Strategic Management Ch 12 essay

126. What is strategic leadership, who has primary responsibility for strategic leadership, and what are the five key strategic leadership actions?
Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change. The CEO has primary responsibility for strategic leadership, which is shared with the board of directors, the top management team and divisional general managers. The five key strategic leadership actions are: determining a strategic direction, effectively managing the firm’s resource portfolio, sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organizational controls.
127. Discuss how the managerial succession process and the composition of the top management team interact to affect strategy.
Internal labor markets represent the opportunities for employees to take managerial positions (including the position of CEO) within a firm. The external labor market is the collection of career opportunities for managers in firms outside of the one for which they currently work. CEOs may be selected from internal or external candidates. Internal CEO selection is preferred by employees and by those who wish the firm to continue in its present strategies. External CEO succession is considered a sign that the board of directors wants change. Internal CEOs are less likely to seek change in the firm’s strategy than external CEOs. It is important to note that the source of the CEO (from the internal or external labor market) and the top management team’s composition interact to affect the likelihood of strategic change.
If a firm hires a new internal CEO and has a homogeneous top management team, it
is unlikely that the firm’s strategy will change. If the firm employs a new internal CEO but has a heterogeneous top management team, it will probably continue the current strategy, but innovation will be encouraged. If the top management team is homogeneous, but an external CEO is chosen, the situation will be ambiguous. Finally, if the top management team is heterogeneous and an external CEO is chosen,
strategic change is likely.
128. What are organizational controls? Why are strategic controls and financial controls important aspects of the strategic management process?
Organizational controls are the formal, information-based procedures used by managers to maintain or alter patterns in organizational activities. Controls provide the parameters within which strategies are to be implemented, as well as forming guidelines for corrective actions when adjustments are required. There are two main types of controls: financial and strategic. Financial controls focus on short-term financial outcomes. Strategic controls focus on the content of strategic actions. Financial controls give feedback about the outcomes of past actions. Strategic
controls focus on the drivers of the firm’s future performance. Emphasizing either financial or strategic controls has important implications for the strategic management process. For example, emphasizing financial controls often produces more short-term and risk-averse managerial actions because financial outcomes may be caused by events beyond the managers’ direct control. In contrast, strategic control encourages lower-level managers to make decisions that incorporate moderate and acceptable levels of risk because outcomes are shared between the business-level executives making strategic proposals and the corporate-level executives evaluating them.
129. Define human capital and its importance to the firm’s success.
Human capital represents the knowledge and skills of the firm’s entire workforce.
Effective strategic leaders view human capital as a capital resource that requires investment rather than as a cost to be minimized. It is thought that people are the organization’s only truly sustainable source of competitive advantage. So, effective human resource management practices are necessary to successfully select and use people to attain the firm’s goals. Not only must future leaders be trained, but the entire workforce must be able to learn continuously to build skills and knowledge that lead toward innovation. Layoffs can be disastrous because they strip skills and knowledge from the firm, leaving remaining employees unable to perform their tasks effectively.
130. 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 is composed of the key managers in the organization who are responsible for selecting and implementing the firm’s strategy. Typically, the top management team includes all officers of the firm (defined by the title of vice president or above) and/or those who serve as a member of the board of directors. Team characteristics have been shown to affect the strategy of the organization. A heterogeneous top management team is composed of individuals with varied
functional backgrounds, experiences, and education. A homogeneous team’s members are similar to one another in characteristics and experiences. A heterogeneous team
is more likely to formulate an effective strategy because of its varied expertise and knowledge. Additionally, heterogeneous top management teams have been shown to positively affect performance. In particular, heterogeneous teams positively affect innovation and strategic change in firms. But, heterogeneous teams are less cohesive than homogeneous teams because of communication difficulties, and it is more difficult for heterogeneous teams to implement strategies. Consequently, a heterogeneous top management team must be managed effectively to use the diversity in a positive way.
131. As a strategic leader, what actions could you take to establish and emphasize ethical practices in your firm?
Ethical practices should be institutionalized within the organization by being an integral part of the organizational culture. Sustaining an effective organizational culture is one of the key leadership actions and one aspect of an effective culture is that it promotes ethical behavior in the organization. Strategic leaders also develop explicit codes of conduct and provide ethics training to disseminate those codes. Examples of specific actions taken by strategic leaders to develop an ethical organizational culture include: (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), (3) disseminating the code of conduct to all stakeholders to inform them of the firm’s ethical standards and practices, (4) developing and implementing methods and procedures to use in achieving the firm’s ethical standards (e.g., use of internal auditing practices that are consistent with the standards), (5) creating and using explicit reward systems that recognize acts of courage (e.g., rewarding those who use proper channels and procedures to report observed wrongdoing), and (6) creating a work environment in which all people are treated with dignity.
132. What is organizational culture? What must strategic leaders do to develop and sustain an effective organizational culture?
Organizational culture is the set of ideologies, symbols, and core values that is shared throughout the organization and that influences the way the firm conducts its business. An organization’s culture can be a source of competitive advantage. It is more
difficult to change a firm’s culture than to sustain it. But effective strategic leadership recognizes when a change in a firm’s culture is necessary. Incremental changes to the firm’s culture are typically used to implement strategies. Sometimes radical changes are used to support strategies that differ from the firm’s historical pattern. Shaping
and reinforcing change in an organization’s culture require communication and problem solving, selection processes that find people with the right values, effective performance appraisals focused on goals reflecting the new culture, and reward systems that reward behaviors reflecting the new core values. Change occurs only when it is actively supported by the CEO, other top managers, and middle management.