Chapter 12: Strategic Leadership
12-4d 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.
Teaching Note
Recent research reports that 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
statements.
Recent ethical lapses at high-profile corporations suggest that firms need to employ ethical
strategic leaders—ones who include ethical practices as part of their long-term vision for
Chapter 12: Strategic Leadership
Firms must employ ethical strategic leaders who will infuse ethical values into the
organization’s culture by:
• Establishing/communicating the firm’s ethical code of conduct to describe the firm’s
ethical standards
• Continuously revising and updating the code of conduct based on stakeholder input
The effectiveness of these actions increases when they are taken simultaneously, which
makes them mutually supportive. When managers/employees do not engage in these
8
Discuss the importance and use of organizational controls.
12-4e 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
used to do the following:
• Build credibility
Chapter 12: Strategic Leadership
Teaching Note
Strategic controls represent those control systems that focus on the content of actions
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 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
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
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
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24
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
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
• 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
ANSWERS TO REVIEW QUESTIONS
1. What is strategic leadership? Why are top-level managers 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
Chapter 12: Strategic Leadership
2. What is a top management team, and how does it affect a firm’s performance and
its abilities to innovate and design and bring about effective strategic change?
The top management team includes the key managers responsible for formulating and
implementing the organization’s strategies. Typically, the top management team includes
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
Chapter 12: Strategic Leadership
3. What is the managerial succession process? How important are the internal and
external managerial labor markets to this process?
A firm undertakes the managerial succession process to select a new CEO to lead it. 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 or her top management team are realized.
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
4. What is the effect of strategic leadership on determining the firm’s strategic
direction?
Determining the strategic direction of a firm refers to the development of a firm’s long-
term vision, normally looking at least five to ten years into the future. Whereas the core
Chapter 12: Strategic Leadership
5. How do strategic leaders manage their firm’s resource portfolio effectively to exploit
its core competencies and leverage its 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
Human capital refers to the knowledge and skills of a firm’s entire workforce.
Investments in human capital are productive; in fact, people are perhaps the only truly
sustainable source of competitive advantage. Human capital’s increasing importance
suggests a significant role for the firm’s human resource management activities.
Chapter 12: Strategic Leadership
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
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
Chapter 12: Strategic Leadership
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
1. Establishing and communicating specific goals to describe the firm’s 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)
Chapter 12: Strategic Leadership
8. Why are strategic controls and financial controls important aspects of strategic
leadership and the firm’s 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
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
MINI CASE
Can You Follow an Icon and Succeed? Apple and Tim Cook After Steve Jobs
Note: To prepare students for class discussion and to introduce them to the
fundamentals of the Strategic Management process, each chapter Mini-Case is
Chapter 12: Strategic Leadership
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 Jobs’ “genius” and leadership. Jobs was 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.
Teaching Note
Ask students to brainstorm potential issues Tim Cook may have had when he took over
for Steve Jobs. What are some obstacles Cook would have had to overcome? How
could Apple have become weaker or lose what makes it so great? Then think about the
Answers to Case Discussion Questions
1. What makes a CEO’s job so complex? Use the challenge Tim Cook faces as Steve Jobs’
successor to provide examples that support your answer.
A CEO’s job is so complex because of the many factors he or she is responsible for—
2. Tim Cook came from Apple’s internal managerial labor market to succeed Steve Jobs. In
your view, was using the internal managerial labor market the best approach to follow
when replacing Jobs? Use materials in the chapter regarding the internal and external
managerial labor markets to explain your answer.