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Ch02 Discussion Light
- 1. Strategic Leadership RobertE. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 2
- 2. Chapter 2 StrategicLeadership Chapter 1 Introduction to Strategic Management Strategic Thinking The Strategic Management Process Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities
- 3. Discussion Questions Whyis strategic leadership important? How much discretion (or influence) do strategic leaders have? How do characteristics of a top management team affect its functioning? When should a CEO be hired from the outside? When from the inside? Click Here Click Here Click Here Click Here More discussion questions Click Here
- 4. Discussion Questions (cont.)How important are strategic leaders in: Determining strategic direction Exploiting and maintaining core competencies Developing human capital Sustaining an effective corporate culture Emphasizing ethical practices Establishing strategic controls Click Here
- 5. Discussion Question 1Why is strategic leadership important?
- 6. Strategic Leadership Strategicleadership 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 Leadership andthe Strategic Management Process shapes the formulation of and influence Successful Strategic Actions Effective Strategic Leadership Strategic Intent Strategic Mission
- 8. Strategic Leadership andthe Strategic Management Process yields Click Here Return to Discussion Questions Strategic Competitiveness Above-Average Returns Formulation of Strategies Implementation of Strategies Successful Strategic Actions
- 9. Discussion Question 2How much discretion (or influence) do strategic leaders have?
- 10. Factors Affecting ManagerialDiscretion External Environment Industry structure Rate of market growth Number and type of competitors Nature and degree of political/legal constraints Degree to which products can be differentiated External Environment
- 11. Factors Affecting ManagerialDiscretion Characteristics of the Organization Size Age Culture Availability of resources Patterns of interaction among employees Characteristics of the Organization External Environment
- 12. Factors Affecting ManagerialDiscretion Characteristics of the Manager Tolerance for ambiguity Commitment to the firm and its desired strategic outcomes Interpersonal skills Aspiration level Degree of self-confidence Click Here Return to Discussion Questions External Environment Characteristics of the Organization Managerial Discretion Characteristics of the Manager
- 13. Discussion Question 3How do characteristics of a top management team affect its functioning?
- 14. Top Management TeamsThe top management team is composed of 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
- 15. CEO and TopManagement Team Power Board of directors is an important governance mechanism for monitoring a firm’s strategic direction Higher performance is normally expected when the board is more directly involved in shaping a firm’s strategic direction Chief executive officers can gain so much power that they are virtually independent of oversight by the board of directors
- 16. CEO and TopManagement Team Power 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 Click Here Return to Discussion Questions
- 17. Discussion Question 4When should a CEO be hired from the outside? When from the inside?
- 18. Managerial Labor MarketThe 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
- 19. Managerial Labor MarketsThe 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
- 20. Managerial Labor MarketsManagerial Labor Market: CEO Succession Top Management Team Composition Click Here Return to Discussion Questions Strategic change Stable strategy Stable strategy with innovation Internal CEO succession External CEO succession Heterogeneous Homogeneous Ambiguous: possible change in top management team and strategy
- 21. Discussion Question 5How important are strategic leaders in: Determining strategic direction Exploiting and maintaining core competencies Developing human capital Sustaining an effective corporate culture Emphasizing ethical practices Establishing strategic controls
- 22. Exercise of EffectiveStrategic Leadership Establishing balanced organizational controls Emphasizing ethical practice Developing human capital Exploiting and maintaining core competencies Sustaining an effective organizational culture Determining strategic direction Effective Strategic Leadership
- 23. Determining Strategic DirectionStrategic 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
- 24. Exploiting and MaintainingCore 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
- 25. Exploiting and MaintainingCore 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
- 26. Developing Human CapitalHuman 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
- 27. Sustaining an EffectiveOrganizational 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
- 28. Sustaining an EffectiveOrganizational 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
- 29. Sustaining an EffectiveOrganizational Culture Entrepreneurial opportunities are an important source of growth and innovation Five characteristics of an entrepreneurial orientation are Autonomy Innovativeness Risk taking Proactiveness Competitive aggressiveness Entrepreneurial Orientation
