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Transcript of Strategic management Ch12 Strategic Leadership - Lachowicz
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Hitt Chapter 12 - StrategicLeadership
MGNT428 Summer 2006
Dr. Tom Lachowicz, Instructor
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Learning Objectives
After completing this Chapter you should havethe strategic management knowledge neededto:
Define strategic leadership and describe top-level managersimportance as a resource.
Define top management teams and explain their effects on firmperformance.
Describe the internal and external managerial labor markets andtheir effects on developing and implementing strategies.
Discuss the value of strategic leadership in determining the
firms strategic direction.
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Learning Objectives (contd)
Upon completion of this Chapter you shouldhave the knowledge you need to:
Describe the importance of strategic leaders in managingthe firms resources, with emphasis on exploiting and
maintaining core competencies, human capital, and socialcapital.
Define organizational culture and explain what must be
done to sustain an effective culture. Explain what strategic leaders can do to establish and
emphasize ethical practices.
Discuss the importance and use of organizational controls.
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Figure 1.1
Copyright 2004 South-Western. All rights reserved.
The StrategicManagement
Process
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Strategic Leadershipand the
Strategic
Management Process
Adapted fromFigure 12.1
Effective StrategicLeadership
Strategic Intent StrategicMission
SuccessfulStrategic Actions
Formulation ofStrategies
Implementationof Strategies
StrategicCompetitiveness
Above-average Returns
Shapes theFormulation of
and
Influences
YieldsYields
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Strategic Leadership
Requires the managerial ability to: Anticipate and envision
Maintain flexibility
Empower others to create strategic change asnecessary
Strategic leadership is: Multi-functional work that involves working through
others Consideration of the entire enterprise rather than just
a sub-unit
A managerial frame of reference
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Strategic Leadership (contd)
Effective strategic leaders: Manage the firms operations effectively
Sustain a high performance over time
Make better decisions than their competitors
Make candid, courageous, pragmatic decisions
Understand how their decisions affect the internal systems inuse by the firm
Solicit feedback from peers, superiors and employees abouttheir decisions and visions
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Managers as anOrganizational Resource
Managers often use their discretion whenmaking strategic decisions andimplementing strategies
Factors affecting the amount of decision-making discretion include:
External environmental sources
Characteristics of the organization
Characteristics of the manager
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Factors AffectingManagerialDiscretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
ExternalEnvironment
ManagerialDiscretion
External Environment Industry structure
Rate of market growth
Number and type ofcompetitors
Nature and degree ofpolitical/legal constraints
Degree to which productscan be differentiated
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Factors AffectingManagerialDiscretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
ExternalEnvironment
Characteristics ofthe Organization
ManagerialDiscretion
Characteristics of theOrganization
Size
Age
Culture
Availability of resources
Patterns of interaction
among employees
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Factors AffectingManagerialDiscretion
Adapted from Figure 12.2
SOURCE: Adapted from S. Finkelstein & D. C. Hambrick, 1996,Strategic Leadership: Top Executives and Their Effects on
Organizations, St. Paul, MN:West Publishing Company.
ExternalEnvironment
Characteristics ofthe Organization
ManagerialDiscretion
Characteristics ofthe Manager
Characteristics of theManager
Tolerance for ambiguity
Commitment to the firmand its desired strategicoutcomes
Interpersonal skills
Aspiration level Degree of self-confidence
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Top Management Teams
Composed of the key managers who areresponsible for selecting and implementing thefirms strategies
A heterogeneous top management team:
Has varied expertise and knowledge
Can draw on multiple perspectives
Will evaluate alternative strategies
Builds consensus
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Firm Performance andStrategic Change
Heterogeneous top management teams: Have difficulty functioning effectively as a team
Require effective management of the team to
facilitate the process of decision making but
Are associated positively with innovation and strategicchange
May force the team or members to think outside ofthe box and be more creative
Have greater capacity to provide effective strategicleadership in formulating strategy
CEO d T M T
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CEO and Top Management TeamPower
Higher performance is achieved whenboard of directors are more directlyinvolved in shaping strategic direction
A powerful CEO may: Appoint sympathetic outside board members
Have inside board members who report to the CEO
Have significant control over the boards actions May also hold the position of chairman of the board
(CEO duality)
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CEO and Top Management Power
Duality often relates to poor performanceand slow response to change CEOs of long tenure can also wield substantial power
CEOs can gain so much power that they are virtuallyindependent of oversight by the board of directors
The most effective forms of governance
share power and influence among theCEO and board of directors
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Managerial Labor Market
Organizations select managers andstrategic leaders from two types ofmanagerial labor markets:
Internal managerial labor market:advancement opportunities related tomanagerial positions within a firm
External managerial labor market: careeropportunities for managers in organizationsother than the one for which they currentlywork
M i l L b M k t
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Managerial Labor Market(contd)
Advantages of internal managerial labormarket include:
Experience with the firm and industry
environment
Familiarity with company products, markets,technologies, and operating procedures
Produces lower turnover among existingpersonnel
M i l L b M k t
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Managerial Labor Market(contd)
Advantages of the external manageriallabor market include
Long tenured insiders may be stale in the
saddle
Outsiders may bring fresh perspectives
ec s o uccess on an op
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ec s o uccess on an opManagement Team Composition on
Strategy
Figure 12.3
E i f Eff ti St t i
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Exercise of Effective StrategicLeadership
Figure 12.4
K S i L d hi A i
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Key Strategic Leadership Actions:Determining Strategic Direction
Determining strategic direction involvesdeveloping a long-term vision of the firms
strategic intent Five to ten years into the future
Philosophy with goals
The image and character the firm seeks
Ideal long-term vision has two parts: A Core ideology
An Envisioned future
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Key Strategic Leadership Actions:Exploiting and Maintaining
Core Competencies
Core competencies
Resources and capabilities of a firm that serve as asource of competitive advantage over its rivals
Leadership must verify that the firms competencies
are emphasized in strategy implementation efforts
Firms must continuously develop or even changetheir core competencies to stay ahead of competitors
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Key Strategic Leadership Actions:Developing Human Capital and
Social Capital
Human capital
The knowledge and skills of the firms entireworkforce are a capital resource that requiresinvestment both in training and development andknowledge management.
