CH 12 Im

Chapter 12: Strategic Leadership
Chapter 12
Strategic Leadership
KNOWLEDGE OBJECTIVES
1. Define strategic leadership and describe top-level managers importance.

2. Define top management teams and explain their effects on firm performance.
3. Describe the managerial succession process using internal and external managerial labor markets.
4. Discuss the value of strategic leadership in determining the firms strategic direction.
5. Describe the importance of strategic leaders in managing the firms resources.
6. Define organizational culture and explain what must be done to sustain an effective culture.
7. Explain what strategic leaders can do to establish and emphasize ethical practices.
8. Discuss the importance and use of organizational controls.
CHAPTER OUTLINE
Opening Case How Long Can I Have the Job? The Short Lives of CEOs and Top-Level Strategic Leaders
STRATEGIC LEADERSHIP AND STYLE
Strategic Focus Doug Conant: Providing Effective Leadership at Campbell Soup Company
THE ROLE OF TOP-LEVEL MANAGERS
Top Management Teams
MANAGERIAL SUCCESSION
KEY STRATEGIC LEADERSHIP ACTIONS
Determining Strategic Direction
Effectively Managing the Firms Resource Portfolio
Sustaining an Effective Organizational Culture
Emphasizing Ethical Practices
Establishing Balanced Organizational Controls
Strategic Focus Whats Next? Strategic Leadership in the Future
SUMMARY
REVIEW QUESTIONS
EXPERIENTIAL EXERCISES
NOTES
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LECTURE NOTES
Chapter Introduction: This chapter deals with the importance of strategic leadership, its
effects on organizational outcomes, and the great challenges faced by strategic leaders. This
indicates that effective strategic leaders must be able to use the strategic management
process (illustrated in Figure 1-1) effectively by
guiding the firm in ways that result in the formation of its vision and mission
facilitating the development of appropriate strategic actions
providing guidance that results in strategic competitiveness and above-average returns
OPENING CASE
How Long Can I Have the Job? The Short Lives of CEOs and Top-Level Strategic Leaders
The shelf lives of CEOs are declining. As you read in the Opening Case in Chapter 10, the tenure of CEOs
of high-visibility organizations is decreasing. Some analysts feel that closer scrutiny by boards of directors
is one of the driving forces. Others feel that the high-level of job-related stress is to blame, and then there
are extraordinary performance expectations. All of these pundits are right. The two examples of external
placement used in this Opening Case might be construed as a vote of confidence for internal succession,
but reality will not support that internal succession results are any longer lasting than have been external
placements.
Instructors should note how in many instances Opening Cases and Strategic Foci in this text
relate to one another. You may suggest to your students to review earlier Opening Cases and
Strategic Foci. Both Chapters 10 and 11 deal directly and/or indirectly with CEO succession. Is
CEO succession a timely topic because of the job-tenacity of CEOs or the changing roles of
boards of directors?
Figure Note: The role of strategic leadership in the strategic management process is
illustrated in Figure 12.1.
FIGURE 12.1
Strategic Leadership and the Strategic Management Process
As illustrated in Figure 12.1, effective strategic leadership

shapes the formation of the firms vision and mission
which influences the

development of successful strategic actions
formulation of strategies
implementation of strategies
which lead to
strategic competitiveness
above-average returns
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Teaching Note: Xerox presents an interesting story in strategic leadership. It is true that
Xerox has committed a number of strategic blunders over the years, and yet it has enjoyed
significant success in digital copy technologies. However, because of significant weakness in
its many businesses, the company almost foundered after years of weak sales, high costs,
and low employee morale. When Anne Mulcahy was promoted to President of the company
in 2000, she took steps to try to turn the situation arounde.g., by divesting businesses, such
as financial services, selling copiers and printers, and trying to strengthen the firms services
and solutions business.
1 Define strategic leadership and describe top-level managers importance.
STRATEGIC LEADERSHIP AND STYLE
Strategic leadership entails the ability to anticipate, envision, maintain flexibility, and empower others to create
strategic change as necessary. In other words, strategic leadership represents a complex form of leadership in
organizations. A manager with strategic leadership skills exhibits the ability to guide the firm through the
competitive landscape by
managing an entire enterprise
influencing the behavior, thoughts, and feelings of co-workers
managing through others
successfully processing or making sense of complex, ambiguous information by successfully dealing with
change and uncertainty
The strategic leader has several responsibilities, including the following:

establishing a context for efficiency
managing human capital (perhaps the most critical of the strategic leaders skills)
effectively managing the firms operations
sustaining high performance over time
being willing to make candid, courageous, yet pragmatic, decisions
soliciting feedback from peers, superiors, and employees about their difficult decisions and vision
developing strong partners internally and externally to facilitate execution of their vision
Strategic leaders are those at the top of the organization (in particular, the CEO), but other commonly
recognized strategic leaders include members of the board of directors, the top management team, and division
general managers.
The style used to provide leadership often affects the productivityof those being led.The most effective
leadershipstyleusedbystrategicleadersisatransformationalleadershipstyle,whichencouragesfollowersto
exceed expectations, and place the organization above self interests. The strategic leadership skills of an
organizations managers represent resources that can affect the firms performance. These resources must be
developed for the firms future benefit.
STRATEGIC FOCUS
Doug Conant: Providing Effective Strategic Leadership at Campbell Soup Company
Cultivating diverse employees, celebrating their successes and empowering them are keys to the recent
success of Campbell Soup Company. Much of the success that Campbell has experienced in the last six
years under Doug Conants leadership as president and CEO can be traced to recognizing and utilizing the
values generated with a diverse workforce. This credo has been paramount for the successful turn-around
orchestrated by Conant of a beleaguered soup company into one of the food industrys best performers.
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Many of the actions Conant is taking, as well as how he takes those actions, are consistent with the
attributes of transformational leadership. He readily gives credit to others for the firms achievements and
continuously deflects praise about his role in Campbells turnaround. Hes anxious to celebrate whats right
about employees work and attitudes rather than whats wrong. Framing inspiring vision and mission
statements were among the first actions he took as CEO. He believes strongly in workforce diversity,
saying Our goal as a company is to cultivate a diverse employee population that brings new and richer
perspectives to their jobs and enables us to better understand, anticipate and respond to the changed
marketplace.
Mr. Conant is the epitome of a transformational leader. He admits that he doesnt have all the
answers and that the key to new and richer perspectives of Campbell Soup lie within in its
diverse employee base. Several principles guide Conants work as a strategic leader. Using a
personal touch to interact with people, working with individuals to jointly determine performance
expectations and creating opportunities for every person to succeed are some of the direction-
providing principles Conant follows as a strategic leader.
THE ROLE OF TOP-LEVEL MANAGERS
Top-level managers represent an important resource for organizations as they attempt to formulate and
implement strategies effectively because of top-level mangers roles in designing the organization and the
performance outcomes that result from using that design. Thus, it is important for organizations to have a top
management team with superior managerial skills.
Three factors can be viewed as determining a strategic leaders decision discretion:

