Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts

Подождите немного. Документ загружается.

358

Part 3: Strategic Actions: Strategy Implementation

restricted knowledge base, long-tenured top executives typically develop fewer alternatives

to evaluate in making strategic decisions.

However, long-tenured managers also may

be able to exercise more effective strategic control, thereby obviating the need for

board members’ involvement because effective strategic control generally produces

higher performance.

Intriguingly, recent findings suggest that “the liabilities of short

tenure … appear to exceed the advantages, while the advantages of long tenure—firm-

specific human and social capital, knowledge, and power—seem to outweigh the dis-

advantages of rigidity and maintaining the status quo.”

Overall then the relationship

between CEO tenure and firm performance is complex, indicating that to strengthen

the firm, boards of directors should develop an effective relationship with the top

management team.

In summary, the relative degrees of power held by the board and top management

team members should be examined in light of an individual firm’s situation. For exam-

ple, the abundance of resources in a firm’s external environment and the volatility of that

environment may affect the ideal balance of power between the board and the top man-

agement teams. Moreover, a volatile and uncertain environment may create a situation

where a powerful CEO is needed to move quickly, but a diverse top management team

may create less cohesion among team members and prevent or stall necessary strategic

actions. With effective working relationships, boards, CEOs, and other top management

team members have the foundation required to select arrangements with the highest

probability of best serving stakeholders’ interests.

Managerial Succession

The choice of top executives—especially CEOs—is a critical decision with important

implications for the firm’s performance.

Many companies use leadership screening

systems to identify individuals with managerial and strategic leadership potential as

well as to determine the criteria individuals should satisfy to be candidates for the CEO

position.

The most effective of these systems assesses people within the firm and gains valu-

able information about the capabilities of other companies’ managers, particularly their

strategic leaders.

Based on the results of these assessments, training and development

programs are provided for current individuals in an attempt to preselect and shape the

skills of people who may become tomorrow’s leaders. Because of the quality of its pro-

grams, General Electric “is famous for developing leaders who are dedicated to turning

imaginative ideas into leading products and services.”

Organizations select managers and strategic leaders from two types of managerial

labor markets—internal and external.

An internal managerial labor market consists

of a firm’s opportunities for managerial positions and the qualified employees within

that firm. An external managerial labor market is the collection of managerial career

opportunities and the qualified people who are external to the organization in which the

opportunities exist.

Several benefits are thought to accrue to a firm when the internal labor market is used

to select an insider as the new CEO. Because of their experience with the firm and the

industry environment in which it competes, insiders are familiar with company prod-

ucts, markets, technologies, and operating procedures. Also, internal hiring produces

lower turnover among existing personnel, many of whom possess valuable firm-specific

knowledge. When the firm is performing well, internal succession is favored to sustain

high performance. It is assumed that hiring from inside keeps the important knowledge

necessary to sustain performance.

Results of work completed by management consultant Jim Collins support the value of

using the internal labor market when selecting a CEO. Collins found that high-performing

firms almost always appoint an insider to be the new CEO. He argues that bringing in a

An internal managerial

labor market consists of

a ﬁ rm’s opportunities for

managerial positions and

the qualiﬁ ed employees

within that ﬁ rm.

An external managerial

labor market is the

collection of managerial

career opportunities and

the qualiﬁ ed people

who are external to the

organization in which the

opportunities exist.

359

Chapter 12: Strategic Leadership

well-known outsider, to whom he refers as a “white knight,” is a recipe for mediocrity.

For example, given the phenomenal success of General Electric (GE) during Jack Welch’s

tenure as CEO and the firm’s highly effective management and leadership development

programs, insider Jeffrey Immelt was chosen to succeed Welch. However, sharehold-

ers have become disgruntled because GE’s stock values have decreased in recent years;

GE has suffered along with many other firms in the global economic crisis experienced

in 2008 and 2009. Thus, GE under Immelt’s leadership is not experiencing the returns

achieved by his predecessor.

Employees commonly prefer the internal managerial labor market when selecting

top management team members and a new CEO. In the past, companies have also had

a preference for insiders to fill top-level management positions because of a desire for

continuity and a continuing commitment to the firm’s current vision, mission, and cho-

sen strategies.

However, because of a changing competitive landscape and varying levels

of performance, an increasing number of boards of directors are turning to outsiders to

succeed CEOs. Although the circumstances are rather unique, Ed Whitacre, former CEO

of AT&T was chosen to be the new chairman for GM. Of course, he will have to help GM

come out of bankruptcy.

