Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts

Подождите немного. Документ загружается.

348

Part 3: Strategic Actions: Strategy Implementation

75. H. Karandikar & S. Nidamarthi, 2007,

Implementing a platform strategy for

a systems business via standardization,

Journal of Manufacturing Technology

Management, 18: 267–280.

76. Olson, Slater, Tomas, & Hult, The

performance implications of fit.

77. 2007, Wal-Mart Stores, Inc, New York

Times Online, http://www.nytimes.com,

July 21.

78. 2007, Wal-Mart rolling out new company

slogan, New York Times Online, http://

www.nytimes.com, July 12.

79. Olson, Slater, Tomas, & Hult, The

performance implications of fit.

80. T. Heath, 2008, In pursuit of innovation

at Under Armour: Founder Kevin

Plank says Super Bowl commercial has

generated “buzz,” Washington Post,

February 25, D03.

81. Chandler, Strategy and Structure.

82. C. C. Markides & P. J. Williamson,

1996, Corporate diversification and

organizational structure: A resource-based

view, Academy of Management Journal,

39: 340–367; C. W. L. Hill, M. A. Hitt, &

R. E. Hoskisson, 1992, Cooperative versus

competitive structures in related and

unrelated diversified firms, Organization

Science, 3: 501–521.

83. S. H. Appelbaum, D. Nadeau, & M. Cyr,

2008, Performance evaluation in a matrix

organization: A case study (part two),

Industrial and Commercial Training, 40(6):

295–299.

84. S. H. Appelbaum, D. Nadeau, & M. Cyr,

2009, Performance evaluation in a matrix

organization: A case study (part three),

Industrial and Commercial Training, 41(1):

9–14; M. Goold & A. Campbell, 2003,

Structured networks: Towards the well

designed matrix, Long Range Planning,

36(5): 427–439.

85. P. Eavis, 2008, The pain at Sears grows,

The Wall Street Journal Online, www.wsj

.com, May 30.

86. N. M. Schmid & I. Walter, 2009, Do

financial conglomerates create or destroy

economic value? Journal of Financial

Intermediation, 18(2): 193–216; P. A.

Argenti, R. A. Howell, & K. A. Beck, 2005,

The strategic communication imperative,

MIT Sloan Management Review, 46(3):

84–89.

87. M. F. Wiersema & H. P. Bowen, 2008,

Corporate diversification: The impact

of foreign competition, industry

globalization, and product diversification,

Strategic Management Journal

, 29:

115–132;

R. E. Hoskisson & M. A. Hitt,

1990, Antecedents and performance

outcomes of diversification: A review

and critique of theoretical perspectives,

Journal of Management, 16: 461–509.

88. Hill, Hitt, & Hoskisson, Cooperative versus

competitive structures, 512.

89. Lee, Park, & Shin, Disappearing internal

capital markets: Evidence from diversified

business groups in Korea; J. Birkinshaw,

2001, Strategies for managing internal

competition, California Management

Review, 44(1): 21–38.

90. 2009, Vision and strategy, http://www

.textron.com, July 16.

91. M. Maremont, 2004, Leadership; more

can be more: Is the conglomerate a

dinosaur from a bygone era? The answer

is no—with a caveat, Wall Street Journal,

October 24, R4; T. R. Eisenmann &

J. L. Bower, 2000, The entrepreneurial

M-form: Strategic integration in global

media firms, Organization Science, 11:

348–355.

92. T. Yu & A. A. Cannella, Jr., 2007, Rivalry

between multinational enterprises: An

event history approach, Academy of

Management Journal, 50: 665–686;

S. E. Christophe & H. Lee, 2005, What

matters about internationalization: A

market-based assessment, Journal of

Business Research, 58: 636–643; Y.

Luo, 2002, Product diversification in

international joint ventures: Performance

implications in an emerging market,

Strategic Management Journal, 23: 1–20.

93. M. Mandel, 2007, Globalization vs.

immigration reform, BusinessWeek, June

4, 40.

94. T. M. Begley & D. P. Boyd, 2003, The

need for a corporate global mind-set,

MIT Sloan Management Review, 44(2):

25–32; Tallman, Global strategic

management, 467.

95. T. Kostova & K. Roth, 2003, Social capital

in multinational corporations and a micro-

macro model of its formation, Academy of

Management Review, 28: 297–317.

