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Chapter 12. Strategic Leadership. Michael A. Hitt R. Duane Ireland Robert E. Hoskisson. ©2000 South-Western College Publishing. The ability to anticipate, envision, maintain flexibility and empower others to create strategic change. Multi-functional work that involves working through others.

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chapter 12

Chapter 12

Strategic Leadership

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

©2000 South-Western College Publishing

slide2

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

Strategic Leadership

Strategic Leadership involves:

slide3

External Environment

Organizational Characteristics

Industry Structure

Rate of market growth

Size and age

# and type of competitors

Culture

Political/Legal constraints

Resource availability

Employee interaction

Product differentiation

Characteristics of the Manager

Aspiration level

Tolerance for ambiguity

Self-confidence

Commitment to the firm

Interpersonal skills

Factors Affecting Managerial Discretion

Managerial Discretion

slide4

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.

Top Management Teams

slide5

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

Strategic Leadership

slide6

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

slide7

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

slide8

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

slide9

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

slide10

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

slide11

Determining

Strategic

Direction

Establishing

Balanced

Organizational

Controls

Exploiting &

Maintaining

Core

Competencies

Developing

Human

Capital

Sustaining

an Effective

Organizational

Culture

Emphasizing

Ethical

Practices

Exercise of Effective Leadership

Effective Strategic Leadership

slide12

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.
slide13

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.
slide14

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.
slide15

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.
slide16

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

slide17

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.
slide18

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.