strategic Mang

BUAD 4980

STRATEGIC MANAGEMENT

Chapter 12: Strategic Leadership

( Introduction

1. Definitions: Several definitions need to be specified:

1.1. Leadership: capacity to secure the cooperation of other organizational members in formulating and implementing strategies;

1.2. Strategic leadership: process of establishing direction, and motivating and inspiring organizational members to move in that direction;

1.3. Transactional leadership: capacity to motivate organizational members by exchanging rewards for performance; and

1.4. Transformational leadership: capacity to motivate organizational members by inspiring involvement and participation in company’s direction.

2. Strategic leaders:

2.1. Strategic leaders: senior managers at the top of organization. The top strategic leader is the CEO (chief executive officer). Other strategic leaders include the board of directors, top management team (corporate staff), and divisional managers

2.2. Responsibilities of strategic leaders: making sure the firm uses the strategic management process for the purpose of effectively formulating and implementing strategies

2.3. Managerial succession: there are two labor markets for managerial succession:

- Internal managerial labor market: promotion or transfer for managerial positions within the firm. If a firm wants to stay the course (continuity), then the internal labor market is best. The reason is because existing personnel is familiar with valuable firm-specific knowledge

- External labor market: seeking professional managers from outside the firm. If a firm needs a major change, then outsiders are necessary. The reason is because they have broader, less limited perspectives, which encourages innovation and strategic change

( Strategic leaders’ roles (or activities)

To successfully manage their firm, strategic leaders must perform key critical roles:

1. Determining strategic direction: refers to developing a firm’s long-term vision. Effectively determining strategic direction involves anticipating future (five to ten years forward), instilling flexibility & adaptive capability, communicating vision to organizational members

2. Developing human resources: human resources include human capital and social capital:

2.1. Human capital: refers to the knowledge and skills of a firm’s workforce (employees and managers). Effectively developing human capital involves identifying critical skills/abilities needed, setting hiring practices that fulfill those needs, developing training programs in anticipation of the future

2.2. Social capital: refers to relationships that the workforce has inside and outside the firm. Such relationships are needed to effectively accomplish the tasks that create value for customers and shareholders. Effectively developing social capital involves cooperation among employees and managers across all units of the firm to produce desirable outcomes needed

3. Establishing balanced organizational controls: effective organizational controls involve balancing various aspects of performance (balanced scorecard), focusing on critical implementation issues such as strategic flexibility, commitment, motivation, and reward system

4. Sustaining organizational (corporate) culture:

4.1. Concept: Corporate culture is a set of core values, ideologies and symbols that are shared throughout an organization and that influences the way the firm conducts business. They include patterns of how things are done around here, taboos and don’ts, traditions, ethical standards, etc. Corporate culture is determined by the founder, senior leadership, and also by forces such as work groups and coalitions.

4.2. Sustaining corporate culture: Corporate culture is perpetuated/sustained through hiring practices (screening and selection), rewarding and honoring desired behaviors, process of socialization (indoctrination through story-telling, legends), supervisory practices and attitudes, and reinforcement of core values that are reiterated over and over again

4.3. Obstacles to sustaining corporate culture: weak culture (existence of several sub-cultures), and resistance to change (once established, culture is difficult to change)

4.4. Effective corporate culture: effectively sustaining corporate culture involves actions that results in (1) a strong culture (culture that is widely accepted by all/most members), and (2) an adaptive culture (culture that encourages entrepreneurship to manage strategic change).

5. Implementing strategic change:

5.1. Concept:

- Strategic change is a movement away from present state towards desired future state to create or sustain competitive advantage.

- The types of strategic change are: (1) reengineering: fundamental rethinking & radical redesign of activities and relationships to achieve desirable performance on cost, quality, service and speed, (2) restructuring: set of decisions related to changing the organization of work, reducing cash available to top managers, and acquiring/divesting businesses, and (3) innovation: process of using skills & resources to create new products & new processes, in order to change & better respond to changing customer needs. Innovation can be either incremental or radical.

5.2. Steps needed to effectively implement strategic change:

- Recognize the need for change: when signs of a problem occur, the problem has started a long time ago, so leaders need to anticipate (not react to) change

- Identify and overcome barriers to change: people & groups resist change, so leaders need to analyze factors causing resistance and determine how to overcome such resistance. Barriers to change include status quo (fear of the unknown), systemic barriers (bureaucratic structure involving rules & regulations), political barriers (conflicts arising from possible change in power balance), behavioral barriers (biases based on frame of mind, education, etc.)

- Create shared vision of change: leaders need to inspire organizational members with the vision of what the company will become after change

- Institutionalize change: leaders need to develop a plan for implementing change, ensure that change is proceeding as planned, & motivate organizational members to work toward the desired change through appropriate rewards

( Effective strategic leadership

To be able to effectively perform their roles, strategic leaders need to have power.

1. Power:

1.1. Concept: power is the ability to influence the behavior of organizational members in order to achieve own interests.

1.2. Sources of power: there are several sources of power, including:

- Formal power: comes from the position in the hierarchy (e.g. as a CEO)

- Informal power: comes from several sources: charisma, expertise, ability to cope with uncertainty, control over resources, control over information

2. Politics:

Power is exercised through politics. Politics is the tactics put in place to acquire and use power. Strategic leaders must devise tactics that will facilitate the acquisition of power so they can successfully perform their roles. Examples of tactics include appointing people to key positions, delegating authority, allocating budget, etc.