96. J. Jermias & L. Gani, 2005, Ownership

structure, contingent-fit, and business-

unit performance: A research model

and evidence, The International Journal

of Accounting, 40: 65–85; J. Wolf &

W. G. Egelhoff, 2002, A reexamination

and extension of international strategy-

structure theory, Strategic Management

Journal, 23: 181–189.

97. J. Ewing, 2009, A magic moment for

Ford of Europe, BusinessWeek, July 6,

48–49.

98. C. A. Bartlett & S. Ghoshal, 1989,

Managing Across Borders: The

Transnational Solution, Boston: Harvard

Business School Press.

99. S. Feinberg, & A. Gupta, 2009,

MNC subsidiaries and country risk:

Internalization as a safeguard against

weak external institutions, Academy of

Management Journal 52(2): 381–399;

S. T. Cavusgil, S. Yeniyurt, & J. D. Townsend,

2004, The framework of a global company:

A conceptualization and preliminary

validation, Industrial Marketing Manage-

ment, 33: 711–716.

100. N. Byrnes, 2007, Avon: More than

cosmetic changes, BusinessWeek, March

12, 62–63.

101. K. Nolan, 2009, Corporate news: Avon

unveils new cost cuts, Wall Street Journal,

February 20, B2.

102. Malnight, Emerging structural patterns,

1197.

103. Rugman & Verbeke, A regional solution

to the strategy and structure of

multinationals.

104. B. Connelly, M. A. Hitt, A. DeNisi, &

R. D. Ireland, 2007, Expatriates and

corporate-level international strategy:

Governing with the knowledge contract,

Management Decision, 45: 564–581.

105. M. E. Lloyd, 2009,

IKEA

sees opportunity

in slump, Wall Street Journal Online, http://

online.wsj.com, February 17; E. Baraldi,

2008, Strategy in industrial Networks:

Experiences from IKEA, California

Management Review, 50(4): 99–126.

106. D. Lavie, 2009, Capturing value from

alliance portfolios, Organizational

Dynamics, 38(1): 26–36; S. G. Lazzarini,

2007, The impact of membership in

competing alliance constellations:

Evidence on the operational performance

of global airlines, Strategic Management

Journal, 28: 345–367; Y. L. Doz &

G. Hamel, 1998, Alliance Advantage:

The Art of Creating Value through

Partnering, Boston: Harvard Business

School Press, 222.

107. J. Li, C. Zhou, & E. J. Zajac, 2009,

Control, collaboration, and productivity

in international joint ventures: Theory

and evidence, Strategic Management

Journal, 30: 865–884; Y. Luo, 2007, Are

joint venture partners more opportunistic

in a more volatile environment? Strategic

Management Journal, 28: 39–60;

K. Moller, A. Rajala, & S. Svahn, 2005,

Strategic business nets—their type

and management, Journal of Business

Research, 58: 1274–1284.

108. D. Li, L. E. Eden, M. A. Hitt, &

R. D. Ireland, 2008, Friends,

acquaintances, or strangers? Partner

selection in R&D alliances, Academy of

Management Journal, 51(2): 315–334.

109. Lavie, Capturing value from alliance

portfolios; B. Comes-Casseres, 2003,

Competitive advantage in alliance

constellations, Strategic Organization,

1: 327–335; T. K. Das & B. S. Teng, 2002,

Alliance constellations: A social exchange

perspective, Academy of Management

Review, 27: 445–456.

110. T. Vapola, P. Tossavainen, & M.

Gabrielsson, 2008, The battleship strategy:

The complementing role of born globals

in MNC’s new opportunity creation,

Journal of International Entrepreneurship:

6(1): 1–21; S. Tallman, M. Jenkins, N.

Henry, & S. Pinch, 2004, Knowledge,

clusters, and competitive advantage,

Academy of Management Review, 29:

258–271.

111. V. Moatti, 2009, Learning to expand or

expanding to learn? The role of imitation

and experience in the choice among

several expansion modes, European

Management Journal, 27(1): 36–46;

A. Capaldo, 2007, Network structure

and innovation: The leveraging of a

dual network as a distinctive relational

capability, Strategic Management Journal,

28: 585–608; A. Zaheer & G. G. Bell,

2005, Benefiting from network position:

Firm capabilities, structural holes, and

performance, Strategic Management

Journal, 26: 809–825.

