It is a well known fact that effective strategic leadership is a prerequisite to successfully using the strategic management process. In general, strategic management is the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organization to achieve its objectives. Given this understanding, strategic management process can therefore be defined as the process by which managers make a choice of a set of strategies for the organization that will enable it to achieve better performance. In essence, strategic management process means defining the organization’s strategy (Bourgeois, 1985).
In view of the above, the present paper aims at discussing strategic leadership taking into consideration its effect in determining the firm’s strategic direction. In this regard, the paper will first give definitions of ‘leadership’ and ‘strategic leadership’ respectively for the purposes of conceptual clarity and also to help the reader gain full insight of the discussion. Upon laying this foundation, the influence of strategic leadership on the strategic management process will be demonstrated with the help of a diagram. Immediately after this, six key duties or rather responsibilities of strategic leaders will be discussed. In this respect, the duties that will be discussed include determining strategic direction, establishing balance organizational controls, exploiting core competencies, emphasizing ethical practices, developing human capital and sustaining organizational culture. Finally, a link between strategic leadership and organizational performance will be looked at.
Generally speaking, leadership is a key determinant of organizational performance. Undoubtedly, leaders make a difference. For instance, if one reviews the success of Irish firms, it is easy to conclude that senior managers such a Michael O’Leary of Ryanair and Denis Brosnan formerly of Kerry Group have been integral to the success of their respective businesses. Identically, if one reviews the collapse of many Irish banks, it is difficult to escape the conclusion that poor leadership was a significant contributing factor to what happened (House and Podsakoff, 1995). These illustrations clearly show that leadership is a determinant of the success or failure of a firm.
Most importantly, Robbins et al (2010) defined leadership as the ability to influence a group toward the achievement of a vision or a set of goals. In other words, it is the ability to influence people toward the attainment of organizational goals. On the other hand, it is worth mentioning that there are different styles of leadership. Nonetheless, the main focus of this paper will be on strategic leadership. At this point, it is important to understand what strategic leadership is. According to Hoskisson et al (2004) Strategic Leadership is the managerial ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Unlike Hoskisson et al, Rowe (2001) defined strategic leadership as the ability to influence others to voluntarily make day-to-day decisions that enhance the long term viability of the organization, while at the same time maintaining its short-term financial stability.
Having looked at the definitions of strategic leadership, it is also important to discuss the influence of strategic leadership on the strategic management process. Along these lines, it is important to note that effective strategic leadership, and the responsibility for strategic thinking and decision-making, rests at the top of the organization. Most prominently, CEOs must make the strategic decisions and create the organizational context which can lead to long-term organizational success. In other words, CEOs applying strategic leadership greatly influences the strategic management process (Hoskisson et al, 2004). This is evident from figure 1 which is presented below.
Figure 1: The influence of strategic leadership on the strategic management process
Source: (Hoskisson et al, 2004: p36)
Clearly, from figure 1 above, effective strategic leadership is important in the strategic management process. Obviously, effective strategic leadership shapes the formulation of strategic intent and strategic mission which in turn leads to successful strategic actions. Under strategic actions, the firm will formulate and implement strategies which in turn yield strategic competitiveness above average returns. Indeed, strategic leadership greatly influences the strategic management process (Hoskisson et al, 2004).
On the other hand, it is important to mention that there are a number of activities that effective strategic leaders or rather CEOs focus on to contribute to the performance of the organization. These activities include determining strategic direction, establishing balance organizational controls, exploiting core competencies, emphasizing ethical practices, developing human capital and sustaining organizational culture.
The First activity or rather duty of strategic leaders under our discussion is determining strategic direction. Here, the top management team must develop a clear vision for the organization. In this regard, the development, articulation and communication of an exciting vision are critical tasks of the strategic leadership of the organization. They need to paint a picture of where the organization will be in 5-10 years and get staff to buy into and commit to the future. The vision will seek to push and stretch employees beyond their current expectations. The vision serves as a destination for the organization and therefore as a guide for strategy formulation and implementation (Thompson et al, 2007).