External environmental sources
Organizational characteristics
Managerial characteristics
Figure Note: Figure 12.2 shows three factors that affect/determine managerial discretion.
FIGURE 12.2
Factors Affecting Managerial Discretion
Managerial discretion is a function of three factors: external environment, organizational characteristics, and an
individual managers characteristics.
External Environment (especially the competitive environment)

industry structure
rate of market growth
number and type of competitors
nature and degree of political/legal constraints
degree to which products are differentiated
Organizational Characteristics
size
age
organizational culture
availability of resources
patterns of interaction among employees
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Managers (Individual) Characteristics:

managers tolerance for ambiguity
commitment to the firm and its desired strategic outcomes
interpersonal skills
level of aspiration
degree of self-confidence
Other critical roles played by top-level managers include:

implementing an appropriate organizational structure
implementing the organizations reward systems
shaping the organizations culture
influencing organizational activities and performance
Teaching Note: Remind students that, for top-level managers to make a differenceor
enhance a firms ability to achieve a competitive advantagethey generally must possess
superior knowledge and skills. While all organizations have strategic leaders, the top
management teams portfolio of skills must be rare, valuable, difficult for other top
management teams to imitate, and not be readily substitutable if they are to result in a
competitive advantage for the firm (as suggested in Chapter 1).
Define top management teams and explain their effects on firm

2 performance.
Top Management Teams
Thecomplexityofthechallengesfacedbythefirmandtheneedforsubstantialamountsofinformationand
knowledgerequireteamsofexecutivestoprovidethestrategicleadershipofmostfirms.Useofateamtomake
strategicdecisionsalsohelpstoavoidmanagerialhubris.
A firms top management team is composed of key managers that are primarily responsible for formulating and
implementing the firms strategy. In the case of large organizations, members of the top management team
usually can be identified as those individuals with the title of vice president or above and/or individuals who
serve on its board of directors.
Teaching Note: Strategic actions taken by a firms top management team will have an
impactpositive or negativeon firm performance. Research indicates that there seems to
be a link between the configuration or mix of expertise and skills of members of a firms top
management team and firm performance.
Top Management Team, Firm Performance, and Strategic Change
The job of top-level executives is complex and requires a broad knowledge of the firms operations, as well as
the three key parts of the firms external environmentthe general, industry, and competitor environments (see
Chapter 2). Thus, firms try to form a top management team that has the appropriate knowledge and expertise to
operate the internal organization, yet also can deal with all the firms stakeholders as well as its competitors.
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Research into the relationship or link between top management team composition and firm performance
generally indicates that team heterogeneity is important. A heterogeneous top management team is composed
of individuals with different functional backgrounds, experiences, and education.
The more heterogeneous a top management team is, with varied expertise and knowledge, the more capacity it
has to provide effective strategic leadership in formulating strategy. Members of a heterogeneous top
management team benefit from discussing the different perspectives advanced by team members, and these
discussions can increase the quality of the top management teams decisions.
The net benefit of the actions of heterogeneous teams tends to be positive in terms of market share and above-
average returns. Research suggests that the path of causality goes something like this: heterogeneity among top
management team members increased debate better strategic decisions increased firm performance.
It is also important that the top management team members function cohesively. In general, more heterogeneous
and larger top management teams find it more difficult to implement strategies effectively.
Research indicates a positive relationship between higher levels of a top management teams heterogeneity, firm
innovation, and strategic change. Thus, a team with diverse backgrounds and expertise is more likely to:
change strategies when it is necessary to do so
identify internal and external environmental changes that require the firm to change strategic direction
think outside of the box and thus be more creative in making decisions
The CEO and Top Management Team Power
While the composition of a firms top management team is important, a team that is too powerful may
negatively affect firm performance. As noted in Chapter 10, the involvement of outsiders as members of a firms
board of directors also has an impact on firm performance. In fact, involvement of outside directors in shaping
the firms strategic direction normally results in higher firm performance (than when they are not involved).
Teaching Note: Inside directors (part of management) can affect CEO power because they
report to the CEO
have a greater understanding of firm operations (information they control)
can control the flow of information to outside directors
However, in some cases, a firms CEO and members of the top management team may overpower the firms
board of directors. This can happen when
the CEO appoints members of the board (insiders or sympathetic outsiders)
the CEO also holds the title of Chairman of the Board (sometimes called CEO duality)
It varies across industries, but duality occurs most commonly in the largest of firms. Increased shareholder
activism, however, has brought CEO duality under scrutiny and attack in both U.S. and European firms.
Historically, an independent board leadership structurein which the same person did not hold the positions of
CEO and chairwas believed to enhance a boards ability to monitor top-level managers decisions and actions,
particularly in terms of the firms financial performance.
Teaching Note: It should be noted that a recent investigation of the relationship between
CEO duality and firm performance found that the stock market was indifferent to changes in
duality status. Such changes have a negligible effect of financial performance, and there is
weak evidence that duality has an effect on long-term performance.
Top management team members with longer team and organization tenure have an increased ability to influence
the board of directors. However, long tenure restricts an executives knowledge base, which then limits the
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number of alternatives evaluated when strategic decisions are being made. The net impact is that these
individuals may be able to forestall or avoid board involvement in strategic decisions.
Because an unhealthy relationship between the board of directors and the top management team can potentially
have a negative effect on an organizations strategic competitiveness:
boards are challenged to develop an effective relationship with the firms top management team
relative degrees of power between the board and the top management team should be examined with respect
to the individual firms situation (including firm resources and environmental volatility)
Teaching Note: One solution to this dysfunction is to get members of the firms management
team to have a significant ownership interest in the firm. While this may provide the team
with additional power, a significant level of ownership also should encourage team members
to act more in the interests of shareholders, because they also are shareholders.
Describe the managerial succession process using internal and external

3 managerial labor markets.
MANAGERIAL SUCCESSION
Because of the impact that members of a firms top management teamespecially the CEOcan have on the
organizations performance, the selection of new top managers requires effective screening systems.
Organizations can select their strategic leaders from one of two labor markets.
Internal managerial labor markets represent future promotion or transfer opportunities for managerial
positions within the firm.
External managerial labor markets represent the collection of managerial career opportunities outside of a
managers current firm.
Because of insiders experience within the firm and the industry in which it completes, the benefits of using the
internal managerial labor market include:
familiarity with the organizations products, markets, technologies, and standard operating procedures
less turnover among existing personnel with valuable firm-specific knowledge
a desire for continuity and commitment to the firms vision, mission, and strategic actions
Because of the perceived value of selecting an insider to succeed a CEO (or other top management team
member), selection of an outsider is unusual. But there are instances which call for selecting an outsider.
Executives with overly long tenure with the firm may become stale, which reduces the number of innovative
approaches developed to help the firm cope with changing conditions that the firm faces.
Insiders may have less of an ability to innovate or create innovation-stimulating conditions, which can be a
detriment to the firms long-term success in the twenty-first century competitive landscape.
Outsiders generally have broader, less limited perspectives, which may mean that innovation and strategic
change are encouraged.
Teaching Note: Outsiders are limited in firm-specific knowledge and/or industry experience.
Figure Note: Figure 12.3 is helpful to discuss the relationships between the sources of a
successor-CEO, top management team membership, and firm strategy.
FIGURE 12.3
Effects of CEO Succession and Top Management Team Composition on Strategy
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Figure 12.3 illustrates relationships between the source of the successor, top management team
heterogeneity/homogeneity (or team makeup), and firm strategy.
Internal CEO Succession: A homogeneous top management team generally results in a stable strategy. A
heterogeneous top management team generally results in a stable strategy with continued innovation.
External CEO Succession: A homogeneous top management team often results in changes in both top
management team membership and strategy. If the top management team is heterogeneous, strategic change
is likely.
Teaching Note: Ask students to compare characteristics of successor CEOs in turnaround