A firm often has valid reasons to select an outsider as its new

CEO. In some situations, long tenure with a firm may reduce strategic leaders’ level of

commitment to pursue innovation. Given innovation’s importance to firm success (see

Chapter 13), this hesitation could be a liability for a strategic leader.

In Figure 12.3, we show how the composition of the top management team and the

CEO succession (managerial labor market) interact to affect strategy. For example, when

the top management team is homogeneous (its members have similar functional experi-

ences and educational backgrounds) and a new CEO is selected from inside the firm, the

firm’s current strategy is unlikely to change. Alternatively, when a new CEO is selected

from outside the firm and the top management team is heterogeneous, the probability is

high that strategy will change. When the new CEO is from inside the firm and a hetero-

geneous top management team is in place, the strategy may not change, but innovation

is likely to continue. An external CEO succession with a homogeneous team creates a

more ambiguous situation. The selection of Sir Howard Stringer as CEO of Sony signaled

major changes in that firm’s future. He is not only an outsider but also a foreigner. He

is making major changes in the hopes of turning around Sony’s poor performance. His

intent is to have Sony regain its traditional excellence in innovative products.

To p

Management

Team

Composition

Stable

strategy

Ambiguous:

possible change in

top management

team and strategy

Stable strategy

with innovation

Strategic

change

Homogeneous

Heterogeneous

Internal CEO

succession

External CEO

succession

Managerial Labor Market:

CEO Succession

Figure 12.3 Effects of CEO Succession and Top Management Team Composition on Strategy

Anne Mulcahy became CEO of Xerox in 2001

and is credited with restoring the company’s

profitability and market leadership during her

tenure. She championed innovation and built a strong relationship with customers. In fact,

the firm was close to bankruptcy when she became the CEO. She told Xerox shareholders

that the company’s business model at the time was not sustainable. She was advised to

declare bankruptcy but refused to do so. To gain the support needed for changes, she had

personal meetings with the top 100 managers at Xerox. She refused to cut R&D or sales but

did reduce costs significantly in other areas. The lead independent director, N. J. Nicholas,

believes she created a major turnaround that built Xerox into an innovative technology and

services company. Her work as CEO has earned her recognition as one of America’s best

leaders.

The succession process she has used reinforces that recognition. Ursula Burns was

selected as heir apparent and given the job as president to “learn the ropes” for a couple

of years before Mulcahy decided to take early retirement (Mulcahy was only 56 years old in

2009). Actually, Burns played a major role in Xerox’s turnaround. She served as Mulcahy’s

lieutenant and managed most of the day-to-day operations. She also helped to identify

gaps in Xerox’s product portfolio and found products to fill those gaps. With the largest

product portfolio in Xerox’s history, it became a major competitor in marketing products to

small and medium-sized businesses. Interestingly, Burns

is the first African-American woman to head a major U.S.

corporation. Burns (CEO) and Mulcahy (Chairman) are

planning to work as a team for a couple of years. This

is probably good because Xerox faces multiple chal-

lenges given the negative economic environment. Burns

receives praise from insiders and external analysts for

her deep knowledge of the industry and business and

her technological expertise. She is also known for her

willingness to take risks. One observer called the selec-

tion of Burns and model transition between Mulcahy

and Burns as a “bases-loaded home run.” Xerox is a

unique technology-based company because approxi-

mately one third of its almost 4,000 executives are

women. Observers expect the transition from Mulcahy to

Burns to be a major success.

Sources: N. Byrnes and R. O. Crockett, 2009, An historic succession

at Xerox, BusinessWeek, June 8, 18–22; W. M. Bulkeley, 2009, Xerox

names Burns chief as Mulcahy retires early, Wall Street Journal, http://

www.wsj.com, May 22; 2009, Chief executive is retiring at Xerox, New

York Times, http://www.nytimes.com, May 22; 2009, Anne Mulcahy to

retire as Xerox CEO; Ursula Burns named successor, FreshNews, http://

www.freshnews.com, May 21; E. White, 2009, Xerox succession a ‘model’

case, Wall Street Journal, http://www.wsj.com, May 21; D. Gelles, 2009,

Burns to replace Mulcahy at Xerox, Financial Times, http://www.ft.com,

May 21; 2008, Women CEOs, Xerox, Financial Times, http://www.ft.com,

December 31; B. George, 2008, America’s best leaders: Anne Mulcahy,

Xerox CEO, US News, http://www.usnews.com, November 19.

