)

Share certificate books

Provincial Archives of Jyväskylä

The archives of the Jyväskylä Judicial District

Records of court sessions 15.9.1904 and 18.11.1904

The Central Archives of UPM-Kymmene

The archives of the Kymi Corporation

Records of managers' meetings 1908–1913 (includes also appendices)

Company correspondence 1908–1913

Management documents (includes annual reports and records of creditors meetings)

Financial statements 1904–1916 (also includes lists of creditors and share certificates)

The Archives of the Gösta Serlachius Art Museum

Personal correspondence of Gösta Serlachius 1904–1914