situations with key managerial resources presented earlier in this chapter. Key differences
that should be recognized are that, in a turnaround situation, industry-specific knowledge is
less important than the ability to radically change the organization, and perhaps its strategy.
Tohaveanadequatenumberoftopmanagers,firmsmusttakeadvantageofahighlyqualifiedlaborpool,
including one source of managers that has often been overlooked: women. Firms are beginning to utilize
womenspotentialmanagerialtalentswithsubstantialsuccess. Afewfirmshavegainedvaluebyusingthe
significanttalentsofwomenleaders.Butmanymorehavenotdoneso,whichrepresentsanopportunitycostto
them.
KEY STRATEGIC LEADERSHIP ACTIONS
Figure Note: The characteristics of successor CEOs also can be related to the six critical
actions required for the effective exercise of strategic leadership (highlighted in Figure 12.4).
FIGURE 12.4
Exercise of Effective Strategic Leadership
Figure 12.4 highlights the six most critical actions that strategic leaders must perform.
Determining strategic direction

Establishing balanced controls
Exploiting and maintaining the firms resource portfolio
Sustaining an effective corporate culture
Emphasizing ethical practices
Figure 12.4 sets the stage for the balance of Chapter 12.
Discuss the value of strategic leadership in determining the

4 firms strategic direction.
Determining Strategic Direction
Determining the strategic direction of the firm refers to developing a long-term vision. This means that a firms
managers must think beyond the current period to develop a future direction for the firm (normally 5 to 10
years forward).
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The ideal long-term vision has two partscore ideology and envisioned future. Core ideology motivates
employees through the companys heritage, but the envisioned future encourages employees to go beyond their
expectations and requires significant change and progress. The envisioned future serves as a guide to the firms
strategy implementation, including motivation, leadership, employee empowerment, and organizational design.
A charismatic CEO may foster stakeholder commitment to a new vision and strategic direction.
It is important that strategic leaders also recognize that, while gaining employee commitment to a new vision
and strategic direction is important, factors such as the following must not be overlooked:
The firms strengths must be considered when making strategic changes for a new strategic direction.
The firms short-term needs must be balanced with long-term growth and survival.
The firm can maintain long-term survivability by effectively managing its portfolio of resources.
Describe the importance of strategic leaders in managing the

5 firms resources.
Effectively Managing the Firms Resource Portfolio
Probably the most important task for strategic leaders is effectively managing the firms portfolio of resources.
Firms may have multiple resources that can be categorized into the following categories:
financial capital
human capital
social capital
organizational capital
Strategic leaders manage the firms portfolio of resources by

organizing them into capabilities
structuring the firm to use the capabilities
developing and implementing a strategy to leverage those resources to achieve a competitive advantage
Exploiting and Maintaining Core Competencies
As a reminder, core competencies are those capabilities of the firm around which a competitive advantage may
be built (as defined and discussed in Chapters 1 and 3).
Core competencies relate to an organizations functional skills, such as manufacturing, finance, marketing, and
research and development. The key is that core competencies must enable the firm to produce and deliver
products and services to customers in ways that create value for them.
Teaching Note: Before core competencies can serve as building blocks for a firms
competitive advantage, they must be distinctive. Remind students that the following
conditions must be satisfied for core competencies to be classified as distinctive:
unique to the firm
valuable
difficult for competitors to imitate
nonsubstitutable
This means that core competencies must be emphasized as the firm implements strategy. To ensure that core
competencies that are identified as distinctive (and potential sources of competitive advantage) remain
distinctive for longer periods of time, firms must recognize the importance of developing their human capital.
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Developing Human Capital and Social Capital
Human capital refers to the knowledge and skills of the firms workforce. This means that employees must be
viewed as capital resources and as deserving of investment.
Teaching Note: An important point to bring out in this section is that people and people-
related competenciesthe workforce and its capabilities (a firms human capital)historically
have contributed more to firm (and economic) success than investment in capital equipment.
Teaching Note: One significant problem firms face is inadequate human capital to run an
organization effectively. As a remedy, many firms hire temporary employees, while others are
trying to improve their recruiting and selection techniques. However, solving the problem
requires more than temp hiring since this limits managements ability to build effective
commitment to organizational goals. Hiring star players is also insufficient. It requires building
effective commitment to organizational goals as well.
Effective training and development programs are important because these efforts
recognizethatknowledgehasbecomemoreintegraltogainingandsustainingacompetitiveadvantage
help build knowledge and skills
inculcate core values
establish a systematic view of the organization
promote the firms vision
develop organizational cohesion
contribute to the development of core competencies
improve strategic managers capabilities in the skills that are critical to effective strategic leadership (e.g.,
determining the firms strategic direction, exploiting and maintaining core competencies, and developing an
organizational culture that supports ethical practices)
When human capital investments are successful, a workforce is capable of learning continuously. Learning
continuously and leveraging the firms expanding knowledge base is linked with strategic success. It is also
important to promoting innovation, which is the foundation of competitive advantage.
Layoffscanresultinasignificantlossoftheknowledgepossessedbyafirmshumancapital.Researchhas
shown that moderatesized layoffs may improve firm performance, but large layoffs produce stronger
performancedownturnsinfirmsbecauseofthelossofhumancapital.
Although it is also common for restructuring firms to reduce their spending on training and development
programs, restructuring may actually be an important time to increase investments in these programs.
Restructuring firms have less slack and cannot absorb as many errors; moreover, the employees who remain
after layoffs may find themselves in positions without all of the skill or knowledge they need to perform the
required tasks effectively.
Viewing employees as a resource to be maximized rather than a cost to be minimized facilitates the successful
implementation of a firms strategies. The implementation of such strategies also is more effective when
strategic leaders approach layoffs in a manner that employees believe is fair and equitable.
Social capital involves relationships inside and outside the firm that help the firm accomplish tasks and create
value for customers and shareholders. Social capital is a critical asset for a firm. Inside the firm, employees and
units must cooperate to get the work done. In multinational organizations, units often must cooperate across
country boundaries on activities such as R&D to produce outcomes needed by the firm (e.g., new products).
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Define organizational culture and explain what must be done to