THE MODEL SUCCESSION

AT XEROX

Jeff Weiner/Courtesy of Xerox Corporation

Nik Rocklin/Courtesy of Xerox Corporation

Anne Mulcahy, Chairman of Xerox

Ursula Burns, CEO of Xerox

361

Chapter 12: Strategic Leadership

Including talent from all parts of both the internal and external labor markets

increases the likelihood that the firm will be able to form an effective top-management

team. Evidence suggests that women are a qualified source of talent as strategic leaders

that have been somewhat overlooked. In light of the success of a growing number of

female executives, the foundation for change may be established. Trailblazers such as

Catherine Elizabeth Hughes (the first African-American woman to head a firm that was

publicly traded on a U.S. stock exchange), Muriel Siebert (the first woman to purchase a

seat on the New York Stock Exchange), and publisher Judith Regan have made important

contributions as strategic leaders. Recent years have produced several prominent female

CEOs, such as Anne Mulcahy (Xerox Corporation), Meg Whitman (eBay), and Andrea

Jung (Avon Products). As noted in the Strategic Focus, Anne Mulcahy stepped out of the

role of CEO and became chairman of the board for Xerox in 2009. Ursula Burns suc-

ceeded her as the CEO.

Managerial talent is critical to a firm’s success as noted earlier. And, one area in which

managerial talent is crucial is in the integration of an acquired firm into the acquiring

business. In fact, the top management team of an acquired firm is vital to a successful

integration process because they play a critical role in helping the change be implemented

and accepted by the acquired firm’s employees.

However, it is common for there to be

major turnover among the top management team of acquired firms. Sometimes it occurs

because the acquiring firm unwisely replaces them. In other cases, the managers depart

voluntarily to seek other top management positions. Research shows that high turnover

among the acquired firm’s top managers often produces poor performance and perhaps

even leads to a failed acquisition.

Therefore, acquiring firms should work hard to avoid

successions during the integration process and thereafter.

Key Strategic Leadership Actions

Certain actions characterize effective strategic leadership; we present the most important

ones in Figure 12.4. Many of the actions interact with each other. For example, manag-

ing the firm’s resources effectively includes developing human capital and contributes to

establishing a strategic direction, fostering an effective culture, exploiting core compe-

tencies, using effective organizational control systems, and establishing ethical practices.

The most effective strategic leaders create viable options in making decisions regarding

each of the key strategic leadership actions.

Determining Strategic Direction

Determining strategic direction involves specifying the image and character the firm

seeks to develop over time.

The strategic direction is framed within the context of the

conditions (i.e., opportunities and threats) strategic leaders expect their firm to face in

roughly the next three to five years.

The ideal long-term strategic direction has two parts: a core ideology and an envi-

sioned future. The core ideology motivates employees through the company’s heritage,

but the envisioned future encourages employees to stretch beyond their expectations

of accomplishment and requires significant change and progress to be realized.

The

envisioned future serves as a guide to many aspects of a firm’s strategy implementation

process, including motivation, leadership, employee empowerment, and organizational

design. The strategic direction could include such actions as entering new international

markets and developing a set of new suppliers to add to the firm’s value chain.

Most changes in strategic direction are difficult to design and implement; however,

CEO Jeffrey Immelt has an even greater challenge at GE. GE performed exceptionally

well under Jack Welch’s leadership. Although change is necessary because the competi-

tive landscape has shifted significantly, stakeholders accustomed to Jack Welch and high

performance are experiencing problems in accepting Immelt’s changes (e.g., changes to

Determining strategic

direction involves

specifying the image

and character the ﬁ rm

seeks to develop over

time.

362

Part 3: Strategic Actions: Strategy Implementation

Emphasizing

Ethical Practices

Effectively

Managing the Firm’s

Resource Portfolio

Sustaining

an Effective

Organizational Culture

Establishing Balanced

Organizational Controls

Determining

Strategic Direction

Effective Strategic

Leadership

Figure 12.4 Exercise of Effective Strategic Leadership

the firm’s corporate-level strategy and structure). His challenges are made even more dif-

ficult because GE is experiencing performance problems partly the result of the difficult

economic climate.

