Strategic Leadership Strategic Leadership involves: The ability to anticipate, envision, maintain flexibility and empower others to create strategic change Multi-functional work that involves working through others Consideration of the entire enterprise rather than just a sub-unit A managerial frame of reference 7

Strategic Competitiveness Above-Average Returns Strategic Leadership and the Strategic Management Process Effective Strategic Leadership shapes the formulation of and Strategic Intent Strategic Mission influence Successful Strategic Actions Formulation of Strategies Implementation of Strategies Strategic Competitiveness Above-Average Returns 11

Factors Affecting Managerial Discretion External Environment Industry Structure Rate of market growth # and type of competitors Political/Legal constraints Product differentiation Employee interaction Organizational Characteristics Resource availability Size and age Culture Managerial Discretion Interpersonal skills Tolerance for ambiguity Commitment to the firm Aspiration level Self-confidence Characteristics of the Manager 15

Exercise of Effective Strategic Leadership Determining strategic direction Establishing balanced organizational controls Exploiting and maintaining core competencies Effective Strategic Leadership Emphasizing ethical practice Developing human capital Sustaining an effective organizational culture

Determining Strategic Direction Strategic direction means the development of a long-term vision of a firm’s strategic intent A charismatic leader can help achieve strategic intent It is important not to lose sight of the strengths of the organization when making changes required by a new strategic direction Executives must structure the firm effectively to help achieve the vision

Exploiting and Maintaining Core Competencies Core competencies are resources and capabilities that serve as a source of competitive advantage for a firm over its rivals Strategic leaders must verify that the firm’s competencies are emphasized in strategy implementation efforts

Exploiting and Maintaining Core Competencies In many large firms, and certainly in related-diversified ones, core competencies are exploited effectively when they are developed and applied across different organizational units Core competencies cannot be developed or exploited effectively without developing the capabilities of human capital

Developing Human Capital Human capital refers to the knowledge and skills of the firm’s entire workforce Employees are viewed as a capital resource that requires investment No strategy can be effective unless the firm is able to develop and retain good people to carry it out The effective development and management of the firm’s human capital may be the primary determinant of a firm’s ability to formulate and implement strategies successfully

Sustaining an Effective Organizational Culture An organizational culture consists of a complex set of ideologies, symbols, and core values that is shared throughout the firm and influences the way it conducts business Shaping the firm’s culture is a central task of effective strategic leadership

Sustaining an Effective Organizational Culture An appropriate organizational culture encourages the development of an entrepreneurial orientation among employees and an ability to change the culture as necessary Reengineering can facilitate this process

Changing Culture and Reengineering The benefits of business reengineering are maximized when employees believe that: Every job in the company is essential and important All employees must create value through their work Constant learning is a vital part of every person’s job Teamwork is essential to implementation success Problems are solved only when teams accept the responsibility for the solution. 36

Emphasizing Ethical Practices Ethical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment

Emphasizing Ethical Practices To properly influence employee judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of an organization’s culture Leaders set the tone for creating an environment of mutual respect, honesty and ethical practices among employees

Establishing Balanced Organizational Controls Organizational controls provide the parameters within which strategies are to be implemented and corrective actions taken Financial controls are often emphasized in large corporations and focus on short-term financial outcomes Strategic control focuses on the content of strategic actions, rather than their outcomes

Establishing Balanced Organizational Controls Successful strategic leaders balance strategic control and financial control (they do not eliminate financial control) with the intent of achieving more positive long-term returns

Why do a situation analysis? Situation analysis concentrates on generating solid answers to a well-defined set of strategic questions and using these answers to: Appraise the company’s strategic situation and business position Craft a suitable strategy

Situation analysis focuses on: EXTERNAL FACTORS – the firm’s MACRO-environment (industry and competitive conditions) INTERNAL FACTORS – the firm’s immediate MICRO-environment (its own internal situation and competitive position)

The Key Questions in Company Situation Analysis How well is the company’s present strategy working? What are the company’s strengths, weaknesses, opportunities, and threats? Are the company’s prices and costs competitive? How strong is the company’s competitive position? What strategic issues does the company face?

SWOT Analysis SWOT represents the first letter in Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis Involves sizing-up a company’s INTERNAL strengths and weaknesses and its EXTERNAL opportunities and threats Is an easy to use tool for getting a quick overview of a company’s strategic situation

Why SWOT Analysis is Important It is the basis for matching strategy to the company’s situation – To its internal strengths and weaknesses To its external threats and opportunities A winning strategy must always fit the company’s situation.

Strengths What is a company Strength? Something a company is good at doing or a characteristic that gives it an important capability.

Weaknesses What are company weaknesses? Something a company lacks or does poorly (in comparison to others) or a condition that puts it at a disadvantage.

Opportunities What are company opportunities? Those that offer important avenues for profitable growth, those where a company has the most potential for competitive advantage, and those which the company has the financial resources to pursue.

Threats What are company Threats? Certain factors in a company’s external environment that pose a threat to its well-being.

Some questions to consider once the SWOT listings have been compiled are: Does the company have internal strengths or core competencies an attractive strategy can be built around? Do company weaknesses make a company vulnerable and does it disqualify a company from pursuing industry opportunities? Which weaknesses does a company need to correct?

Some questions to consider once the SWOT listings have been compiled are: Which opportunities does the company have the skills and resources to pursue with a real chance for success? Which opportunities are the best from the company’s standpoint? (Remember: Opportunity without the means to capture is only an illusion.) What external threats should management be worried most about and what strategic moves need to be made to craft a good defense?