6 sustain an effective culture.
Sustaining an Effective Organizational Culture
Organizational culture represents a set of complex ideologies, symbols, and core values that is shared
throughout an organization and that influences the way that it conducts business.
Because it influences how the firm conducts its business and helps regulate and control employee behavior,
organizational culture can be a source of competitive advantage.
Entrepreneurial Mind Set
An organizations culture will either encourage or discourage (and, in some cases, even penalize) employee
efforts to tap into entrepreneurial opportunities.
Teaching Note: IBM produced a handbook designed to infuse an entrepreneurial spirit into
its culture. The handbook, Changing the World, is filled with tips designed to break mental
barriers and to help employees be more creative in their jobs. Gerald Haman took a different
approach. He developed a process, called the Thinkubator, to help firms build a stronger
entrepreneurial orientation and boost creativity in their employees. According to Haman, the
Thinkubator helps people rediscover their gifts for creativity.
One way that the pursuit of entrepreneurial opportunities might be promoted is to invest in opportunities as real
options. That is, invest in an opportunity to provide the potential of exercising the option of taking advantage of
the opportunity at some point in the future. Firms might enter strategic alliances for this reason. For example,
they might do so to have the option of acquiring the partner later or of building a stronger relationship (e.g.,
developing a joint new venture).
Corporate culture characteristics and managerial actions that encourage an entrepreneurial mindset include:
Autonomy enabling employees to be self-directed in the pursuit of entrepreneurial opportunities
Innovation encouraging the pursuit of new ideas, experimentation, and creative processes that will find
new ways to add value
Risk-taking promoting the willingness of both employees and the organization to accept risk in the pursuit
of new market opportunities
Proactiveness being a market leader rather than a market follower by anticipating the markets future
needs and being the first to satisfy them
Competitive aggressiveness taking actions that enable the firm to consistently and significantly outperform
the competition
Changing the Organizational Culture and Restructuring
As noted in the text, incremental changes to the organizations culture typically are used to improve the
effectiveness of strategy implementation.
A dramatic shift in strategy from the firms historical pattern of strategy often means that major changes in the
organizations culture are required, and perhaps even the selection of a new CEO or top management team.
Teaching Note: No matter why an organizations culture must change, the shaping and
reinforcing of the new culture requires:
effective communication and problem solving
selecting people with the values that managers wish to be infused throughout the
organization
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developing an effective performance appraisal process which establishes goals and

measures individual performance toward achieving goals that fit with the new core values
implementing reward systems that encourage behaviors that reflect the new core values
Teaching Note: It is helpful to show students that effective strategic leadership will be
reinforced by an appropriate corporate culture. This can be done using video interviews of a
CEO that also profile the firm (e.g., any of the many reports on Herb Kelleher and Southwest
Airlines, when he was CEO there, will work well for this assignment). As they watch the
video, have the students write down in separate columns on a piece of paper the clues they
find of two things: leadership approaches taken and corporate culture employed. Upon
debriefing, they will quickly see that these are mutually reinforcing in successful companies.
For cultural changes to be effective, they must be supported fully and actively by the CEO and other members
of the top management team. And if large-scale change is needed, support and involvement of mid-level
managers is required as they generally are adept at energizing people and aligning their interests and actions.
If the required cultural change is major or critical, new top management team members may need to be brought
in from outside of the firm to act as a catalyst for the change.
Teaching Note: Transforming the organization and its culture is challenging. For example,
top executives at Sara Lee decided in 1997 to change the firm from a capital-intensive
manufacturer to a less asset-intensive brand manager, requiring it to sell its manufacturing
facilities, find excellent suppliers to replace product manufacturing, and change the firms
culture to focus on management of its brand. However, by 2000 it had become an unwieldy
conglomerate, unable to capture synergies across product lines. Local managers were
suspicious of managers in other product units/profit centers and thus would not cooperate
with them to gain economies. The decentralized culture that evolved prevents centralization,
and the firm has not developed brand management as a core competence.
Another example comes from the airline industry. Continental Airlines has successfully
changed its culture, building a system of teamwork that has yielded increased returns. CEO
Gordon Bethune described the firms teamwork culture not as composed of cross-functional
teams, but rather as the interdependent parts of a clock. Multiple functions have value when
they all work together cooperatively, and employees are rewarded for cooperating as a team.
A companys reputation is linked to its culture and its strategy.
Explain what strategic leaders can do to establish and emphasize

