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Chapter 12
Strategic Leadership
LEARNING OBJECTIVES
1. Define strategic leadership and describe top-level managers’ importance.
2. Explain what top management teams are and how they affect 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 firm’s strategic direction.
5. Describe the importance of strategic leaders in managing the firm’s resources.
6. Explain what must be done for a firm 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: Can You Follow an Icon and Succeed? Apple and Tim Cook after Steve Jobs
STRATEGIC LEADERSHIP AND STYLE
THE ROLE OF TOP-LEVEL MANAGERS
Top Management Teams
MANAGERIAL SUCCESSION
Strategic Focus: Trial by Fire: CEO Succession at General Motors
KEY STRATEGIC LEADERSHIP ACTIONS
Determining Strategic Direction
Effectively Managing the Firm’s Resource Portfolio
Strategic Focus: All the Ways You Can Fail!
Sustaining an Effective Organizational Culture
Emphasizing Ethical Practices
Establishing Balanced Organizational Controls
SUMMARY
KEY TERMS
REVIEW QUESTIONS
MINI-CASE: A Change at the Top of Procter & Gamble
ADDITIONAL QUESTIONS AND EXERCISE
MINDTAP RESOURCES
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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
Can You Follow an Icon and Succeed?
Apple and Tim Cook after Steve Jobs
Tim Cook, Apple’s current CEO had some iconic shoes to try to fill, Steve Jobs’ shoes.
Apple’s success has been the fruit of Job’s “genius” and leadership. Jobs is responsible
for the iPod, iTunes, iPhone and other products that are still driving the record breaking
revenue. Because of this, it is hard to know how effective Tim Cook actually is.
One reason why most thought Cook was set up for failure was the extremely different
leadership style from Jobs. Jobs was very impulsive and a bit selfish with the spotlight.
Cook takes a much less emotional approach than Jobs. Some refer to it as a “measured
emotional approach to leadership”. He empowers his team to manage their functional
areas, a delegating approach and sharing the spotlight.
Cook is starting to have his hand in developing innovative products. His Apple watch
was introduced in 2015 and initial reports suggest that demand is exceeding supply, a
good sign. But, it will take more than just one success to fill the shoes of Jobs. Time will
tell if Apple will remain as innovative as in the past.
Teaching Note
Ask students to brainstorm potential issues Tim Cook may have had when taking over
for Steve Jobs. What are some of the obstacles Cook would have to overcome? How
could Apple have become weaker or lose what makes Apple so great? Then think
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STRATEGIC LEADERSHIP AND STYLE
Strategic leadership entails the ability to anticipate, envision, maintain flexibility, and
empower others to create strategic change as necessary. Strategic change is change brought
The strategic leader has several responsibilities, including the following:
• Establishing a context for efficiency
• Attract and then managing human capital (perhaps the most critical of the strategic
1
Define strategic leadership and describe top-level managers’
importance.
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FIGURE 12.1
Strategic Leadership and the Strategic Management Process
As illustrated in Figure 12.1, effective strategic leadership
• Shapes the formation of the firm’s vision and mission
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 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 leader’s decision discretion:
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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 manager’s characteristics.
External Environment (especially the competitive environment)
Organizational Characteristics
Managers’ (Individual) Characteristics
• Manager’s tolerance for ambiguity
• Commitment to the firm and its desired strategic outcomes
Teaching Note
Remind students that for top-level managers to make a difference—or enhance a
firm’s ability to achieve a competitive advantage—they generally must possess
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superior knowledge and skills. While all organizations have strategic leaders, the top
management team’s 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).
Top Management Teams
Teaching Note
Strategic actions taken by a firm’s top management team will have an impact—
2
Define top management teams and explain their effects on
firm performance.
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The more heterogeneous a top management team is the more varied its 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
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
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• Can control the flow of information to outside directors
However, in some cases, a firm’s CEO and members of the top management team may
“overpower” the firm’s board of directors. This can happen when:
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 executive’s
Teaching Note
One solution to this dysfunction is to get members of the firm’s management team to
have a significant ownership interest in the firm. Though 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.
