1. ©2000 South-Western College Publishing
Chapter 12
Strategic Leadership
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
©2000 South-Western College Publishing 1

2. The Strategic Management Process Strategy Formulation
Chapter 2
The Strategic
Management
Process
External
Competitiveness
Strategic
Inputs
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Formulation
Strategy Implementation
Chapter 4
Chapter 5
Chapter 6
Chapter 10
Chapter 11
Business-Level
Competitive
Corporate-Level
Corporate
Structure
Strategy
Dynamics
Strategy
Governance
& Control
Strategic
Actions
Chapter 7
Chapter 8
Chapter 9
Chapter 12
Chapter 13
Acquisitions &
International
Cooperative
Strategic
Entrepreneurship
& Innovation
Restructuring
Strategy
Strategies
Leadership
Strategic
Outcomes
Strategic
Competitiveness
Above Average
Feedback
Returns 2

3. 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

4. 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

5. 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

6. Top Management Teams
Top management teams are comprised of the key managers who are responsible for formulating and implementing the organization’s strategies
A heterogeneous top management team with varied expertise and knowledge can draw on multiple perspectives when evaluating alternative strategies and building consensus
A top management team must also be able to function effectively as a team in order to implement strategies. A heterogeneous team makes this more difficult. 18

7. Strategic Leadership
Chief Executive Officers can gain so much power that they are virtually independent of oversight by the Board of Directors
This is especially true when the CEO is also Chairman of the Board of Directors
CEOs of long tenure can also wield substantial power
The most effective forms of governance share power and influence among the CEO and Board of Directors 19

8. Managerial Labor Markets
The internal labor market is comprised of the career path alternatives available to a firm’s managers
Selecting internal candidates for management positions helps to build on valuable firm-specific knowledge
The external labor market includes the collection of career opportunities for managers outside their firm
Selecting an outsider often brings fresh insights and may energize the firm with innovative new ideas 21

9. Managerial Labor Market:
Effects of CEO Succession and Top Management Team Composition on Strategy
Managerial Labor Market:
CEO Succession
Internal
CEO Succession
External
CEO Succession
Stable Strategy
Homogeneous
Top Management Team Composition
Heterogeneous 24

10. Effects of CEO Succession and Top Management Team Composition on Strategy
Managerial Labor Market:
CEO Succession
Internal
CEO Succession
External
CEO Succession
Ambiguous:
Possible change in Top Management Team and Strategy
Stable Strategy
Homogeneous
Top Management Team Composition
Heterogeneous 25

11. Effects of CEO Succession and Top Management Team Composition on Strategy
Managerial Labor Market:
CEO Succession
Internal
CEO Succession
External
CEO Succession
Ambiguous:
Possible change in Top Management Team and Strategy
Stable Strategy
Homogeneous
Top Management Team Composition
Stable Strategy with Innovation
Heterogeneous 26

12. Effects of CEO Succession and Top Management Team Composition on Strategy
Managerial Labor Market:
CEO Succession
Internal
CEO Succession
External
CEO Succession
Ambiguous:
Possible change in Top Management Team and Strategy
Stable Strategy
Homogeneous
Top Management Team Composition
Stable Strategy with Innovation
Strategic
Change
Heterogeneous 27

13. Exercise of Effective Leadership Effective Strategic Leadership
Determining
Strategic
Direction
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital 31

14. Effective Strategic Leadership
Determining
Strategic
Direction
Effective Strategic Leadership
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
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. 28

15. Effective Strategic Leadership
Exploiting & Maintaining
Core Competencies
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
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.
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. 29

16. Effective Strategic Leadership
Developing Human
Capital
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
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. 30

17. Effective Strategic Leadership
Sustaining an Effective
Organizational Culture
Effective Strategic Leadership
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
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.
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. 31

18. 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

19. Effective Strategic Leadership
Emphasizing Ethical Practices
Effective Strategic Leadership
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
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.
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. 37

20. Effective Strategic Leadership
Establishing Balanced
Organizational Controls
Determining
Strategic
Direction
Establishing
Balanced
Organizational
Controls
Exploiting &
Maintaining
Core
Competencies
Developing
Human
Capital
Sustaining
an Effective
Organizational
Culture
Emphasizing
Ethical
Practices
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.
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. 38