7 ethical practices.
Emphasizing Ethical Practices
The effectiveness of strategy implementation processes increases when they are based on ethical practices.
Ethical companies encourage and enable people at all organizational levels to exercise ethical judgment, but
unethical practices become like a contagious disease if they evolve in an organization.
To properly influence employee judgment and behavior, ethical practices must shape the firms decision-making
process and be an integral part of an organizations culture. Research has found that a value-based culture is the
most effective means of ensuring that employees comply with the firms ethical standards.
In the absence of ethical requirements, managerial opportunism allows managers to make decisions that are in
their own best interests, but not in the best interests of the firm or its stakeholders (as discussed in Chapter 10).
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Teaching Note: Recent research reports that a number of top-level executives and business
students appear to be willing to commit either illegal or unethical actions. For example:
47 percent of upper-level executives, 41 percent of controllers, and 76 percent of
graduate-level business students were willing to misrepresent their firms financial
statements.
87 percent of managers made one or more fraudulent decisions out of seven total decision
situations.
The probability of a fraudulent decision was greater when the individual valued a
comfortable life and/or pleasure and placed less value on self-respect.
When cheating was observed, there was a reluctance to report it.
Recent ethical lapses at high-profile corporations suggest firms need to employ ethical strategic leadersones
who include ethical practices as part of their long-term vision for the firm, who desire to do the right thing, and
for whom honesty, trust, and integrity are important. Strategic leaders who display these qualities inspire
employees to develop/support an organizational culture in which ethical practices are the expected norm.
Firms must employ ethical strategic leaders who will infuse ethical values into the organizations culture by
1. establishing/communicating the firms ethical code of conduct to describe the firms ethical standards
2. continuously revising and updating the code of conduct based on stakeholder input
3. disseminating the code of conduct to stakeholders, informing them of the firms ethical standards/practices.
4. developing/implementing methods and procedures that can be used to achieve the firms ethical standards
5. creating and implementing explicit reward systems that recognize individuals that use the appropriate
channels to report wrongdoing
6. creating a work environment that treats all people with dignity
The effectiveness of these actions increases when they are taken simultaneously, which makes them mutually
supportive. When managers/employees do not engage in these actions, perhaps because an ethical culture is
lacking, problems are likely to occur. Formal organizational controls may be needed to prevent more problems.
8 Discuss the importance and use of organizational controls.
Establishing Balanced Organizational Controls
Organizational controlsintroduced in Chapter 11are necessary to help ensure that firms meet desired
outcomes: strategic competitiveness and above-average returns.
Controls are the formal, information-based routines and procedures used by managers to maintain or alter
patterns in organizational activities to help strategic leaders. These can be used to do the following:
build credibility
demonstrate the value of the firms strategies to stakeholders
promote and support organizational change
provide the parameters within which strategies are implemented and corrective actions taken when
implementation-related adjustments are needed
Teaching Note: Strategic controls represent those control systems that focus on the
content of actions rather than on outcomes. This is in contrast to financial controls that
focus on short-term financial outcomes (or results) rather than on the appropriateness of
strategic actions that have been taken.
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Strategic controls are important because they can encourage managers to make decisions that include moderate
and acceptable levels of risk with a focus on the long-term impact of their decisions.
The use of financial controls alone often results in managers making risk-averse decisions, taking only the
short-term financial impact into account.
The Balanced Scorecard
The underlying premise of the balanced scorecard is that firms disadvantage their future performance
possibilities when financial controls are emphasized at the expense of strategic controls. Financial controls
provide feedback about outcomes achieved from past actions, but do not communicate the drivers of the firms
future performance, which can promote organizational behavior that has a net effect of sacrificing the firms
long-term value creating potential for short-term performance gains.
An appropriate balance of strategic controls and financial controls, rather than an overemphasis on one or the
other, allows firms to effectively monitor their performance.
The following four perspectives are integrated to form the balanced scorecard framework:
1. Financial concerned with growth, profitability, and risk from shareholders perspective
2. Customer concerned with the value customers perceive to be created by the firms products
3. Internal business processes concerned with the priorities for various business processes that create
customer and shareholder satisfaction
4. Learning and growth concerned with creating a climate that supports change, innovation, and growth
STRATEGIC FOCUS
Whats Next? Strategic Leadership in the Future
The expectations for a firms key strategic leaders are that strategic leaders must design a process their firm
will use as the foundation for earning above-average returns and consistently outperforming rivals. The
simplicity of this statement belies its complexity, whether discussing strategic management today or
strategic management for tomorrow.
Even though predictions of the future of strategic leadership are risky, several realities and expectations
seem likely. First, it is likely that tomorrows strategic leaders will feel even more stress than do their
counterparts today. One reason is that those for whom a firms key strategic leaders work have significant
expectations of strategic leaders. Strategic leaderships demands create stress that leaders must
acknowledge, and with which they must learn how to cope if they are to successfully discharge their
responsibilities. Another reasonably safe prediction is that all stakeholders will continue to expect the
firms board of directors to better represent their interests. Even today, board members are on the hot seat
to improve their performance as agents for each stakeholder group. In turn, the expectation of better board
performance will find board members holding strategic leaders more accountable for achieving positive
outcomes in the areas of strategy formulation and execution, effective handling of crises, particularly
financial ones, ability to meaningfully link top-level managerial pay to performance, and in representing
the companys best interests at all times. Tomorrows board members and a firms strategic leaders will
undoubtedly be held accountable for their actions and the outcomes they achieve or fail to achieve.
So how do upstart high-potential wannabes enhance their ability to be an effective strategic leader in
tomorrows organizations? First, strategic leaders should be continuously curious so that they will have the
foundation for seeking to learn everything they can from every person with whom they have contact.
Future strategic leaders should rely on their curiosity to spot patterns that suggest future conditions.
Additionally, tomorrows strategic leaders should place even greater emphasis on the simple rules of
effective strategic leadership than is the case today. These simple, yet vital rules are the following: Leaders
make work about others, not about themselves. Once a person becomes a strategic leader, everything that
12-14
person does is about them (the stakeholders, but especially employees) while nothing is about the leader.
Leaders learn everything possible about their company from both strategic and tactical perspectives.
Leaders hold individuals accountable for their outcomes. However, leaders must make themselves the most
accountable for overall performance. Leaders shoulder all responsibility for all parts of their job; they
always take the blame for mistakes and distribute the credit for successes to others.
This is when students need to be reminded that leadership is something that can be difficult to
define but can be recognized when they see it. Strong corporate leaders surround themselves
with people who are smarter than themselves. In addition, support people are encouraged to do
their thing in a work with me; not work for me environment. The CEO position is not one to
which everyone should aspire.
Generally speaking, strategic controls tend to be emphasized when the firm assesses its performance relative to
the learning and growth perspective, while financial controls are emphasized when assessing performance in
terms of the financial perspective. Study of the customer and internal business processes perspectives often is
completed through relatively equal emphasis on strategic and financial controls.
Teaching Note: Firms use different criteria to measure their standing relative to the
scorecards four perspectives. The important point is for the firm to select the number of
criteria that will allow it to have both a strategic understanding and a financial understanding
of its performance without becoming immersed in too many details.
FIGURE 12.5
Strategic Controls and Financial Controls in a Balanced Scorecard Framework
Figure 12.5 presents some samples of the criteria included when using the balanced scorecard approach.
Teaching Note: In diversified firms, successful strategic leaders also balance strategic
controls and financial controls to make appropriate investments for future viability (through
strategic controls), while maintaining an appropriate level of financial stability in the present
(through financial control). In fact, most corporate restructuring is designed to refocus the
firm on its core businesses, thereby allowing top executives to reestablish strategic control of
their separate business units. Thus, both types of controls are important.
The effective use of strategic controls by top executives is often integrated with appropriate autonomy for the