- 30. Sustaining an EffectiveOrganizational Culture Changing Culture and Business 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
- 31. Sustaining an EffectiveOrganizational Culture Changing Culture and Business Reengineering Constant learning is a vital part of every person’s job Teamwork is essential to successful implementation Problems are solved only when teams accept the responsibility for the solution
- 32. Emphasizing Ethical PracticesEthical practices increase the effectiveness of strategy implementation processes Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment
- 33. Emphasizing Ethical PracticesTo 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
- 34. Establishing Balanced OrganizationalControls 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
- 35. Establishing Balanced OrganizationalControls 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
- 36. Strategic and FinancialControls in a Balanced Scorecard Framework Perspectives Criteria Financial Cash flow Return on equity Return on assets Customer Assessment of ability to anticipate customers needs Effectiveness of customer service practices Percentage of repeat business Quality of communications with customers
- 37. Strategic and FinancialControls in a Balanced Scorecard Framework Perspectives Criteria Internal Business Process Asset utilization improvements Improvements in employee morale Changes in turnover rates Learning and Growth Improvements in innovation ability Number of new products compared to competitors Increases in employees’ skills
Editor's Notes
- #2 Strategic Leadership Instructor notes for three topics are included in this chapter: • Detailed notes regarding the issues surrounding hiring CEOs from outside or inside the organization. Examples cited are IBM and Compaq. • The importance of strategic leadership. Examples detailed are K-Mart and Wal-Mart. • The importance of organizational culture in sustaining performance. Examples cited are General Electric and several GE “wanna-be’s,” including details of Allied Signal’s hiring of Larry Bossidy. These notes appear on the notes pages of the related slides.
- #19 Managerial Labor Market When should a CEO be hired from than outside, from the inside? (Computer / IT industry) Example 1: IBM “The case for new blood I” During John Akers’ reign, IBM had gone from a workforce of 407,000 in 1986 to 300,000 in 1992. Its stock had dropped from a peak in 1987 of $1757/8 to $25 (split adjusted) in 1993; and a loss of $2.8 billion in 1991 and of $8 billion in 1993. In early 1993 IBM dismissed John Akers. Lou Gerster, a former president of American Express, was recruited to become IBM’s CEO—a successful outsider with strong managerial reputation in the financial industry— not the computer industry. Sixty days after taking the CEO’s reins, Gerster faced his most challenging decision: whether to break up IBM. Fast Forward Gerster instituted radical change: reengineering, downsizing, product to service, and efforts to weld the different pieces of IBM back into a coherent whole. Lou Gerster, who stepped in at IBM, successfully turned the company around. Gerster’s successor inherited a more stable company, with a sound strategic trajectory. Given the strategic position of IBM, who should be the next CEO? An insider groomed by Gerster was chosen: Palmisano.
- #20 Managerial Labor Market (cont.) When should a CEO be hired from than outside, from the inside? (Computer / IT industry) Example 2: Compaq “The case for new blood II” In 1991 Eckhard Pfeiffer, an insider, was recruited to take advantage of this opportunity. Before becoming CEO in 1991, Pfeiffer served as Compaq’s Executive Vice President and Chief Operating Officer. Prior to that, he was President of Compaq Europe and International. Before joining Compaq, Pfeiffer spent 20 years with Texas Instruments. Pfeiffer instituted an aggressive strategy for growth: cut-throat pricing to gain share and merger with Digital and Tandem to gain product and service scope. Compaq became the number one PC maker with strong dominance of distributor channels Fast Forward After eight years as the company’s CEO, Pffeifer was ousted by his board of directors. The move came days after the company disclosed that profits would be only half of what Wall Street analysts had been expecting. The board called into question Pffeifer’s strategy to stave off intense competition (particularly from Dell) and poor execution. The two-year-old acquisitions of Digital and Tandem were not yet fully integrated into the Compaq universe. (Continued on the next slide.)
- #21 Managerial Labor Market (cont.) When should a CEO be hired from than outside, from the inside? (Computer / IT industry) Given the strategic position of the firm, who should be the next CEO? Wall Street let out a collective gasp: Compaq had been searching for a CEO for months and the best it could do was its own COO Michael Capellas, an insider, to stabilize the ship or groom for a possible sale. Hewlett-Packard buys Compaq Computer. The new company is becoming number one globally in combined Unix and Intel-based servers, PCs, and external storage, and third in services behind IBM and EDS. Six months after completing the merger between Compaq and Hewlett-Packard. Capellas quits his number two post at Hewlett-Packard.
