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Q2) Examine the link between strategic leadership and change, drawing on case examples.
Q3) Turnarounds generally require a combination of leadership change and strategic change. Discuss
Q4) Explain what is a strategic leader?
Strategic Leadership Intro
Fundamentally a leader could be considered as an executive leader or strategic leader based on the role and action he or she performs. An executive leader builds the organizational culture and shapes its future. His role could be divided as teacher, designer and steward. As a teacher he practices guidelines and acts as a coach for the workforce. Designers have a purpose, a vision and formulate policies and develop strategies and structures to make the organization seek its goal. The executive leader as a steward creates a business climate enabling resources to produce worthwhile results. He conducts the business with integrity and in a reliable and dependable manner. (Ireland and Hitt, 1999)
The global economy more than any other factor, has created the needs for the top management team to effectively exercise strategic leadership in organizations. The knowledge needed to understand and operate in many global markets is substantial. The top management holds CEO accountable for guiding the firm in ways that best serve the interest of owners and other stake holders. John Browne, CEO British Petroleum Company believes that the top manager must stimulate the organization rather than control it. He also believes that the role of leader at all level is to demonstrate to people that they are capable of achieving more than they can achieve and that they should never be satisfied with where they are now.
Networked and globalized thinking will be important to cope with the accelerating speed of change. Based on these evidences, strategic leadership in modern times should be executed through interactions that are based on sharing of knowledge, experience and responsibilities for achieved outcomes. These interactions take place as the firm satisfies the requirements associated with effective strategic leadership practices about which we would discuss here on.
Determining the firms purpose or vision: The task of determining the direction of the firm rests solely on the CEO's shoulders. The top manager must provide general guidelines as to where the firm intends to go and the key step to reach the goal. John Browne, British Petroleum CEO believes that a clear purpose allows a company to focus its learning efforts in order to increase its competitive advantage.
Once the CEO and the top management team have set the general organizational purpose all citizens will be empowered to design and execute strategies and course of action to accomplish that end. (Ireland and Hitt, 1999) This indicates that an organization or firm reflects the strategies implemented by the CEO and the vision justifies the company's goal. Jack Welch, CEO of GE (1981-2001), had a vision to make GE as USA's number one company. He developed a strategy for GE that identified the business for as either core (eg lightning), service (eg financial) or high technology (eg medical) and set the challenge to be number one or number two in their chosen market. If not at the topmost position in the market, his strategy was to fix, close or sell the business. (Jack Welch)
Exploiting and maintaining core competencies: Core competencies are the resources and capabilities that give a firm a competitive advantage over its rivals, which is linked positively and significantly with a firm's success. Strategic leaders identify the core competencies and work to apply these competencies so as to improve company performance. The large retailer Nordstorm Inc., for example is thought to have core competencies in its customer service and ability to package merchandise in ways that provide unique value to customers.
Dell Computer Corporation's distribution system is another example of a key competitive advantage.
The sharing of knowledge or intellectual capital that is unique to a particular organization will influence significantly the choices strategic leaders make when seeking to use core competencies. The competitive value of core competencies increases through their use and continuing development. The most effective strategic leadership practices are the ones through which strategic leaders find ways for knowledge to breed still more knowledge. Johnson and Johnsons CEO is a strategic leader who believes in developing and nurturing his firm's knowledge base. He once said that his company is not in the product business, it is the knowledge business. Knowledge and the core competencies cannot be exploited without appropriate human capital.
Developing human capital: Human capital is the knowledge and skills of a firm's entire workforce. Strategic leaders view organizational citizens as a critical resource on which many core competencies are built and through which competitive advantages are exploited successfully. A firm is able to perform successfully only if the citizens work systematically and continuously on the productivity of knowledge. The importance of educational investment in citizens is being supported in the growing number of corporations. Intel Corp also spends $3500 per year per person on education.
Six Sigma is a statistically based program that attempts to achieve near perfect quality. GE implemented this concept through educating its citizens. GE worked for 5 years for successful implementation of the concept. In the first year GE trained 30000 employees at a cost of about $200 million obtaining savings of $150 million. This continuous improvement proved to be productive and profitable. Greater workforce diversity is another issue that will confront strategic leaders. (Jack Welch) Organizational communities will comprise individuals from different countries and cultures. Peter Brabeck - Letmathe, CEO of Nestle SA, believes that it is increasingly important for top managers to speak at least two to three languages.
Sustaining an effective organizational culture: Organizational culture refers to the complex set of ideologies, symbols, and core values shared throughout the firm. Several business leaders believe that culture is more challenging to firms as compared to technicality. Culture provides the context within which strategies are formulated and implemented. Culture influences the firm's business conduct as well as the method used to regulate and control the behaviour of organizational citizens.
Herbs Kelleher, CEO of Southwest airline believes that culture is responsible for the company's steady growth, above average profitability and the avoidance of employee layoffs for more than 25 years.
Emphasizing ethical practices: In today's date effective strategic leaders will be emphasizing more on use ethical practices such as honesty, trust and integrity as the foundation for their decisions. Such leaders are capable of inspiring their workforce and develop an organizational culture in which ethical practices are the behavioural norm. Acer CEO, Stan Shih believes that for his work force there is simply no alternative in dealing with honesty with all of the firm's stakeholders.
A strategic leader's commitment to pursuits in which legal, ethical and social concerns have been taken into account is thought to be both morally right and economically efficient. Such ethical practices are hard for the strategic leaders to implement as the firm follow diverse culture and typical structure.
Establishing balanced organizational controls: Organizational controls are the formal information based procedures that strategic leaders and managers use to frame, maintain and alter patterns of organizational activities. Top managers are responsible for the development and effective use of two types of internal controls- strategic controls and financial controls. Strategic control involves information flow and deep understanding of competitive conditions and dynamics of each division among the CEO, top managers and organizational citizens. Whereas financial controls entail objective criteria (eg various accounting based measures) that strategic leaders use to evaluate returns earned by company units and those responsible for their performance.
Effective top managers seek to develop and use a balance set of strategic and financial controls. This is achieved by using strategic controls to focus on positive long term results while pursuing simultaneously the requirement to execute corporate actions in a financially prudent and appropriate manner.
GE followed this strategy under Jack Welch regime. Jack Welch initiated, "Operating System" program, in which annually top 500 operating leaders meet for 2 days presented their performance and shared their strategies and experiences. Jack Welch conducted Corporate Executive Council meeting (comprising GE's top 30) where the leader presented their newest thinking around the initiatives. He focussed on how the human resource strategy is being applied to all major initiatives.
In the post industrial era, information based technology and internationalization are the primary wealth - creation activities. The strategic leaders must enable their organizations to develop, exploit and protect the intellectual capital contained in their citizens knowledge base. The most effective strategic leaders develop the skills required to engage simultaneously in competitive and cooperative behaviours.