various subunits so they can gain a competitive advantage in their respective markets. Strategic control can be
used to promote sharing of both tangible and intangible resources among the firms interdependent businesses.
The autonomy provided allows the flexibility needed to take advantage of specific marketplace opportunities.
As a result, strategic leadership promotes the simultaneous use of strategic controls and autonomy.
ANSWERS TO REVIEW QUESTIONS
12-15
1. What is strategic leadership? In what ways are top executives considered important resources for an
organization? (pp. 340-344)
Strategic leadership is a complex form of leadership in organizations. It means that the leader must have the
ability to manage through others. Being a strategic leader requires the ability to anticipate, envision, maintain
flexibility, and empower others to create strategic change as necessary.
Top executives are important to effective strategy formulation and implementation. A key reason for this is that
the strategic decisions made by top managers influence the firms design and performance outcomes. Thus,
having a top management team with superior managerial skills is a critical element of organizational success.
In addition to determining new strategic initiatives, top-level managers also develop the appropriate
organizational structure and reward systems of a firm. Furthermore, top executives have a major effect on a
firms culture. Research suggests that managers values are critical in shaping a firms cultural valuesi.e., top
executives have an important effect on organizational activities and performance. The significance of this effect
should not be underestimated.
2. What is a top-management team, and how does it affect a firms performance and its abilities to
innovate and make appropriate strategic changes? (pp. 344-347)
The top management team includes the key managers responsible for formulating and implementing the
organizations strategies. Typically, the top management team includes the officers of the corporation as defined
by the title of vice president and above and/or by service as a member of the board of directors. The quality of
the strategic decisions made by a top management team affects the firms ability to innovate and engage in
effective strategic change.
Given the challenges, it is imperative that firms try to form a top management team with the appropriate
knowledge and expertise to operate the internal organization, yet also deal with external stakeholders. This
normally requires a heterogeneous top management team, one composed of individuals with different functional
backgrounds, experiences, and education. The more heterogeneous the team, the more capacity it has to provide
effective strategic leadership for the formulation of strategy. Members of a heterogeneous top management
team benefit from discussing varied perspectives, which increases the quality of decisions. This is especially
true when a synthesis emerges from the conversations generated from diverse ideas, which is generally superior
to individual perspectives. The net benefit of these actions is market share gains and above-average returns. In
sum, heterogeneity among top management team members promotes effective debate, which leads to better
strategic decisions and, in turn, higher firm performance.
Heterogeneous top management teams are also positively associated with innovation and strategic change.
Heterogeneity may force the team or some of its members to think outside of the box and thus be more
creative in their thinking and decisions. Therefore, firms that need to change their strategies are more likely to
do so if they have top management teams with diverse backgrounds and expertise. A top management team
with various areas of expertise is more likely to identify environmental changes (opportunities and threats) or
changes within the firms (strengths and weaknesses) that require a different strategic direction.
3. How do the internal and external managerial labor markets affect the managerial succession
process? (pp. 347-349)
There are two types of managerial labor markets (internal and external) from which organizations select
managers and strategic leaders. An internal managerial labor market consists of the opportunities for
managerial positions within a firm, whereas an external managerial labor market is the collection of career
opportunities for managers in organizations outside of the one for which they currently work.
Several benefits accrue to firms using the internal labor market to select a new CEO. Because they have
experience with the firm and the industry environment, insiders are familiar with company products, markets,
technologies, and standard operating procedures. Additionally, internal hiring produces less turnover among
existing personnel, many of whom possess valuable firm-specific knowledge. Therefore, if the firm is
12-16
performing well, internal succession is more likely to lead to knowledge retention and sustained high
performance. Employees usually prefer using the internal managerial labor market to select top management
team members and the CEO. The selection of insiders to fill top-level management positions reflects a desire
for continuity and a continuing commitment to the firms current vision, mission, and chosen strategies.
In contrast, valid reasons exist for a firm to select an outsider as its new CEO. For example, research suggests
that long tenure with a firm seems to reduce the number of innovative ideas top executives are able to develop
to cope with conditions facing their firm. Given the importance of innovation for firm success in the 21st-
century competitive landscape, an inability to innovate and/or to create conditions that stimulate innovation is a
liability for a strategic leader. In contrast to insiders, CEOs selected from outside the firm may have broader,
less limited perspectives and usually encourage innovation and strategic change.
4. How does strategic leadership affect the determination of the firms strategic direction? (pp. 350-351)
Determining the strategic direction of a firm refers to the development of a firms long-term vision, normally
looking at least 5 to 10 years into the future. While the core ideology motivates employees through the
companys heritage, the envisioned future encourages employees to stretch beyond their expectations and
requires significant change and progress. The envisioned future serves as a guide to many aspects of a firms
strategy implementation process, including motivation, leadership, employee empowerment, and organizational
design.
Nonetheless, it is important not to lose sight of the strengths of the organization in making changes required by
a new strategic direction. The goal is to balance the firms short-term need to adjust to a new vision while
maintaining its long-term survivability by managing its portfolio of resources effectively.
5. How do strategic leaders effectively manage their firms resource portfolio such that its core
competencies are exploited, and the human capital and social capital are leveraged to achieve a
competitive advantage? (pp. 351-354)
Strategic leaders manage the firms portfolio of resources by organizing them into capabilities, structuring the
firm to use the capabilities, and developing and implementing a strategy to leverage those resources to achieve a
competitive advantage. In particular, strategic leaders must exploit and maintain the firms core competencies
and develop and retain the firms human and social capital.
Typically, core competencies relate to an organizations functional skills, such as manufacturing, finance,
marketing, and research and development. Firms develop and exploit core competencies in many different
functional areas. Strategic leaders must verify that the firms competencies are emphasized in strategy
implementation efforts. In many large firms, and certainly in related diversified ones, core competencies are
effectively exploited when they are developed and applied across different organizational units. Firms must
continuously develop or even change their core competencies to stay ahead of the competition. Additionally,
firms must guard against the competence becoming a liability such that the firm is unwilling to change.
Human capital refers to the knowledge and skills of a firms entire workforce. Investments in human capital
are productive; in fact, people are perhaps the only truly sustainable source of competitive advantage. Human
capitals increasing importance suggests a significant role for the firms human resource management activities.
Effective training and development programs increase the probability that a manager will be a successful
strategic leader. These programs have grown progressively important to the success of firms as knowledge has
become more integral to gaining and sustaining a competitive advantage. Additionally, such programs build
knowledge and skills, inculcate a common set of core values, and offer a systematic view of the organization,
thus promoting the firms strategic vision and organizational cohesion. The programs also contribute to the
development of core competencies. Furthermore, they help strategic leaders improve skills that are critical to
completing other tasks associated with effective strategic leadership. Thus, building human capital is vital to
the effective execution of strategic leadership.
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Strategic leaders must acquire the skills necessary to help develop human capital in their areas of responsibility.
When human capital investments are successful, the result is a workforce capable of learning continuously,
which minimizes the risk of making errors. Strategic leaders tend to learn more from their failures than their
successes because they sometimes make the wrong attributions for the successes. Learning and building
knowledge is important for creating innovation in firms, and innovation leads to competitive advantage.
Social capital involves human relationships that help the firm accomplish tasks and create value for customers
and shareholders. Social capital is a critical asset for a firm. Inside the firm, employees and units must cooperate
to get the work done. In multinational organizations, units often must cooperate across country boundaries on
activities such as R&D to produce outcomes needed by the firm (e.g., new products). External social capital has
become critical to firm success in the last several years. Few firms, if any, have all of the resources they need to
compete in global (or domestic) markets. Thus, they establish alliances with other firms that have