- #22 How important is strategic leadership? Example 1: K-Mart What is the market potential for discount retailing 1980s? In 1981, Kmart had sales of $12.5 billion and 2055 stores. It believed that it faced limited growth opportunities and that it must diversify from its core retail platform by investing in alternative retail formulas, while improving its brand image to attract a more upscale clientale, using K-Mart cash to buy retail assets. Strategy: Go on an acquisition binge that would last 10+ years: 1984 Purchase Walden Books & Home Centers of America (Builders Square) 1985 Launch Jaclyn Smith line 1987 Partner with Martha Stewart 1990 Purchase Sports Authority 1994 Purchase Borders Books Results: Overpaid for assets, unknown territory, led to poor management decisions 1984 Sold off all non-core (Kmart-branded) assets (Walden Books, Sports Authority, etc.) to raise cash to restore K-Mart format and stave off bankruptcy. Under-investment in K-Mart franchise eroded strategic position. Fast Forward Bankruptcy protection.
- #23 Exercise of Effective Strategic Leadership How important is strategic leadership? Example 2: Wal-Mart What is the market potential for discount retailing 1980s? In 1987, Wal-Mart marked its 25th anniversary. It had sales of $15.9 billion at 1,198 stores and 200,000 employees. But that was not enough. Strategy Continue aggressive growth strategy, expand to capture opportunity, while investing in the “business” to perfect the formula: • Invest in the core business, (i.e. logistics, pricing, marketing, etc.) • Become undisputed price leader, attracting emergent “price sensitive” customer • Capture market share from competitors by attacking their strongholds, (some of their victims include: Jamesway, Hills, Montgomery Wards, Kmart???) Results • Continued growth into their core-market and experimentation with market extensions (Sam’s Club) • International expansion to further fuel growth Fast Forward Wal-Mart became an undisputed champion: • Operates over 2,600 Wal-Mart and 475 Sam’s Club stores (2003 statistics) • 2002 ranked #3 on Fortune’s Most Admired Company (2003 statistics)
- #28 Sustaining an Effective Organizational Culture How important is organizational culture to sustained performance? Example: General Electric General Electric: Overview Build pervasive organizational culture based on simple principles: • Comprehensive leadership characteristics embodied in GE Leadership Model • Goal to be #1 & #2 in every market served; if not, then exit that market • Strict rank-ordering of employees, especially senior executives • Practice of “managing-out” bottom 10% of employees each year • Rigorous HR practices, (STAR Model, talent planning, assignment management, coaching, performance management, etc.) • Operational Discipline—Champions of “Six Sigma” approach to process management GE Highlights • Unprecedented growth and financial performance (at least under Welch) • Consistent growth in earnings from 1980-2001 GE Results • Consistent 15% growth of for 15 years straight • World Most Admired Company ranked #1 by Fortune from 1998-2002
- #29 Sustaining an Effective Organizational Culture (cont.) How important is organizational culture to sustained performance? Example: General Electric wanna-be’s Wanna-be’s Overview These companies include Allied Signal, Honeywell, and so. An example is Allied Signal’s recruitment of Larry Bossidy. Strategy Emulate the GE model based on a few key principles: • Poach GE talent, (i.e. executive-level managers) • Adapt GE cultural traits, and blend into existing organization • Replicate GE processes, (e.g. talent management, assignment management, Six Sigma, etc.) • Grow via M&A into new product markets in order to expand portfolio and to gain economies of scale to compete with GE (Continued on next slide.)
- #30 Sustaining an Effective Organizational Culture (cont.) How important is organizational culture to sustained performance? Example: General Electric wanna-be’s (cont.) Larry Bossidy Story In 1991, Brossidy was recruited to Allied Signal to invigorate GE principles into a “mediocre” performing firm. His strategy was: • Focusing on aggressive, but disciplined growth initiatives • Instituting many GE HR practices: STAR Model, talent planning, performance management, etc. • Instituting Six Sigma-led productivity initiatives Allied Signal Results • Bossidy’s tenured lasted from 1991-1999 • Successful merger with Honeywell in 1999 • 31 consecutive quarters of EPS growth of 13% or more