349

Chapter 11: Organizational Structure and Controls

112. J. Wiklund & D. A. Shepherd, 2009, The

effectiveness of alliances and acquisitions:

The role of resource combination

activities, Theory and Practice, 31(1):

193–212; R. D. Ireland & J. W. Webb,

2007, A multi-theoretic perspective on

trust and power in strategic supply chains,

Journal of Operations Management, 25:

482–497; V. G. Narayanan & A. Raman,

2004, Aligning incentives in supply chains,

Harvard Business Review, 82(11): 94–102.

113. S. Harrison, 1998, Japanese Technology

and Innovation Management, Northampton,

MA: Edward Elgar.

114. M. H. Hansen, R. E. Hoskisson, &

J. B. Barney, 2008, Competitive

advantage in alliance governance:

Resolving the opportunism minimization-

gain maximization paradox, Managerial

and Decision Economics, 29: 191–208;

T. Keil, 2004, Building external corporate

venturing capability, Journal of

Management Studies, 41: 799–825.

115. Vapola, Tossavainen, & Gabrielsson, The

battleship strategy: The complementing

role of born globals in MNC’s new

opportunity creation; P. Dussauge,

B. Garrette, & W. Mitchell, 2004, Learning

from competing partners: Outcomes

and duration of scale and link alliances

in Europe, North America and Asia,

Strategic Management Journal, 21:

99–126; G. Lorenzoni & C. Baden-Fuller,

1995, Creating a strategic center to

manage a web of partners, California

Management Review, 37(3): 146–163.

116. S. R. Holmberg & J. L. Cummings, 2009,

Building successful strategic alliances:

Strategic process and analytical tools for

selecting partner industries and firms,

Long Range Planning, 42(2): 164–193; B.

J. Bergiel, E. B. Bergiel, & P. W. Balsmeier,

2008, Nature of virtual teams: A summary

of their advantages and disadvantages,

Management Research News, 31(2):

99–110.

117. A. C. Inkpen, 2008, Knowledge transfer

and international joint ventures: The case

of NUMMI and General Motors, Strategic

Management Journal, 29(4): 447–453;

T. A. Stewart & A. P. Raman, 2007,

Lessons from Toyota’s long drive,

Harvard Business Review, 85(7/8): 74–83;

J. H. Dyer & K. Nobeoka, 2000, Creating

and managing a high-performance

knowledge-sharing network: The Toyota

case, Strategic Management Journal, 21:

345–367.

118. L. F. Mesquita, J. Anand, & J. H. Brush,

2008, Comparing the resource-based and

relational views: Knowledge transfer and

spillover in vertical alliances, Strategic

Management Journal, 29: 913–941:

M. Kotabe, X. Martin, & H. Domoto,

2003, Gaining from vertical partnerships:

Knowledge transfer, relationship duration

and supplier performance improvement

in the U.S. and Japanese automotive

industries, Strategic Management Journal,

24: 293–316.

119. T. Nishiguchi, 1994, Strategic Industrial

Sourcing: The Japanese Advantage, New

York: Oxford University Press.

120. S. G. Lazzarini, D. P. Claro, & L. F. Mesquita,

2008, Buyer-supplier and supplier-supplier

alliances: Do they reinforce or undermine

one another? Journal of Management

Studies,

(3): 561–584; P. Dussauge,

B. Garrette, & W. Mitchell, 2004,

Asymmetric performance: The market

share impact of scale and link alliances

in the global auto industry, Strategic

Management Journal, 25: 701–711.

121. J. Shook, 2009, Toyota’s secret: The A3

report, MIT Sloan Management Review,

50(4): 30–33; C. Dawson & K. N. Anhalt,

2005, A “China price” for Toyota,

BusinessWeek, February 21, 50–51;

W. M. Fruin, 1992, The Japanese Enterprise

System, New York: Oxford University Press.

122. B. Garrette, X. Castañer, & P. Dussauge,

2009, Horizontal alliances as an alternative

to autonomous production: Product

expansion mode choice in the worldwide

aircraft industry 1945–2000, Strategic

Management Journal, 30(8): 885–894.

123. A. M. Hayashi, 2008, How to replicate

success. MIT Sloan Management Review

(3): 6–7; M. Tuunanen & F. Hoy,

2007, Franchising: Multifaceted form of

entrepreneurship, International Journal

of Entrepreneurship and Small Business,

4: 52–67.

124. J. Li, C. Dhanaraj, & R. L. Shockley, 2008,

Joint venture evolution: Extending the

real options approach, Managerial and

Decision Economics

(4): 317–336;

B. B. Nielsen, 2005, The role of knowl-

edge embeddedness in the creation of

synergies in strategic alliances, Journal of

Business Research, 58: 1194–1204.