complementary resources in order to gain access to them. These relationships must be effectively managed to
ensure that the partner trusts the firm and is willing to share the desired resources.
6. What is organizational culture? What must strategic leaders do to develop and sustain an effective
organizational culture? (pp. 354-355)
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. Evidence suggests that a firm can develop
core competencies both in terms of the capabilities it possesses and the way the capabilities are used to produce
desired outcomes. In other words, because it influences how the firm conducts its business and helps regulate
and control employee behavior, organizational culture can be a source of competitive advantage. Thus, shaping
the context within which the firm formulates and implements its strategiesthat is, shaping the organizational
cultureis a central task of strategic leaders.
Organizational culture often encourages (or discourages) the pursuit of entrepreneurial opportunities, especially
in large firms. Successful outcomes derived through employees pursuit of entrepreneurial opportunities are a
major source of growth and innovation for firms. Five dimensions characterize a firms entrepreneurial mindset
autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness.
Changing organizational culture is more difficult than maintaining it, but effective strategic leaders recognize
when change is needed. Incremental changes to the firms culture typically are used to implement strategies.
However, more significant and sometimes even radical changes to organizational culture are designed to
support the selection of strategies that differ from the ones the firm has implemented historically. Regardless of
the reasons for change, shaping and reinforcing a new culture requires effective communication and problem
solving, along with the selection of the right people (those who have the values desired for the organization),
effective performance appraisals (establishing goals and measuring individual performance toward goals that fit
with the new core values), and appropriate reward systems (rewarding the desired behaviors that reflect the new
core values).
Evidence suggests that cultural changes succeed only when the firms CEO, other key top management team
members, and middle-level managers actively support them. One catalyst for change in organizational culture,
particularly for critical changes, is the selection of new top management team members from outside the
corporation.
7. As a strategic leader, what actions could you take to establish and emphasize ethical practices in your
firm? (pp. 355-356)
Strategic leaders are challenged to take actions that increase the probability that an ethical culture will exist in
their organization. One means of doing this that is gaining favor in companies is to institute a formal program
to manage ethics in the organization. While these formal ethics programs operate much like control systems,
they help inculcate values throughout the organization as well. Therefore, when these efforts are successful, the
practices associated with an ethical culture become institutionalized in the firm; that is, they become the set of
behavioral commitments and actions accepted by most of the firms employees and other stakeholders with
12-18
whom employees interact. Other actions that strategic leaders can take to develop an ethical organizational
culture include:
(1) establishing and communicating specific goals to describe the firms ethical standards (e.g., developing and
disseminating a code of conduct),
(2) continuously revising and updating the code of conduct, based on inputs from people throughout the firm
and from other stakeholders (e.g., customers and suppliers),
(3) disseminating the code of conduct to all stakeholders to inform them of the firms ethical standards and
practices,
(4) developing and implementing methods and procedures to use in achieving the firms ethical standards (e.g.,
use of internal auditing practices that are consistent with the standards),
(5) creating and using explicit reward systems that recognize acts of courage (e.g., rewarding those who use
proper channels and procedures to report observed wrongdoings), and
(6) creating a work environment in which all people are treated with dignity.
These actions increase in effectiveness when they are taken simultaneously, making them mutually supportive.
8. What are organizational controls? Why are strategic controls and financial controls important parts
of the strategic management process? (pp. 356-358)
Organizational controls have long been viewed as an important part of strategy implementation processes.
Controls are necessary to help ensure that firms achieve their desired outcomes of strategic competitiveness and
above-average returns. Defined as the formal, information-based procedures that are used by managers to
maintain or alter the patterns of activities within the organization, controls help strategic leaders build
credibility, demonstrate the value of strategies to the firms stakeholders, and promote and support strategic
change. Most critically, controls provide the parameters within which strategies are to be implemented as well
as corrective actions to be taken when implementation-related adjustments become necessary.
Financial controls focus on short-term financial outcomes. In contrast, strategic controls focus on the content
of strategic actions, rather than their outcomes. Some strategic actions can be correct, but poor financial
outcomes may still result from external conditions such as economic problems, unexpected domestic or foreign
government actions, or natural disasters. Therefore, an emphasis on financial control often produces more
short-term and risk-averse managerial decisions because financial outcomes may be due to events beyond
managers direct control. Alternatively, strategic controls encourage lower-level managers to make decisions
that incorporate moderate and acceptable levels of risk because outcomes are shared between the business-level
executives making strategic proposals and the corporate-level executives evaluating them.
Successful strategic leaders balance strategic controls and financial controls with the intent of achieving more
positive long-term returns. In fact, most corporate restructuring is designed to refocus the firm on its core
businesses, thereby allowing top executives to reestablish strategic control of their separate business units.
Thus, both types of controls are important. The balanced scorecard approach underscores this essential notion.
Exercise 1: Executive succession
For this exercise, you will identify and analyze a case of CEO succession. Working in small groups, find a
publicly held firm that has changed CEOs. The turnover event must have happened at least twelve months
ago, but no more than twenty-four months ago. Use a combination of company documents and news
articles to answer the following questions:
1. Why did the CEO leave? Common reasons for CEO turnover include death or illness, retirement,
accepting a new position, change in ownership or control, or termination. In cases of termination,
there is often no official statement as to why the CEO departed. Consequently, you may have to
rely on news articles that speculate why a CEO was fired, or forced to resign.
12-19
2. Did the replacement CEO come from inside the organization, or outside?
3. What are the similarities and differences between the new CEO and the CEO she or he replaced?
Possible comparison items could include functional experience, industry experience, etc. If your
library has a subscription to Hoovers Online, you can find information on top managers through
this resource.
4. At the time of the succession event, how did the firms financial performance compare to industry
norms? Has the firms standing relative to the industry changed since the new CEO took over?
5. Has the firm made major strategic changes since the succession event? For example, has the firm
made major acquisitions or divestitures since the succession event? Launched or closed down
product lines?
Create a PowerPoint presentation that presents answers to each of the above questions. Your presentation
should be brief, consisting of no more than five to seven slides.
Exercise 2: Balanced Scorecard and the Baldridge Quality Award
The chapter described the role of the business scorecard in facilitating effective strategic leadership
practices. For this exercise, you will be asked to compare and contrast the balanced scorecard against the
Baldridge Quality Award Criteria. The Baldridge Award was created in 1988 to recognize firms that were
leaders in global competitiveness through product and process quality initiatives. The award is named in
honor of Malcolm Baldridge, who served as U.S. Secretary of Commerce during the 1980s. Information
about the Baldridge Award can be found at http://www.quality.nist.gov/.
Working in small groups, prepare a brief write-up (two to three pages maximum) that answers the
following questions:
1. What are the similarities and differences in the goals of balanced scorecard and Baldridge Award
frameworks?
2. What are the similarities and differences in the evaluation metrics used in these frameworks?
3. From your analysis, are these competing or complementary frameworks? Or, does one have no
relevance to the other? What recommendation would you make to a firm that was considering
implementing both frameworks concurrently?
INSTRUCTOR'S NOTES FOR
Exercise 1: Executive succession
The goal of this exercise is to illustrate trends and issues related to executive succession. Student teams are
asked to identify a case of CEO succession that has happened at least twelve months ago, and no more than
twenty four months ago. Tip: you can use ABI/Inform or the Wall Street Journal databases using the search
terms executive succession,, CEO succession, or CEO turnover to find specific succession events.
Presently, the Yahoo News search does not allow setting time periods, so students will only be able to find
recent succession events. Additionally, one can search Google using the News Archive, then selecting the
appropriate date range.
12-20
A good way to debrief this assignment is class is to create a table that integrates the findings of all of the
teams. Start by dividing the companies into two groups: above- and below-industry performance at the
time of the succession event. Make a note of how many companies fit into each group. Then, fill in the
table elements below:
Above norm Below norm
# of cases
Source of successor Insider
Outsider
Reasons for CEO Death or illness