Additionally, information regarding the firm’s strategic direction

must be consistently and clearly communicated to all affected parties.

A charismatic CEO may foster stakeholders’ commitment to a new vision and strate-

gic direction. Nonetheless, it is important not to lose sight of the organization’s strengths

when making changes required by a new strategic direction. Immelt, for example, needs

to use GE’s strengths to ensure continued positive performance. The goal is to pursue the

firm’s short-term need to adjust to a new vision and strategic direction while maintaining

its long-term survivability by effectively managing its portfolio of resources.

Effectively Managing the Firm’s Resource Portfolio

Effectively managing the firm’s portfolio of resources may be the most important stra-

tegic leadership task. The firm’s resources are categorized as financial capital, human

capital, social capital, and organizational capital (including organizational culture).

Clearly, financial capital is critical to organizational success; strategic leaders

understand this reality.

However, the most effective strategic leaders recognize the

equivalent importance of managing each remaining type of resource as well as managing

the integration of resources (e.g., using financial capital to provide training opportunities

through which human capital is able to learn and maximize its performance). Most

importantly, effective strategic leaders manage the firm’s resource portfolio by organizing

them into capabilities, structuring the firm to facilitate using those capabilities, and

choosing strategies through which the capabilities are successfully leveraged to create

value for customers.

Exploiting and maintaining core competencies and developing and

retaining the firm’s human and social capital are actions taken to reach these important

objectives.

Exploiting and Maintaining Core Competencies

Examined in Chapters 1 and 3, core competencies are capabilities that serve as a source

of competitive advantage for a firm over its rivals. Typically, core competencies relate

to an organization’s functional skills, such as manufacturing, finance, marketing, and

363

Chapter 12: Strategic Leadership

research and development. Strategic leaders must verify that the firm’s competencies are

emphasized when implementing strategies. Intel, for example, has core competencies

of competitive agility (an ability to act in a variety of competitively relevant ways) and

competitive speed (an ability to act quickly when facing environmental and competitive

pressures).

Capabilities are developed over time as firms learn from their actions and

enhance their knowledge about specific actions needed. For example, through repeated

interactions, some firms have formed a capability allowing them to fully understand

customers’ needs as they change.

Firms with capabilities in R&D that develop into core

competencies are rewarded by the market because of the critical nature of innovation in

many industries.

In many large firms, and certainly in related diversified ones, core competencies are

effectively exploited when they are developed and applied across different organizational

units (see Chapter 6). For example, PepsiCo purchased Quaker Oats (now called Quaker

Foods), which makes the sports drink Gatorade. PepsiCo uses its competence in distribu-

tion systems to exploit the Quaker assets. In this instance, Pepsi soft drinks (e.g., Pepsi

Cola and Mountain Dew) and Gatorade share the logistics activity. Similarly, PepsiCo

uses this competence to distribute Quaker’s healthy snacks and Frito-Lay salty snacks

through the same channels. Today, PepsiCo seeks “to be the world’s premiere consumer

products company focused on convenient foods and beverages.”

Firms must continuously develop and, when appropriate, change their core com-

petencies to outperform rivals. If they have a competence that provides an advantage

but does not change it, competitors will eventually imitate that competence and reduce

or eliminate the firm’s competitive

advantage. Additionally, firms must

guard against the competence becom-

ing a liability, thereby preventing

change.

As we discuss next, human capi-

tal is critical to a firm’s success. One

reason it’s so critical is that human

capital is the resource through which

core competencies are developed and

used.

Developing Human Capital and

Social Capital

Human capital refers to the knowledge

and skills of a firm’s entire workforce.

From the perspective of human

capital, employees are viewed as a

capital resource requiring continuous

investment.

At PepsiCo, people are identified as the key to the firm’s continuing success.

Given the need to “sustain its talent,” PepsiCo invests in its human capital in the form of

a host of programs and development-oriented experiences.

Investments such as those being made at PepsiCo are productive, in that much of the

development of U.S. industry can be attributed to the effectiveness of its human capital.

This fact suggests that “as the dynamics of competition accelerate, people are perhaps the

only truly sustainable source of competitive advantage.”

In all types of organizations—

large and small, new and established, and so forth—human capital’s increasing impor-

tance suggests a significant role for the firm’s human resource management activities.

As a support activity (see Chapter 3), human resource management practices facilitate

people’s efforts to successfully select and especially to use the firm’s strategies.