Social capital
Relationships inside and outside the firm that help itaccomplish tasks and create value for customers and
shareholders.
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Key Strategic Leadership Actions:Sustaining an Effective
Organizational Culture Organizational culture
The complex set of ideologies, symbols and
core values shared through the firm, thatinfluences the way business is conducted
Entrepreneurial orientation Personal characteristics that encourage or discourage
entrepreneurial opportunities
Autonomy Proactiveness
Innovativeness Risk taking
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Key Strategic Leadership Actions:Sustaining an Organizational Culture
(contd.)
Changing a firms organizational culture ismore difficult than maintaining it
Effective strategic leaders recognize when change inculture is needed
Shaping and reinforcing culture requires: Effective communication
Problem solving skills Selection of the right people
Effective performance appraisals
Appropriate reward systems
K St t i L d hi A ti
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Key Strategic Leadership Actions:Emphasizing Ethical Practices
Effectiveness of processes used toimplement the firms strategies increases
when based on ethical practices.
Ethical practices create social capital andgoodwill for the firm.
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Key Strategic Leadership Actions:
Emphasizing Ethical Practices
Actions that develop an ethicalorganizational culture include:
Establishing and communicating specific goals todescribe the firms ethical standards
Continuously revising and updating the code ofconduct
Disseminating the code of conduct to all stakeholdersto inform them of the firms ethical standards and
practices
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Key Strategic Leadership Actions:
Emphasizing Ethical Practices (contd.)
Actions that develop an ethicalorganizational culture include:
Developing and implementing methods andprocedures to use in achieving the firms 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
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Key Strategic Leadership Actions:Establishing Organizational Controls
Controls Formal, information-based procedures used by
managers to maintain or alter patterns inorganizational activities
Controls help strategic leaders to: Build credibility
Demonstrate the value of strategies to the firmsstakeholders
Promote and support strategic change
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Balanced Scorecard
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Key Strategic Leadership Actions:Establishing Balanced
Organizational Controls Balanced Scorecard
Framework used to verify that the firm hasestablished both strategic and financial controls to
assess its performance Prevents overemphasis of financial controls at the
expense of strategic controls
Four perspectives of balanced scorecard Financial - Customer
Internal business processes
Learning and growth
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Customer
Strategic and Financial Controls in aBalanced Scorecard Framework
Adapted fromFigure 12.5
Financial Cash flow Return on equity Return on assets
Assessment of ability to anticipatecustomer needs
Effectiveness of customer service needs Percentage of repeat business
Quality of communications with customers
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Learningand
Growth
Improvements in innovation ability Number of new products compared to
competitors
Increases in employees skills
Strategic and Financial Controls in aBalanced Scorecard Framework
Adapted fromFigure 12.5
InternalBusinessProcesses
Asset utilization improvements Improvements in employee morale Changes in turnover rates
Other commonl emplo ed
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Other commonly employedStrategic Controls
SixSigmaat manyorganizations simply means ameasure of quality that strivesfor near perfection.
Six Sigmais a disciplined,data-driven approach andmethodology for eliminatingdefects (driving towards sixstandard deviations betweenthe mean and the nearestspecification limit) in any
process -- from manufacturingto transactional and fromproduct to service.
The basic objective of theSixSigmamethodology is theimplementation of ameasurement-based strategythat focuses on processimprovement and variation
reduction through theapplication ofSix Sigmaimprovement projects.
This is accomplished throughthe use ofSix Sigmamethodologies of DMAIC andDMADV.
The Six SigmaDMAICprocess: (define, measure,analyze, improve, control.)
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Lean Manufacturing Lean productionis aimed at the elimination of waste in every area of
production including customer relations, product design, suppliernetworks and factory management.
Its goal is to incorporate less human effort, less inventory, less time todevelop products, and less space to become highly responsive to customerdemand while producing top quality products in the most efficient andeconomical manner possible.
Principles of aLean Enterprise:
Zero waiting time
Zero Inventory
Scheduling -- internal customer pull instead of push system
Batch to Flow -- cut batch sizes
Line Balancing
Cut actual process times