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MANAGERIAL SUCCESSION
Because of the impact that members of a firm’s top management team—especially the
CEO—can have on the organization’s performance, the selection of new top managers
requires effective screening systems.
Because of insiders’ experience within the firm and the industry in which it completes, the
benefits of using the internal managerial labor market include:
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 that
call for selecting an outsider.
Teaching Note
Outsiders are limited in firm-specific knowledge and/or industry experience.
Figure Note
3
Describe the managerial succession process using internal and
external managerial labor markets.
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Figure 12.3 is helpful to discuss the relationships among 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
Figure 12.3 illustrates relationships between the source of the successor, top management
team heterogeneity/homogeneity (or team makeup), and firm strategy.
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.
To have an adequate number of top managers, firms must take advantage of a highly
qualified labor pool, including one source of managers that has often been overlooked:
women. Firms are beginning to utilize women’s potential managerial talents with substantial
success. A few firms have gained value by using the significant talents of women leaders.
But many more have not done so, which represents an opportunity cost to them.
STRATEGIC FOCUS
Trial by Fire: CEO Succession at General Motors
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along with many others, are what contributed to Mary Barra’s trial by fire. She has navigated
these issues and trials with success and is currently planning or the long term success of GM.
Teaching Note
Ask the students about how they would have handled the situation. Under all the scrutiny
that she was, ask if they would have made the same decisions she made. In what way did
she make GM a better company? In what ways did she potentially cause harm? Are there
any other actions she could have taken, or not taken that would have benefited GM and
their shareholders even more?
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 sets the stage for the balance of Chapter 12.
Determining Strategic Direction
4
Discuss the value of strategic leadership in determining the
firm’s strategic direction.
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progress. The envisioned future serves as a guide to the firm’s 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, though gaining employee
Effectively Managing the Firm’s Resource Portfolio
Probably the most important task for strategic leaders is effectively managing the firm’s
portfolio of resources.
5
Describe the importance of strategic leaders in managing
the firm’s resources.
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Teaching Note
Before core competencies can serve as building blocks for a firm’s 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
Developing Human Capital and Social Capital
Human capital refers to the knowledge and skills of the firm’s workforce. This means that
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• Recognize that knowledge has become more integral to gaining and sustaining a
competitive advantage
• Help build knowledge and skills
linked with strategic success. It is also important to promoting innovation, which is the
foundation of competitive advantage.
Layoffs can result in a significant loss of the knowledge possessed by a firm’s human capital.
Research has shown that moderate-sized layoffs may improve firm performance, but large
layoffs produce stronger performance downturns in firms because of the loss of human
capital.
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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STRATEGIC FOCUS
All the Ways You Can Fail!
This case shows three examples of how companies can fail due to poor decisions. One
example is NBC News and its trouble with the popular news anchor, Brian Williams.
Teaching Note: Ask the students to analyze each situation individually. What was needed in
order for each scenario to end differently? Were these problems avoidable or something
beyond anyone’s control? Then, ask how these cases are linked? Is there a common thread
between each case that is the root of the problems?
Sustaining an Effective Organizational Culture
Entrepreneurial Mind Set
6
Explain what must be done for a firm to sustain an effective
culture.
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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
Corporate culture characteristics and managerial actions that encourage an entrepreneurial
mindset include:
• Autonomy – enabling employees to be self-directed in the pursuit of entrepreneurial
Changing the Organizational Culture and Restructuring
As noted in the text, incremental changes to the organization’s culture typically are used to
improve the effectiveness of strategy implementation.
Teaching Note
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No matter why an organization’s culture must change, the shaping and reinforcing of
the new culture requires:
Teaching Note
It is helpful to show students that effective strategic leadership is 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
Emphasizing Ethical Practices
7
Explain what strategic leaders can do to establish and emphasize
ethical practices.