turnover
New job
Retirement
Change in control
Possible termination
Unknown
How similar are the new Very similar

and old CEOs?
Somewhat similar
Very different
Extent of strategic Minimal

change since turnover
Moderate
Extensive
Performance since Improved

turnover
Unchanged
Worsened
Exercise 2: Balanced Scorecard and the Baldridge Quality Award
The purpose of this exercise is to compare how the Balanced Scorecard model discussed in the text relates
to the Malcolm Baldridge Quality Award. Students are asked to research both frameworks, and prepare a
written assignment that answers the following questions:
4. What similarities and differences are there in the goals of balanced scorecard and Baldridge Award
frameworks?
12-21
5. What are the similarities and differences in the evaluation metrics used in these frameworks?
6. From your analysis, are these competing or complementary frameworks? Or, does one have no
relevance to the other? What recommendation would you make to a firm that was considering
implementing both frameworks concurrently?
The main site for the Baldridge Award is:
http://www.quality.nist.gov/
Additionally, the workbook for 2007 Baldridge business criteria may also be helpful:
http://www.quality.nist.gov/PDF_files/2007_Business_Nonprofit_Criteria.pdf
There are strong overlaps between both frameworks. To facilitate a classroom discussion on this topic, it
may be helpful to draw a diagram of the Baldridge framework on the board:
12-22
Here is a side-by-side comparison of the key areas for the two frameworks, and sub-items
for each area:
Balanced Scorecard Baldridge Quality Award (2007)
Financial Leadership
Growth Senior leadership
Profit Governance/social responsibility
Risk
Customer Strategic Planning
Perceived value Strategy development
Strategy execution
Internal business processes Customer and Market Focus
Tools to enhance satisfaction Customer/market knowledge
Customer
relationships/satisfaction
Learning and Growth Measurement, Analysis & Knowledge
Change Management Measurement, analysis &
Innovation improvement of firm performance
Knowledge management
Workforce
Workforce engagement
Workforce environment
Process Management
Work systems design
Work process management and
improvement
Results
Product and Service outcomes
Customer-focused outcomes
Financial and market Outcomes
Workforce-focused outcomes
Process effectiveness outcomes
Leadership outcomes
Finally, the following article may be useful for additional detail, or as a follow-up
reading:
Bell, Robert R., & Elkins, Susan A. 2004. A balanced scorecard for leaders: implications
of the Malcolm Baldrige National Quality Award criteria. SAM Advanced
Management Journal. January 1.
ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned as homework.
Application Discussion Questions
12-23
1. Have the students choose a CEO of a prominent firm that they believe exemplifies the positive aspects of
strategic leadership. What actions does this CEO take that demonstrate effective strategic leadership? What
are the effects of those actions on the firms performance?
2. Now have the students select a CEO of a prominent firm that they believe does not exemplify the positive
aspects of strategic leadership. What actions did this CEO take that are inconsistent with effective strategic
leadership? How have those ineffective actions affected the firms performance?
3. What are managerial resources? What is the relationship between managerial resources and a firms
strategic competitiveness?
4. Have the students examine some articles in the popular press and select an organization that recently went
through a significant strategic change. They should collect as much information as they can about the
organizations top management team. Is there a relationship between the top management teams
characteristics and the type of change the organization experienced? If so, what are the nature and outcome
of that relationship?
5. Ask the students to read some articles in the popular press and identify two new CEOs, one from the
internal managerial labor market and one from the external labor market. Why do they think these
individuals were chosen? What do they bring to the job, and what strategy do the students think they will
implement in their respective organizations?
6. Based on this chapter and accounts in the popular press, each student should select a CEO who has
exhibited vision. Has this CEOs vision been realized? If so, what have its effects been? If the vision has
not been realized, why not?
7. The students should identify a firm in which they believe strategic leaders have emphasized and developed
human capital. What are the effects of this emphasis and development on the firms performance?
8. Have the students select an organization that has a unique organizational culture. What characteristics of
that culture make it unique? Has the culture had a significant effect on the organizations performance? If
so, what is that effect?
9. Why is the strategic control exercised by a firms strategic leaders important for long-term
competitiveness? How do strategic controls differ from financial controls?
Ethics Questions
1. As discussed in this chapter, effective strategic leadership occasionally requires managers to make difficult
decisions. Is it ethical for managers to make these types of decisions without obtaining feedback from
employees about the effects of those decisions? Be prepared to justify your response.
2. As an employee with less than one year of experience in a firm, what actions would you pursue if you
encountered unethical practices by a strategic leader?
3. Are firms ethically obligated to promote employees from within, rather than relying on the external labor
market to select strategic leaders? What reasoning supports your position?
4. What ethical issues, if any, are involved with a firms ability to develop and exploit a core competence in
the manufacture of goods that may be harmful to consumers (e.g., cigarettes)?
5. As a strategic leader, would you feel ethically responsible for developing your firms human capital? Why
or why not? Do you believe that your position is consistent with the majority or minority of todays
strategic leaders?
6. Select an organization, social group, or volunteer agency of which you are a member that you believe has
an ethical culture. What factors caused this culture to be ethical? Are there any events that would cause the
culture to become less ethical? If so, what are they?
Internet Exercise
Women in the United States are advancing to top positions in some of Americas leading firms. Today, more
than 10 percent of Fortune 500 companies have women in 25 percent of their corporate officer teams, an
increase from 5 percent in 1995. The advancement of women in this area sounds promising. Go to the Working
Woman Website at http://www.workingwoman.com to see which companies were rated as leaders in hiring
women executives. What practices in these companies promote the selection of women for managerial roles?
12-24
*e-project: Amazon.com has revolutionized the Internet shopping industry, a fact that can, in large part, be
accredited to Jeff Bezos, Americas number-one CEO of an Internet-based company. Learn about Bezoss
background through the Amazon home page and other Web resources. What was his initial strategy in
creating Amazon? Was he able to implement the strategy effectively? What successes spurred him to
expand and diversify his Web-based business?
12-25

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Chapter 12: Strategic Leadership

1. Define strategic leadership and describe top-level managers importance.

As illustrated in Figure 12.1, effective strategic leadership

which influences the

1 Define strategic leadership and describe top-level managers importance.

STRATEGIC LEADERSHIP AND STYLE

The strategic leader has several responsibilities, including the following:

THE ROLE OF TOP-LEVEL MANAGERS

Three factors can be viewed as determining a strategic leaders decision discretion:

External Environment (especially the competitive environment)

Managers (Individual) Characteristics:

Other critical roles played by top-level managers include:

Define top management teams and explain their effects on firm

Top Management Teams

Top Management Team, Firm Performance, and Strategic Change

The CEO and Top Management Team Power

Describe the managerial succession process using internal and external

Teaching Note: Ask students to compare characteristics of successor CEOs in turnaround

KEY STRATEGIC LEADERSHIP ACTIONS

Determining strategic direction

Discuss the value of strategic leadership in determining the

Determining Strategic Direction

Describe the importance of strategic leaders in managing the

Effectively Managing the Firms Resource Portfolio

Strategic leaders manage the firms portfolio of resources by

Exploiting and Maintaining Core Competencies

Developing Human Capital and Social Capital

Define organizational culture and explain what must be done to

Sustaining an Effective Organizational Culture

Entrepreneurial Mind Set

Changing the Organizational Culture and Restructuring

developing an effective performance appraisal process which establishes goals and

Explain what strategic leaders can do to establish and emphasize

Emphasizing Ethical Practices

8 Discuss the importance and use of organizational controls.

Establishing Balanced Organizational Controls

The Balanced Scorecard

ANSWERS TO REVIEW QUESTIONS

Exercise 1: Executive succession

Exercise 2: Balanced Scorecard and the Baldridge Quality Award

INSTRUCTOR'S NOTES FOR

Exercise 1: Executive succession

Above norm Below norm

Source of successor Insider

Reasons for CEO Death or illness

How similar are the new Very similar

Extent of strategic Minimal

Performance since Improved

Exercise 2: Balanced Scorecard and the Baldridge Quality Award

The main site for the Baldridge Award is:

ADDITIONAL QUESTIONS AND EXERCISES

Application Discussion Questions

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