Chapter 4 Strategic Leadership and Strategic Direction

1. Chapter 4Strategic Leadership andStrategic Direction

2. Learning Objectives To understand: • the traditional perspective of leadership • the primary leadership responsibilities of the CEO • elements of effective leadership, including top management teams • effective corporate governance characteristics • sources of influence on an organization's strategic direction • the elements of mission and vision statements • the importance of linking values and strategy • the components of social responsibility and sustainable development

3. Strategic Management Process External and Internal Analysis Strategy Formulation (corporate and business level) Strategic Direction Strategy Implementation and Control Strategic Restructuring

4. Traditional View of Leadership • The leader sets direction, makes the important decisions, and rallies the followers (usually employees) in the process of implementation • Particularly common in the West, where leaders are equated with heroes • May not be optimal in many settings today • Turbulent global competitive environments • Multibusiness organizations • Perhaps today the most important role of the CEO is to harness the energy, talents, and creativity of organizational members

5. Four Primary Leadership Responsibilities of the CEO • Design organizational purpose, vision and core values • Oversee the creation of policies, strategies and structure • Create an environment for organizational learning • Serve as a steward for the organization

6. Effective Strategic Leaders • Must master lower-level skills before moving to higher-level skills • Capable individual • Team player • Organizer • Effective leader • Transformational leader

7. Emotional Intelligence Self Awareness: Ability to understand own moods and emotions as well as their impact on others Self Regulation: Ability to regulate impulses, to think before acting Motivation: Drive to achieve, optimism, passion Empathy: Ability to understand the emotional make-up of other people Social Skill: Ability to manage relationships for particular purposes

8. Situational Leadership • Suggests that leadership style should fit the situation • Production/operations background for cost cutting • Marketing or R&D background for differentiation of products • Young, well-educated leaders for changes • Sales and marketing background, risk takers for growth • Outsider for radical changes • Effective leadership requires a combination of basic traits and situational traits

9. Top Management Teams • Consist of high-ranking leaders including CEO, COO, CFO, possibly vice presidents • Heterogeneous top management teams: • managers with a wide variety of backgrounds • high quality decisions • innovation and strategic change • implementation may be more difficult

10. Position of Board of Directors Board of Directors Shareholders Chief Executive Officer (CEO) Top Manage- Ment Team VP-Legal VP-Human Res. VP-Financial VP-Marketing

11. Corporate Governance Corporate governance is concerned with the balance between: • Economic and social goals • Individual goals of managers and firm goals The board of directors typically: • Protects interests of shareholders and other stakeholders • Hires, fires, supervises and compensates top management • Provides advice to top management • Approves major strategic decisions • Provides important links to other firms through board interlocks and associations with other companies

12. Agency Theory • Agents--managers with a fiduciary duty to act in the best interests of owners • Agency problem--managers maximize their own self-interests at the expense of shareholders • High salaries of CEOs • Emphasis on short-term performance at expense of future investments • Empire building for status • CEO duality

13. Strategic Direction Strategic direction is defined by a firm’s vision of where it is heading, the businesses in which it is involved and how it serves its stakeholders Influences on strategic direction • Internal stakeholders – CEO and top management team, managers, employees • External stakeholders – especially customers, suppliers, competitors and communities • Broad environment – sociocultural, technological, economic, and political/legal forces • History and inertia – past successes and failures, founder’s vision and values

14. Mission and Vision Mission – what the organization is Vision – what the organization wants to become Frequently a vision is incorporated into the mission statement, as illustrated in this example: “Our mission is to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity .” (Pepsico) Note also that this mission statement incorporates important values (honesty , fairness and integrity)

15. Business Definition • What is our product or service? • Who are our customers? (markets and distribution channels) • What do we do for them or provide for them? (functions served by our products or services) • How do we produce the service or do it? (What are our resource conversion processes, technologies)

16. Ethical Behavior in Organizations Ethical dilemmas - occur when the values of different stakeholders are in conflict over a particular issue. Poor ethical behavior– people often do not personalize ethical issues – they see the organization as responsible for the problem Increasing ethical behavior • Corporate values statement – broad values that guide behavior • Codes of ethics – similar to values statements. Sometimes include more detail regarding specific behavior • CEOs should clearly communicate values to managers and other stakeholders • Rewards systems should reinforce values • Major decisions should be based on values • Firms may create an ethics compliance program and systems

17. SOCIAL RESPONSIBILITY • Economic responsibilities • Legal responsibilities • Moral obligations (consistent with societal values) • Discretionary responsibilities (philanthropy)

18. SUSTAINABLE DEVELOPMENT • Business growth that does not permanently deplete the natural environment or damage society • Most organizations define in terms of: • Technological advances • Environmental protection • What they are doing for communities and societies in which they operate