Effective training and development programs increase the probability of individuals

becoming successful strategic leaders.

These programs are increasingly linked to firm

Human capital refers

to the knowledge and

skills of a ﬁ rm’s entire

workforce.

Training and

development pro-

grams can provide

the means by which

new strategic lead-

ers are cultivated

within an organiza-

tion.

Dave & Les Jacobs/Cultura/Getty Images

364

Part 3: Strategic Actions: Strategy Implementation

success as knowledge becomes 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 pro-

moting the firm’s vision and organizational cohesion. For example, PepsiCo’s develop-

ment programs emphasize its “performance with purpose,” which focuses on building

shareholder value while simultaneously ensuring human, environmental, and talent

sustainability.

Effective training and development programs also contribute positively to the firm’s

efforts to form core competencies.

Furthermore, they help strategic leaders improve

skills that are critical to completing other tasks associated with effective strategic leader-

ship, such as determining the firm’s strategic direction, exploiting and maintaining the

firm’s core competencies, and developing an organizational culture that supports ethical

practices. Thus, building human capital is vital to the effective execution of strategic lead-

ership. Indeed, some argue that the world’s “best companies are realizing that no matter

what business they’re in, their real business is building leaders.”

Strategic leaders must acquire the skills necessary to help develop human capital in

their areas of responsibility.

When human capital investments are successful, the result

is a workforce capable of learning continuously. Continuous learning and leveraging the

firm’s expanding knowledge base are linked with strategic success.

Learning also can preclude making errors. Strategic leaders tend to learn more from

their failures than their successes because they sometimes make the wrong attributions

for the successes.

For example, the effectiveness of certain approaches and knowledge

can be context specific.

Thus, some “best practices” may not work well in all situations.

We know that using teams to make decisions can be effective, but sometimes it is better

for leaders to make decisions alone, especially when the decisions must be made and

implemented quickly (e.g., in crisis situations).

Thus, effective strategic leaders recog-

nize the importance of learning from success and from failure.

Learning and building knowledge are important for creating innovation in firms.

Innovation leads to competitive advantage. Overall, firms that create and maintain

greater knowledge usually achieve and maintain competitive advantages. However, as

noted with core competencies, strategic leaders must guard against allowing high levels

of knowledge in one area to lead to myopia and overlooking knowledge development

opportunities in other important areas of the business.

100

When facing challenging conditions, firms sometimes decide to lay off some of their

human capital. Strategic leaders must recognize though that layoffs can result in a sig-

nificant loss of the knowledge possessed by the firm’s human capital. Research evidence

shows that moderate-sized layoffs may improve firm performance, but large layoffs pro-

duce stronger performance downturns in firms because of the loss of human capital.

101

Although it is also not uncommon for restructuring firms to reduce their expenditures

on or investments in training and development programs, restructuring may actually be

an important time to increase investments in these programs. The reason for increased

focus on training and development is that restructuring firms have less slack and cannot

absorb as many errors; moreover, the employees who remain after layoffs may find them-

selves in positions without all the skills or knowledge they need to perform the required

tasks effectively.

Viewing employees as a resource to be maximized rather than as a cost to be minimized

facilitates successful implementation of a firm’s strategies as does the strategic leader’s

ability to approach layoffs in a manner that employees believe is fair and equitable.

102

A critical issue for employees is the fairness in the layoffs and in treatment in their

jobs.

103

Social capital involves relationships inside and outside the firm that help the firm

accomplish tasks and create value for customers and shareholders.

104

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, employees often must cooperate

Social capital involves

relationships inside and

outside the ﬁ rm that

help the ﬁ rm accomplish

tasks and create value

for customers and

shareholders.

365

Chapter 12: Strategic Leadership

across country boundaries on activities such as R&D to achieve performance objectives

(e.g., developing new products).

105

External social capital is increasingly critical to firm success. The reason for this is

that few if any companies have all of the resources they need to successfully compete against

their rivals. Firms can use cooperative strategies such as strategic alliances (see Chapter 9)

to develop social capital. Social capital can develop in strategic alliances as firms share

complementary resources. Resource sharing must be effectively managed, though, to

ensure that the partner trusts the firm and is willing to share the desired resources.

106

Research evidence suggests that the success of many types of firms may partially

depend on social capital. Large multinational firms often must establish alliances in order

to enter new foreign markets. Likewise, entrepreneurial firms often must establish alli-

ances to gain access to resources, venture capital, or other types of resources (e.g., special

expertise that the entrepreneurial firm cannot afford to maintain in-house).

