CHAPTER 7: STRATEGIC LEADERSHIP Top management team - composed of the key individuals

who are responsible for selecting and implementing the

Strategic leadership- the ability to anticipate, envision, firm’s strategies.
maintain flexibility, and empower others to create strategic Heterogeneous top management team - composed of
change as necessary. individuals with different functional backgrounds,
Effective strategic leadership - a prerequisite to successfully experience, and education.
use the strategic management process. Figure 12.2 Factors Affecting Managerial Discretion
Effective strategic leadership has five major components:
1) Determining the firm’s strategic direction
2) Effectively managing the firm’s resource portfolio
3) Sustaining an effective organizational culture
4) Emphasizing ethical practices
5) Establishing balanced organizational controls.
Figure 12.1 Strategic Leadership and the Strategic Management Process

Internal managerial labor market - consists of a firm’s

opportunities for managerial positions and the qualified
employees within that firm.
External managerial labor market - the collection of
managerial career opportunities and the qualified people
who are external to the organization in which the
opportunities exist.
Figure 12.3 Effects of CEO Succession and Top Management Team
Composition on Strategy

Top-level management decisions influence the culture of

firms as well as how organizations are structured and how
goals are set and achieved.
Top-level managers - an important resource for firms to
develop and exploit competitive advantages
The primary factors that determine the amount of decision-
making discretion held by a manager are:
1) external environmental sources such as the industry
structure, the rate of market growth in the firm’s
primary industry, and the degree to which products
can be differentiated;
2) characteristics of the organization, including its size, Determining strategic direction - involves specifying the
age, resources, and culture image and character the firm seeks to develop over time
3) characteristics of the manager, including Core competencies - capabilities that serve as a source of
commitment to the firm and its strategic outcomes, competitive advantage for a firm over its rivals.
tolerance for ambiguity, skills in working with - Relate to an organization’s functional skills, such as
different people, and aspiration levels manufacturing, finance, marketing, and research
and development.
Competitive agility - an ability to act in a variety of
competitively relevant ways
Competitive speed - an ability to act quickly when facing
environmental and competitive pressures
Figure 12.4 Exercise of Effective Strategic Leadership
Training and development programs can provide the
means by which new strategic leaders are cultivated within
an organization.
Human capital - refers to the knowledge and skills of a firm’s
entire workforce.
Social capital - involves relationships inside and outside the
firm that help the firm accomplish tasks and create value for
customers and shareholders.
Organizational culture - consists of a complex set of
ideologies, symbols, and core values that are shared
throughout the firm and influence the way business
is conducted.
Five dimensions characterize a firm’s entrepreneurial
mind-set:
1) Autonomy – allows employees to take actions that
are free of organizational constraints and permits
individuals
2) Innovativeness –reflects a firm’s tendency to engage
in and support new ideas, novelty, experimentation,
and creative processes that may result in new
products, services, or technological processes.
3) Risk taking –reflects a willingness by employees and
their firm to accept risks when pursuing
entrepreneurial opportunities.
4) Proactiveness –describes a firm’s ability to be a
market leader rather than a follower.
5) Competitive aggressiveness – a firm’s propensity to
take actions that allow it to consistently and
substantially outperform its rivals.
Strategic leaders can take several actions to develop
an ethical organizational culture. Examples of these
actions include:
 establishing and communicating specific goals to
describe the firm’s ethical standards
 continuously revising and updating the code of
conduct, based on inputs from people
throughout the firm and from other
stakeholders
 disseminating the code of conduct to all
stakeholders to inform them of the firm’s ethical
standards and practices
 developing and implementing methods and
procedures to use in achieving the firm’s ethical
standards
 creating and using explicit reward systems that
recognize acts of courage
 creating a work environment in which all people
are treated with dignity.
Organizational controls - formal, information based
procedures used by managers to maintain or alter patterns
in organizational activities.
Two organizational controls:
1) Financial control - focuses on short-term
financial outcomes
2) Strategic control - focuses on the content of
strategic actions rather than their outcomes.
Balanced scorecard - a framework firms can use to verify that
they have established both strategic and financial controls to
assess their performance
- A tool that helps strategic leaders assess the
effectiveness of the controls.
Four perspectives are integrated to form the balanced
scorecard framework:
1. Financial - concerned with growth, profitability, and
risk from the shareholders’ perspective
2. Customer - concerned with the amount of value
customers perceive was created by the firm’s
products
3. Internal business processes - with a focus on the
priorities for various business processes that create
customer and shareholder satisfaction
4. Learning and growth - concerned with the firm’s
effort to create a climate that supports change,
innovation, and growth
Figure 12.5 Strategic Controls and Financial Controls in a Balanced
Scorecard Framework