125. E. Bellman, 2009, Corporate news:

McDonald’s plans expansion in India, Wall

Street Journal, June 30, B4.

126. T. W. Tong, J. J. Reuer, & M. W. Peng,

2008. International joint ventures and

the value of growth options, Academy of

Management Journal,

51:

1014–1029;

P. H. Andersen & P. R. Christensen, 2005,

Bridges over troubled water: Suppliers

as connective nodes in global supply

networks, Journal of Business Research,

58: 1261–1273; C. Jones, W. S. Hesterly, &

S. P. Borgatti, 1997, A general theory of

network governance: Exchange conditions

and social mechanisms, Academy of

Management Review, 22: 911–945.

127. M. W. Hansen, T. Pedersen, & B.

Petersen, 2009, MNC strategies and

linkage effects in developing countries,

Journal of World Business, 44(2):

121–139; A. Goerzen, 2005, Managing

alliance networks: Emerging practices of

multinational corporations, Academy of

Management Executive, 19(2): 94–107.

128. L. H. Lin, 2009, Mergers and acquisitions,

alliances and technology development: An

empirical study of the global auto industry,

International Journal of Technology

Management, 48(3): 295–307; R. E. Miles,

C. C. Snow, J. A. Mathews, G. Miles, &

J. J. Coleman Jr., 1997, Organizing in the

knowledge age: Anticipating the cellular

form, Academy of Management Executive,

11(4): 7–20.

129. 2009, EDS Agility Alliance: Collaboration

for better business outcomes, http://www

.eds.com, July 16.

130. 2009, EDS Agility Alliance reaches

milestone, Wireless News, June 3.

Studying this chapter should provide you with the strategic

management knowledge needed to:

1 Deﬁ ne strategic leadership and describe top-level managers’

importance.

2. Explain what top management teams are and how they affect ﬁ rm

performance.

3. Describe the managerial succession process using internal and

external managerial labor markets.

4. Discuss the value of strategic leadership in determining the ﬁ rm’s

strategic direction.

5. Describe the importance of strategic leaders in managing the ﬁ rm’s

resources.

6. Deﬁ ne 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 should provide

ou with the strate

now

ge nee

to:

rategic leadership and describe top-level managers’

at top management teams are and how they a

ect

ﬁ

e mana

ria

succession

ocess usin

interna

anageria

or mar

ets.

e value o

strategic leadership in determining the

ﬁ

rm’s

irection

CHAPTER 12

Strategic

Leadership

Evidence shows that the shelf life of a CEO is

not long, and it continues to get shorter.

In 2005, the average CEO tenure was 7.3

years and is becoming even shorter today

(about 6 years).

The brevity of CEOs and top-level managers’ tenure means that planning for and

selecting new leaders should be continuous processes. Furthermore, the importance of

strategic leaders to a ﬁ rm’s overall health and success makes selecting effective leaders

critical. For example, in 2008 almost 1,500 CEOs of U.S.–based ﬁ rms left their jobs.

Despite this high number of strategic leader departures, boards of directors are rarely

effective in planning for and completing the succession. A survey of boards found that

over 40 percent of the ﬁ rms had no succession plan. In another survey, more than 50

percent of directors rated the boards at their ﬁ rms as ineffective in succession planning.

Changes in the CEO often occur without warning. For example, in 2009 the CEOs at

Toyota, Lenovo, and Ranbaxy unexpectedly

resigned or were replaced. In the cases

of Toyota and Lenovo, poor ﬁ rm

performance was the reason for change.

Both suffered net losses in 2008 and

Lenovo’s market share declined from

third to fourth place in the PC industry.

The importance of CEOs and plan-

ning for succession is clearly evident with

Steve Jobs at Apple. Jobs took time off

from the CEO role in 2009 due to illness.

Analysts expressed major concerns about

his ability to continue because of his

importance to the success of the ﬁ rm. He

is believed to be especially important to

Apple’s innovation capability. While he

does not design new products, he reviews

each new project and serves as an internal

champion for those he feels are worthy.

For example, Jobs supported the work on the

iPod in its early stages despite the skepticism

of several others in the company. Furthermore,

Jobs will not accept compromises; he pushes

project teams to do everything possible to

make the product right.

Jobs is a co-founder of Apple but left the company for 12 years. During that time,

the company foundered. He returned in 1997 and Apple has had a number of market

successes since that time. This is why many wonder if Jobs can be replaced. One analyst

referred to Apple without Jobs as similar to a John Wayne movie without John Wayne.