107

Retaining

quality human capital and maintaining strong internal social capital can be affected

strongly by the firm’s culture.

Sustaining an Effective Organizational Culture

In Chapter 1, we define organizational culture as a complex set of ideologies, symbols,

and core values that are shared throughout the firm and influence the way business

is conducted. Evidence suggests that a firm can develop core competencies in terms

of both the capabilities it possesses and the way the capabilities are leveraged when

implementing strategies to produce desired outcomes. In other words, because the

organizational culture influences how the firm conducts its business and helps regulate

and control employees’ behavior, it can be a source of competitive advantage

108

and is

a “critical factor in promoting innovation.”

109

Given its importance, it may be that a

vibrant organizational culture is the most valuable competitive differentiator for busi-

ness organizations. Thus, shaping the context within which the firm formulates and

implements its strategies—that is, shaping the organizational culture—is an essential

strategic leadership action.

110

Entrepreneurial Mind-Set

Especially in large organizations, an organizational culture often encourages (or discour-

ages) strategic leaders from pursuing (or not pursuing) entrepreneurial opportunities.

111

This issue is important because entrepreneurial opportunities are a vital source of growth

and innovation.

112

Therefore, a key role of strategic leaders is to encourage and promote

innovation by pursuing entrepreneurial opportunities.

113

One way to encourage innovation is to invest in opportunities as real options—that

is, invest in an opportunity in order to provide the potential option of taking advantage

of the opportunity at some point in the future.

114

For example, a firm might buy a piece of

land to have the option to build on it at some time in the future should the company need

more space and should that location increase in value to the company. Firms might enter

strategic alliances for similar reasons. In this instance, a firm might form an alliance to

have the option of acquiring the partner later or of building a stronger relationship with

it (e.g., developing a joint new venture).

115

In Chapter 13, we describe how large firms use strategic entrepreneurship to pursue

entrepreneurial opportunities and to gain first-mover advantages. Small and medium-

sized firms also rely on strategic entrepreneurship when trying to develop innovations as

the foundation for profitable growth. In firms of all sizes, strategic entrepreneurship is

more likely to be successful when employees have an entrepreneurial mind-set.

116

Five dimensions characterize a firm’s entrepreneurial mind-set: autonomy, innova-

tiveness, risk taking, proactiveness, and competitive aggressiveness.

117

In combination,

these dimensions influence the actions a firm takes to be innovative and launch new

ventures. In sum, strategic leaders with an entrepreneurial mind-set are committed to

pursuing profitable growth.

118

An organizational

culture consists of

a complex set of

ideologies, symbols,

and core values that

are shared throughout

the ﬁ rm and inﬂ uence

the way business is

conducted.

366

Part 3: Strategic Actions: Strategy Implementation

Autonomy, the first of an entrepreneurial orientation’s five dimensions, allows

employees to take actions that are free of organizational constraints and permits indi-

viduals and groups to be self-directed. The second dimension, innovativeness, “reflects a

firm’s tendency to engage in and support new ideas, novelty, experimentation, and cre-

ative processes that may result in new products, services, or technological processes.”

119

Cultures with a tendency toward innovativeness encourage employees to think beyond

existing knowledge, technologies, and parameters to find creative ways to add value. Risk

taking reflects a willingness by employees and their firm to accept risks when pursuing

entrepreneurial opportunities. Assuming significant levels of debt and allocating large

amounts of other resources (e.g., people) to projects that may not be completed are

examples of these risks. The fourth dimension of an entrepreneurial orientation, proac-

tiveness, describes a firm’s ability to be a market leader rather than a follower. Proactive

organizational cultures constantly use processes to anticipate future market needs and to

satisfy them before competitors learn how to do so. Finally, competitive aggressiveness is

a firm’s propensity to take actions that allow it to consistently and substantially outper-

form its rivals.

120

Changing the Organizational Culture and Restructuring

Changing a firm’s organizational culture is more difficult than maintaining it; how-

ever, effective strategic leaders recognize when change is needed. Incremental changes

to the firm’s culture typically are used to implement strategies.

