Individual Strategic Leaders and Influences on Their Decisions
Key Terms Strategic Leadership – the ability to
anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary
Qualities of Legendary CEOs
Visionary have a clear view of what they want to accomplish
Transformational act as agents of change
Strategic Leadership
Multifunctional Managerial InfluentialChange tolerantUncertainty tolerantMotivational
Effective Leadership Style
Several examples of well-known CEOs are mentioned throughout the chapter to illustrate their leadership styles. Who do you think has the most effective leadership style and why?
Managerial Discretion and Decision Biases
Key TermsDiscretion – latitude for actionHeuristics – rules of thumb used in
decision makingHubris – excessive pride, leading
to a feeling of invincibility
Enhancing Leadership Effectiveness
Matching backgrounds to existing challenges
Having an orientation to action Minimizing decision-making biases Maneuvering around constraints
on managerial decision making
Minimizing Decision-Making Biases
Awareness of biases
Open decision-making environment
Use of real options analysis
Diverse top management team
Decision-Making Biases
Reliance on a limited set of heuristics
Reliance on previously formed beliefs
Focus on limited objectives
Exposure to limited decision alternatives
Insensitivity to outcome probabilities
Illusion of control
Hubris
Hubris refers to the excessive pride that leads to a feeling of invincibility
Hubris can magnify the effects of decision-making biases
Top Management Teams
Key Term Top Management Team – group
composed of the CEO and key managers who are responsible for setting the direction of the firm and formulating and implementing its strategies
Factors that Influence the Effectiveness of Top Management Teams
Top management team heterogeneity
The CEO and top management team power
Executive succession processes
Top Management Team Heterogeneity
Key Term
Heterogeneous Top Management Team – managerial group composed of individuals with different functional backgrounds, experiences, and educations
Heterogeneous Top Management Team
Introduces a variety of perspectives Has a greater propensity for strong
competitive action Tends to "think outside of the box," leading to
more creative decision making, innovation, and strategic change
Offers various areas of expertise to identify environmental opportunities, threats, or the need for change
Promotes debate
Heterogeneous Top Management Team Challenges
Cohesion
Communication
Comprehensive examination of threats and opportunities
The CEO and Top Management Team Power
Key Terms
CEO Duality – the structure in which the CEO serves as chair of the board of directors to achieve power relative to the board
Independent Board Leadership Structure – the structure in which the board's ability to monitor top-level managers' decisions and actions (particularly in terms of financial performance) is enhanced by employing two different people to serve as CEO and board chair
The CEO and Top Management Team Power
Key Terms
Stewardship Theory – suggests that top managers want to do the right thing for the firm's shareholders and that reducing the amount of interference with their actions will increase the profit potential of the firm
Top Management Power
Members of top management can use their social and business ties with directors
Powerful CEOs can appoint members of the top management team or other sympathetic associates to serve on the board
CEO duality CEO tenure
CEO Duality
Is more common in the United StatesOccurs most often in the largest firmsReceives scrutiny from increased
shareholder activism Is criticized for causing poor
performance and slow response to change
Executive Succession Processes
Key Terms Internal Managerial Labor Market –
opportunities for managerial positions to be filled from within the firm
External Managerial Labor Market – opportunities for managerial positions to be filled by candidates from outside of the firm
Benefits of Internal Labor Market
Continuity
Continued commitment
Familiarity
Reduced turnover
Retention of "private knowledge"
External Labor Market
Long tenure with the same firm is thought to reduce innovation
Outsiders bring diverse knowledge bases and social networks, which offer the potential for synergy and new competitive advantage
Positioning
Key Terms Scope – breadth of a firm's activities
across products, markets, geographic regions, core technologies, and value creation stages
Acquire, Develop, and Manage Key Resources
Key Terms Organizational Culture – complex set
of ideologies, symbols, and core values that are shared throughout the firm and influence the way business is conducted
HR Practices Linked to Strategic Success
Managing intellectual capital Investing in capital resourcesBuilding effective commitments to
organizational goals Incorporating international experience
into the skill sets of employees
HR Practices Linked to Strategic Success (cont.)
Employing effective training and development programs to promote strategic vision and cohesion
Establishing effective reward plans Instituting continuous learningLeveraging the firm's expanding
knowledge base
Effective Cultural Qualities
Entrepreneurial opportunism Employee autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness
Overcoming Cultural Difficulties
Effective communication
Effective problem solving
Effective staffing
Effective performance appraisals
Effective reward systems
Determine and Communicate Strategic Direction
Key Terms Strategic Direction – definition of a firm's
image and character over time, framed within the context of the conditions in which the company operates
Sustainable Development – concept that a firm can and should operate without adversely influencing its environment
Long-Term Vision
A core ideology to motivate employees through the company's heritage
An envisioned future to encourage employees to stretch beyond their comfort zones
Actions for an Ethical Culture
Employ ethical strategic leaders Establish and communicate specific goals to describe the
firm's ethical standards Continuously revise and update the code of conduct based
on stakeholder input Disseminate the code of conduct to all stakeholders to inform
them of ethical standards and practices Develop and implement methods and procedures to use in
achieving the firm's ethical standards Create and use explicit reward systems to recognize bold
acts that demonstrate ethical behavior and decision making Create a work environment in which all people are treated
with dignity
Strategy Implementation
I/O economics framework – develops structures, systems, and programs to reinforce the external positioning of the business
Resource model – makes optimal use of and supports the resources and capabilities that provide a competitive advantage
Stakeholder perspective – includes activities such as collecting information from stakeholders, assessing their needs and desires, integrating this knowledge into strategic decisions, effectively managing internal stakeholders, and forming interorganizational relationships with external stakeholders
Balanced Controls
Key Terms Controls – formal, information-based
procedures used by managers to maintain or alter patterns in organizational activities
Balanced Scorecard – framework that allows strategic leaders to verify that they have established both financial and strategic controls to assess firm performance
Control Systems
Financial Controls focus on short-term financial outcomes produce risk-averse managerial decisions
Strategic Controls focus on the content of strategic actions encourage decisions that incorporate
moderate and acceptable levels of risk
Ethical Questions
What are the ethical issues influencing managerial discretion? Has the current business environment changed the influence of ethics on managerial discretion? If so, how?
Ethical Questions
Is there a difference between stakeholders’ current view of an ethical strategic leader and the early 1990s perspective of an ethical strategic leader? If so, describe the differences between the two views.
Ethical Questions
What should a newly appointed CEO from the external managerial labor market do to understand a firm’s ethical climate? How important are the CEO’s efforts to understand this climate?
Ethical Questions
Are ethical strategic leaders more effective than unethical strategic leaders? If so, why? If not, why not?
Ethical Questions
Assume that you are working in an organization that you believe has an unethical culture. What actions could you take to change that culture to make it more ethical?