Another stated that Apple without Jobs is Sony. While Jobs has trained and delegated

authority over innovation at Apple, few believe that he can be adequately replaced. Thus, the

selection of a new CEO for Apple whenever Jobs departs will be critical for the company.

Companies can develop effective succession plans. Usually such plans call for selecting

one or more potential successors and helping them to build the capabilities necessary to be

effective CEOs. For example, they may be given challenging assignments where they can

build valuable knowledge of critical markets and/or establish relationships with important

stakeholders. They can receive mentoring and 360-degree feedback to identify positive

traits and work on negative ones. For example, Ellen Kullman was identiﬁ ed as a potential

CEO several years before she assumed the position at DuPont. The CEO whom she

replaced, Charles Holliday, mentored Kullman and gave her challenging assignments.

He was especially impressed with her willingness to learn. As a result, the transition from

Holliday to Kullman was seamless and successful.

SELECTING A NEW

CEO: THE IMPORTANCE

OF STRATEGIC

LEADERS

AP Photo/Bradley C. Bower

The leadership transition at DuPont was highly

successful due to the early identiﬁ cation

of Ellen Kullman as the likely successor to

CEO, Charles Holliday and his ability to then

serve as her mentor.

Identifying potential CEOs is a difﬁ cult assignment because of the many and varied

capabilities needed for the job. Recent efforts to identify potential successors for CEOs

focused on people who were innovative and championed innovation, had vision and could gain

others commitment to that vision, nurtured important human capital, and built relationships

with critical constituencies such as customers and suppliers.

Sources: S. Tobak, 2009, What happens when Steve Jobs leaves Apple? BNET, http://www.blogs.bnet.com,

May 26; L. Whipp, 2009, Ranbaxy chief to step down, Financial Times, http://www.ft.com, May 24; J. Soble,

2009, Toyota plans top-level overhaul, Financial Times, http://www.ft.com, May 14; M. Boyle, 2009, The art

of succession, BusinessWeek, May 11, 30–37; M. Boyle, 2009, The art of CEO succession, BusinessWeek,

http://www.businessweek.com, April 30; F. Balfour and B. Einhorn, 2009, Lenovo CEO is out; Chinese execs

return, BusinessWeek, http://www.businessweek.com, February 5; J. Scheck & N. Wingﬁ eld, 2008, How Apple

could survive without Steve Jobs, Wall Street Journal, http://www.wsj.com, December 19; B. Behan, 2008,

Shareholder proposals on CEO succession planning, BusinessWeek, http://www.businessweek.com, January 24.

As the Opening Case implies, strategic leaders’ work is demanding, challenging, and

may last for a long period of time. Regardless of how long they remain in their posi-

tions, strategic leaders (and most prominently CEOs) can make a major difference in

how a firm performs.

If a strategic leader can create a strategic vision for the firm using

forward thinking, she may be able to energize the firm’s human capital and achieve posi-

tive outcomes. However, the challenge of strategic leadership is significant. For example,

replacing Steve Jobs at Apple will be difficult because of his special skills in identifying

and nurturing creative new products that have significant market potential. On the other

hand, the transition at DuPont was smooth because a person was identified early and

groomed to take over the CEO role when change was necessary.

A major message in this chapter is that effective strategic leadership is the foundation

for successfully using the strategic management process. As is implied in Figure 1.1 (on

page 5), strategic leaders guide the firm in ways that result in forming a vision and mis-

sion (see Chapter 1). Often, this guidance finds leaders thinking of ways to create goals

that stretch everyone in the organization to improve performance.

Moreover, strategic

leaders facilitate the development of appropriate strategic actions and determine how to

implement them. As we show in Figure 12.1, these actions are the path to strategic com-

petitiveness and above-average returns.

We begin this chapter with a definition of strategic leadership; we then discuss its

importance as a potential source of competitive advantage as well as effective strategic

leadership styles. Next, we examine top management teams and their effects on innovation,

strategic change, and firm performance. Following this discussion, we analyze the internal

and external managerial labor markets from which strategic leaders are selected. Closing

the chapter are descriptions of the five key components of effective strategic leadership:

determining a strategic direction, effectively managing the firm’s resource portfolio (which

includes exploiting and maintaining core competencies along with developing human

capital and social capital), sustaining an effective organizational culture, emphasizing

ethical practices, and establishing balanced organizational controls.