121

More significant and

sometimes even radical changes to organizational culture support selecting strategies

that differ from those the firm has implemented historically. Regardless of the reasons

for change, shaping and reinforcing a new culture require effective communication and

problem solving, along with selecting the right people (those who have the values desired

for the organization), engaging in effective performance appraisals (establishing goals

and measuring individual performance toward goals that fit in with the new core values),

and using appropriate reward systems (rewarding the desired behaviors that reflect the

new core values).

122

Evidence suggests that cultural changes succeed only when the firm’s CEO, other key

top management team members, and middle-level managers actively support them.

123

To effect change, middle-level managers in particular need to be highly disciplined to

energize the culture and foster alignment with the strategic vision.

124

In addition, man-

agers must be sensitive to the effects of other major strategic changes on organizational

culture. For example, major downsizings can have negative effects on an organization’s

culture, especially if it is not implemented in accordance with the dominant organiza-

tional values.

125

Emphasizing Ethical Practices

The effectiveness of processes used to implement the firm’s strategies increases when

they are based on ethical practices. Ethical companies encourage and enable people at all

organizational levels to act ethically when doing what is necessary to implement strate-

gies. In turn, ethical practices and the judgment on which they are based create “social

capital” in the organization, increasing the “goodwill available to individuals and groups”

in the organization.

126

Alternatively, when unethical practices evolve in an organization,

they may become acceptable to many managers and employees.

127

One study found that

in these circumstances, managers were particularly likely to engage in unethical practices

to meet their goals when current efforts to meet them were insufficient.

128

To properly influence employees’ judgment and behavior, ethical practices must

shape the firm’s decision-making process and must be an integral part of organizational

culture. In fact, research evidence suggests that a value-based culture is the most effec-

tive means of ensuring that employees comply with the firm’s ethical requirements.

129

As we explained in Chapter 10, managers may act opportunistically, making decisions

that are in their own best interests but not in the firm’s best interests when facing lax

367

Chapter 12: Strategic Leadership

expectations regarding ethical behavior. In other words, managers acting opportunistically

take advantage of their positions, making decisions that benefit themselves to the detri-

ment of the firm’s stakeholders.

130

But strategic leaders are most likely to integrate

ethical values into their decisions when the company has explicit ethics codes, the code is

integrated into the business through extensive ethics training, and shareholders expect

ethical behavior.

131

Firms should employ ethical strategic leaders—leaders who include ethical practices

as part of their strategic direction for the firm, who desire to do the right thing, and for

whom honesty, trust, and integrity are important.

132

Strategic leaders who consistently

display these qualities inspire employees as they work with others to develop and sup-

port an organizational culture in which ethical practices are the expected behavioral

norms.

133

Strategic leaders can take several actions to develop an ethical organizational culture.

Examples of these actions 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 sup-

pliers); (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., using 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 wrongdoings); and (6) creating a work environment

in which all people are treated with dignity.

134

The effectiveness of these actions increases

when they are taken simultaneously and thereby are mutually supportive. When strate-

gic leaders and others throughout the firm fail to take actions such as these—perhaps

because an ethical culture has not been created—problems are likely to occur. As we

discuss next, formal organizational controls can help prevent further problems and rein-

force better ethical practices.

135

Establishing Balanced Organizational Controls

Organizational controls are basic to a capitalistic system and have long been viewed as

an important part of strategy implementation processes.

136

Controls are necessary to help

ensure that firms achieve their desired outcomes.

137

Defined as the “formal, information-

based … procedures used by managers to maintain or alter patterns in organizational

activities,” controls help strategic leaders build credibility, demonstrate the value of

strategies to the firm’s stakeholders, and promote and support strategic change.

138

Most

critically, controls provide the parameters for implementing strategies as well as the cor-

rective actions to be taken when implementation-related adjustments are required.

In this chapter, we focus on two organizational controls—strategic and financial—that

were introduced in Chapter 11. Our discussion of organizational controls here empha-

sizes strategic and financial controls because strategic leaders, especially those at the top

of the organization, are responsible for their development and effective use.

As we explained in Chapter 11, financial control focuses on short-term financial out-

comes. In contrast, strategic control focuses on the content of strategic actions rather

than their outcomes. Some strategic actions can be correct but still result in poor financial

outcomes because of external conditions such as a recession in the economy, unexpected

domestic or foreign government actions, or natural disasters. Therefore, emphasizing

financial controls often produces more short-term and risk-averse managerial decisions,

because financial outcomes may be caused by events beyond managers’ direct control.

Alternatively, 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.