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Teaching Note
Recent research reports that a many 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
Recent ethical lapses at high-profile corporations suggest firms need to employ ethical
strategic leaders—ones 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.
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Establishing Balanced Organizational Controls
Organizational controls—introduced in Chapter 11—are 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
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.
The Balanced Scorecard
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Discuss the importance and use of organizational controls.
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Generally speaking, strategic controls tend to be emphasized when the firm assesses its
performance relative to the learning and growth perspective, whereas 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
scorecard’s 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.
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ANSWERS TO REVIEW QUESTIONS
1. What is strategic leadership? Why are top-level managers considered important
resources for an organization?
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.
2. What is a top management team, and how does it affect a firm’s performance and
its abilities to innovate and design and implement effective strategic changes?
The top management team includes the key managers responsible for formulating and
implementing the organization’s 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 firm’s ability to innovate and engage in effective strategic
change.
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3. What is the managerial succession process? How important are the internal and
external managerial labor markets to this process.
The managerial succession process is the process that firms undertake to select a new CEO to
lead the firm. The succession process is a primary responsibility of the firm’s board of
directors and should involve the incumbent CEO as well. Succession planning is important
to ensure that the board’s expectations of the CEO and his/her top management team are
realized.
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4. What is the effect of strategic leadership on determining the firm’s strategic
direction?
5. How do strategic leaders effectively manage their firm’s resource portfolio to
exploit its core competencies and leverage the human capital and social capital to
achieve a competitive advantage?)
Strategic leaders manage the firm’s 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,
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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 firm’s 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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6. What must strategic leaders do to develop and sustain an effective organizational
culture?
An organizational culture consists of a complex set of ideologies, symbols, and core values
that is shared throughout the firm and that 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,
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7. As a strategic leader, what actions could you take to establish and emphasize
ethical practices in your firm?
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
8. Why are strategic controls and financial controls important aspects of the
strategic management process?
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 used by managers to maintain or alter the patterns of
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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
MINI-CASE
A Change at the Top at Procter & Gamble: An Indication of How Much
the CEO Matters?
The mini-case describes how CEO succession at P&G has had a detrimental effect on
firm performance. The successor, Bob McDonald, assumed the position in 2009 but
lasted a little under four years. During his tenure, P&G failed to keep up with rivals’
sales and share price growth. He was criticized for ineffective responses to competitor
Teaching Note: The mini-case underscores the importance of the CEO in
organizational success. In the case of P&G, students should realize that McDonald’s
problems stemmed from both poor strategy and ineffective execution. As McDonald
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ANSWERS TO MINI CASE DISCUSSION
QUESTIONS
1. What makes a CEO’s job so complex? Use the mini-case to provide examples that
help support your answer.
2. Is it a good practice to rehire a former CEO who has retired? Please explain the
potential advantages and disadvantages of doing so.
3. What should P&G do to replace Lafley when he retires for a second time? What
actions should they take to prepare for the succession?
ADDITIONAL QUESTIONS AND EXERCISES
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Application Discussion Questions
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 firm’s
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 firm’s performance?
3. What are managerial resources? What is the relationship between managerial resources
and a firm’s strategic competitiveness?
4. Have 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 organization’s top management team. Is there a
relationship between the top management team’s characteristics and the type of change
the organization experienced? If so, what are the nature and outcome of that relationship?
5. Ask 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 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 CEO’s vision been realized? If so, what have its
effects been? If the vision has not been realized, why not?
7. 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 firm’s performance?
8. Have 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 organization’s performance? If so, what is that effect?
9. Why is the strategic control exercised by a firm’s 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
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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 firm’s 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 firm’s
human capital? Why or why not? Do you believe that your position is consistent with the
majority or minority of today’s 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?
INSTRUCTOR’S NOTES FOR MINDTAP
Cengage offers additional online activities, assessments and resources inside MindTap, our
online learning platform. The following activities can be assigned within MindTap for
students to complete.
INSTRUCTOR’S NOTES FOR BRANCHING
EXERCISE
Krispy Kreme
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The students will act as the board of directors in order to innovate the company. The
students will use skills in strategic management and take concepts learned in this and in
previous chapters to approach this business challenge.
Students will review these concepts:
The ideal path that earns a perfect score is the following:
• Choose to end the CEO duality that is currently held in Krispy Kreme that would
hinder change. The current CEO is known to fight changes in strategic direction.
• In order to make a larger change to Krispy Kreme’s strategy, a candidate needs to
INSTRUCTOR’S NOTES FOR EXPERIENTIAL
EXERCISES
Strategic Leadership: Glass Ceiling or Glass Cliff?
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The purpose of this exercise is to examine the effects of strategic leadership and change
on large firms who appoint women leaders. As displayed in the chapter, a change in
executive leadership can have a profound effect on the performance of the company.
But what happens when women do achieve leadership roles? And what sorts of positions
are they given?
The students will be asked to:
1. Read the study of The Glass Cliff
2. Choose a female CEO from a predetermined list
3. Determine if they had navigated the glass cliff or fallen off
INSTRUCTOR’S NOTES FOR VIDEO
EXERCISES
Title: Humble CEO
RT: 2:04
Topic Key: Strategic leadership, Top management team, Human Capital, Social
Capital, Organizational culture
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