Strategic Leadership and Style

Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower

others to create strategic change as necessary. Multifunctional in nature, strategic leadership

involves managing through others, managing an entire enterprise rather than a functional

subunit, and coping with change that continues to increase in the global economy. Because

of the global economy’s complexity, strategic leaders must learn how to effectively influ-

ence human behavior, often in uncertain environments. By word or by personal example,

and through their ability to envision the future, effective strategic leaders meaningfully

influence the behaviors, thoughts, and feelings of those with whom they work.

Strategic leadership is

the ability to anticipate,

envision, maintain

ﬂ exibility, and empower

others to create strategic

change as necessary.

Part 3: Strategic Actions: Strategy Implementation

352

353

Chapter 12: Strategic Leadership

The ability to attract and then manage human capital may be the most critical of the

strategic leader’s skills,

especially because the lack of talented human capital constrains

firm growth.

Increasingly, leaders throughout the global economy possess or are devel-

oping this skill. Some believe, for example, that leaders now surfacing in Chinese com-

panies understand the rules of competition in market-based economies and are leading

in ways that will develop their firm’s human capital.

In the twenty-first century, intellectual capital that the firm’s human capital pos-

sesses, including the ability to manage knowledge and create and commercialize inno-

vation, affects a strategic leader’s success.

Effective strategic leaders also establish the

context through which stakeholders (such as employees, customers, and suppliers) can

perform at peak efficiency.

Being able to demonstrate these skills is important, given that

the crux of strategic leadership is the ability to manage the firm’s operations effectively

and sustain high performance over time.

Vision Mission

Formulation

of Strategies

Implementation

of Strategies

Strategic

Competitiveness

Above-Average Returns

inﬂuence

and

shapes the

formation of

Effective Strategic

Leadership

yields

Successful

Strategic Actions

Figure 12.1 Strategic Leadership and the Strategic Management Process

354

Part 3: Strategic Actions: Strategy Implementation

A firm’s ability to achieve a competitive advantage and earn above-average returns is

compromised when strategic leaders fail to respond appropriately and quickly to changes

in the complex global competitive environment. The inability to respond or to identify

the need for change in the competitive environment is one of the reasons some CEOs fail,

as shown by the replacement of CEOs in Toyota and Lenovo described in the Opening

Case. Therefore, strategic leaders must learn how to deal with diverse and complex envi-

ronmental situations. Individual judgment is an important part of learning about and

analyzing the firm’s competitive environment.

In particular, effective strategic leaders

build strong ties with external stakeholders to gain access to information and advice on

the events in the external environment.

The primary responsibility for effective strategic leadership rests at the top, in par-

ticular with the CEO. Other commonly recognized strategic leaders include members of

the board of directors, the top management team, and divisional general managers. In

truth, any individual with responsibility for the performance of human capital and/or a

part of the firm (e.g., a production unit) is a strategic leader. Regardless of their title and

organizational function, strategic leaders have substantial decision-making responsibili-

ties that cannot be delegated.

Strategic leadership is a complex but critical form of lead-

ership. Strategies cannot be formulated and implemented for the purpose of achieving

above-average returns without effective strategic leaders.

The styles used to provide leadership often

affect the productivity of those being led.

Transformational leadership is the most effective

strategic leadership style. This style entails motivating

followers to exceed the expectations others have

of them, to continuously enrich their capabilities,

and to place the interests of the organization above

their own.

Transformational leaders develop and

communicate a vision for the organization and

formulate a strategy to achieve the vision. They

make followers aware of the need to achieve valued

organizational outcomes and encourage them to

continuously strive for higher levels of achievement.

These types of leaders have a high degree of integrity

(Roy Kroc, founder of McDonald’s, was a strategic

leader valued for his high degree of integrity)

and

character. Speaking about character, one CEO said the following: “Leaders are shaped and

defined by character. Leaders inspire and enable others to do excellent work and realize

their potential. As a result, they build successful, enduring organizations.”

Additionally,

transformational leaders have emotional intelligence. Emotionally intelligent leaders

understand themselves well, have strong motivation, are empathetic with others, and

have effective interpersonal skills.

As a result of these characteristics, transformational

leaders are especially effective in promoting and nurturing innovation in firms.

The Role of Top-Level Managers

Top-level managers play a critical role in that they are charged to make certain their firm

is able to effectively formulate and implement strategies.

Top-level managers’ strategic

decisions influence how the firm is designed and goals will be achieved. Thus, a criti-

cal element of organizational success is having a top management team with superior

managerial skills.

Managers often use their discretion (or latitude for action) when making strategic deci-

sions, including those concerned with effectively implementing strategies.

Managerial

discretion differs significantly across industries. The primary factors that determine the

Top-level management

decisions inﬂ uence the

culture of ﬁ rms as well

as how organizations are

structured and how goals

are set and achieved.

Comstock Images/Jupiter Images

355

Chapter 12: Strategic Leadership

amount of decision-making discretion held by a manager (especially a top-level manager)

are (1) external environmental sources such as the industry structure, the rate of market

growth in the firm’s primary industry, and the degree to which products can be dif-

ferentiated; (2) characteristics of the organization, including its size, age, resources, and

culture; and (3) characteristics of the manager, including commitment to the firm and

its strategic outcomes, tolerance for ambiguity, skills in working with different people,

and aspiration levels (see Figure 12.2). Because strategic leaders’ decisions are intended

to help the firm gain a competitive advantage, how managers exercise discretion when

determining appropriate strategic actions is critical to the firm’s success.

In addition to determining new strategic initiatives, top-level managers develop a

firm’s organizational structure and reward systems. Top executives also have a major

effect on a firm’s culture. Evidence suggests that managers’ values are critical in shaping

a firm’s cultural values.

Accordingly, top-level managers have an important effect on

organizational activities and performance.

Because of the challenges top executives face,

they often are more effective when they operate as top management teams.

Top Management Teams

In most firms, the complexity of challenges and the need for substantial amounts of

information and knowledge require strategic leadership by a team of executives. Using

Managerial

Discretion

Characteristics of

the Manager

• Tolerance for ambiguity

• Commitment to the

ﬁrm and its desired

strategic outcomes

• Interpersonal skills

• Aspiration level

• Degree of self-

conﬁdence

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

Characteristics of the

Organization

• Size

• Age

• Culture

• Availability of

resources

• Patterns of

interaction among

employees

Figure 12.2 Factors Affecting Managerial Discretion

Source: Adapted from S. Finkelstein & D. C. Hambrick, 1996, Strategic Leadership: Top Executives

and Their Effects on Organizations, St. Paul, MN: West Publishing Company.

356

Part 3: Strategic Actions: Strategy Implementation

a team to make strategic decisions also helps to avoid another potential problem when

these decisions are made by the CEO alone: managerial hubris. Research evidence shows

that when CEOs begin to believe glowing press accounts and to feel that they are unlikely

to make errors, they are more likely to make poor strategic decisions.

Top executives

need to have self-confidence but must guard against allowing it to become arrogance and

a false belief in their own invincibility.

To guard against CEO overconfidence and poor

strategic decisions, firms often use the top management team to consider strategic oppor-

tunities and problems and to make strategic decisions. The

top management team is

composed of the key individuals who are responsible for selecting and implementing the

firm’s strategies. Typically, the top management team includes the officers of the corpo-

ration, defined by the title of vice president and above 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 firm’s ability to innovate and engage in effective strategic change.

Top Management Team, Firm Performance, and Strategic Change

The job of top-level executives is complex and requires a broad knowledge of the firm’s

operations, as well as the three key parts of the firm’s external environment—the general,

industry, and competitor environments, as discussed in Chapter 2. Therefore, firms try

to form a top management team with knowledge and expertise needed to operate the

internal organization, yet that also can deal with all the firm’s stakeholders as well as its

competitors.

To have these characteristics normally requires a heterogeneous top man-

agement team. A heterogeneous top management team is composed of individuals

with different functional backgrounds, experience, and education.

Members of a heterogeneous top management team benefit from discussing the

different perspectives advanced by team members.

In many cases, these discussions

increase the quality of the team’s decisions, especially when a synthesis emerges within

the team after evaluating the diverse perspectives.

The net benefit of such actions by

heterogeneous teams has been positive in terms of market share and above-average

returns. Research shows that more heterogeneity among top management team members

promotes debate, which often leads to better strategic decisions. In turn, better strategic

decisions produce higher firm performance.

It is also important for top management team members to function cohesively. In

general, the more heterogeneous and larger the top management team is, the more difficult

it is for the team to effectively implement strategies.

Comprehensive and long-term

strategic plans can be inhibited by communication difficulties among top executives who

have different backgrounds and different cognitive skills.

Alternatively, communication

among diverse top management team members can be facilitated through electronic

communications, sometimes reducing the barriers before face-to-face meetings.

However, a group of top executives with diverse backgrounds may inhibit the process of

decision making if it is not effectively managed. In these cases, top management teams

may fail to comprehensively examine threats and opportunities, leading to a suboptimal

strategic decision. Thus, the CEO must attempt to achieve behavioral integration among

the team members.

Having members with substantive expertise in the firm’s core functions and busi-

nesses is also important to a top management team’s effectiveness.

In a high-technology

industry, it may be critical for a firm’s top management team members to have R&D

expertise, particularly when growth strategies are being implemented. Yet their eventual

effect on strategic decisions depends not only on their expertise and the way the team

is managed but also on the context in which they make the decisions (the governance

structure, incentive compensation, etc.).

The characteristics of top management teams are related to innovation and strategic

change.

For example, more heterogeneous top management teams are positively associated

with innovation and strategic change. The heterogeneity may force the team or some of its

members to “think outside of the box” and thus be more creative in making decisions.

The top management

team is composed of the

key individuals who are

responsible for selecting

and implementing the

ﬁ rm’s strategies.

A heterogeneous top

management team is

composed of individuals

with different functional

backgrounds, experience,

and education.

357

Chapter 12: Strategic Leadership

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. When a new CEO is

hired from outside the industry, the probability of strategic change is greater than if

the new CEO is from inside the firm or inside the industry.

Although hiring a new

CEO from outside the industry adds diversity to the team, the top management team

must be managed effectively to use the diversity in a positive way. Thus, to successfully

create strategic change, the CEO should exercise transformational leadership.

A top

management team with various areas of expertise is more likely to identify environmental

changes (opportunities and threats) or changes within the firm, suggesting the need for

a different strategic direction.

In the current competitive environment, an understanding of international markets

is vital. However, recent research suggests that only about 15 percent of the top executives

in Fortune 500 firms have global leadership expertise.

Executives generally gain this

knowledge by working in one of the firm’s international subsidiaries but can also gain

some knowledge by working with international alliance partners.

The CEO and Top Management Team Power

As noted in Chapter 10, the board of directors is an important governance mechanism

for monitoring a firm’s strategic direction and for representing stakeholders’ interests,

especially those of shareholders.

In fact, higher performance normally is achieved when

the board of directors is more directly involved in shaping a firm’s strategic direction.

Boards of directors, however, may find it difficult to direct the strategic actions of

powerful CEOs and top management teams.

Often, a powerful CEO appoints a number

of sympathetic outside members to the board or may have inside board members who

are also on the top management team and report to her or him.

In either case, the CEO

may significantly influence the board’s actions. Thus, the amount of discretion a CEO

has in making strategic decisions is related to the board of directors and how it chooses

to oversee the actions of the CEO and the top management team.

CEOs and top management team members can achieve power in other ways. A CEO

who also holds the position of chairperson of the board usually has more power than the

CEO who does not.

Some analysts and corporate “watchdogs” criticize the practice of

CEO duality (when the CEO and the chairperson of the board are the same) because it

can lead to poor performance and slow response to change.

Although it varies across industries, CEO duality occurs most commonly in larger

firms. Increased shareholder activism, however, has brought CEO duality under scrutiny

and attack in both U.S. and European firms. As reported in Chapter 10, an independent

board leadership structure in which the same person did not hold the positions of CEO

and chair is commonly believed to enhance a board’s ability to monitor top-level manag-

ers’ decisions and actions, particularly with respect to financial performance.

On the

other hand, if a CEO acts as a steward, holding the dual roles facilitates effective deci-

sions and actions. In these instances, the increased effectiveness gained through CEO

duality accrues from the individual who wants to perform effectively and desires to be

the best possible steward of the firm’s assets. Because of this person’s positive orientation

and actions, extra governance and the coordination costs resulting from an independent

board leadership structure would be unnecessary.

Top management team members and CEOs who have long tenure—on the team and

in the organization—have a greater influence on board decisions. CEOs with greater

influence may take actions in their own best interests, the outcomes of which increase

their compensation from the company.

As reported in Chapter 10, many people are

angry about excessive top executive compensation, especially during poor economic

times when others are losing their jobs because ineffective strategic decisions made by

the same managers.

In general, long tenure is thought to constrain the breadth of an executive’s knowl-

edge base. Some evidence suggests that with the limited perspectives associated with a

ead

about

the

ole o

the board o

irectors in a ﬁ rm’s to

management dynamic.

www.cengage.com

mana

ement/hitt

TRATE

IGHT NOW