In addition, the vision propounded by the senior management team should outline the core values and ideology that the organization intends to live by. If it is to have any impact, the vision must to communicated and reinforced throughout the organization and over time. As an illustration, Mullane (2002) discusses the need to translate the generalities of the vision into measurable or specific targets with commitment from all management levels and areas of the business.
The other responsibility of strategic leaders is exploiting and maintaining core competencies. In this respect, core competencies can be described as the resources and capabilities of a firm that serve as a source of competitive advantage over its rivals; they are those things the firm has or does that allow it to set itself apart from competitors. In this regard, it is the duty of senior management to ensure that the firm’s core competences are maintained, invested in and developed over time to ensure they remain relevant. Additionally, senior management needs to ensure that firm’s competences are part of the building blocks of the competitive strategy of the firm and that they are leveraged effectively in implementing that strategy. In essence, senior management need to put constructive pressure on the organization to continually improve performance, for example by: Nurturing a results-oriented work climate, Promoting an enabling culture, Setting stretch objectives and expectations and promoting the use of tools such as benchmarking, business process reengineering and six sigma (Thompson et al, 2007).
Unlike the two duties discussed, developing human capital is also another important duty of strategic leaders. In the context of developing human capital, employees are a capital resource that requires investment. Many would accept that in the globalised and dynamic competitive environment, people are perhaps the only truly sustainable source of competitive advantage. Building human capital requires investment in training and development, and requires that senior management provide the support and budget necessary to make this happen. HRM activities have a central role in this, but without active support from the senior management in the organization, such activities will neither have the impetus nor budget to be effective (Ibid).
Furthermore, sustaining an effective organizational culture is another important aspect of strategic leadership. In general, organizational culture consists of a complex set of ideologies, symbols and core values that are shared throughout the organization and influences the way business is conducted. Evidence suggests that a firm can develop core competencies in terms of both capabilities it possess and the way the capabilities are leveraged by strategies to produce desired outcomes. In other words, because the organizational culture influences how the firm conducts its business and it helps regulate and control employees’ behavior, it can be a source of competitive advantage (Gupta and Govindarajan, 2000).
By the same token, some organizational cultures operate in a heavy-handed and competitive manner with little room for mistakes and no patience with the expression of discontent. Therefore, it is very important to remember that cultural norms can transmit effective and healthy patterns of behavior as well (Zellner, 1997). However, it is also important to note that organizational culture can be a source of competitive advantage. It creates the context in which the organization develops and implements its strategy, and helps to regulate employees’ actions and attitudes. For example, organizational culture can encourage entrepreneurial activity – or discourage it. If an organization can build a strong, healthy culture it can be a powerful competitive asset and facilitate strategy implementation. Due to its nature, it is not possible to manage culture in the same way as, for example, a production process. However, it is possible to help shape an organization’s culture. There are a number of influences on the nature of an organization’s culture and the senior management teams are perhaps the most important. This group “set the tone” for the organization, through the values they espouse, the behaviors they reward, and probably most importantly, through the recurring communication of the type of culture they wish to see evolve in the organization. Similarly, senior management is in the position to create the selection and promotional policies and criteria that can promote the desired behaviors (Gupta and Govindarajan, 2000).
The other duty of strategic leaders is emphasizing ethical Practices. Obviously, the effectiveness of the implementation of a firm’s strategies improves when based on strong ethical foundations and in a culture that promotes ethical behaviors. In the absence of such an ethical culture staff and management may act opportunistically, taking advantage of their positions to benefit themselves. To create and ensure a strong ethical ethos in the organization, senior management must set an excellent ethical example. In the same vein, they must also build a compliance and enforcement process around ethical behavior. For example, developing and communicating a code of ethics, providing ethics training to employees, forming an ethics committee to give guidance on ethics matters and openly encourage employees to report possible infractions (Ibid).
In addition to what has been discussed so far, establishing balanced organizational controls is another duty of strategic leaders. In this regard, it is vital to note that organizational controls are a critical element of effective strategy implementation processes. Hoskisson et al (2004) defined balanced controls as formal, information based procedures used by managers to maintain or alter patterns in organizational activities. Most importantly, organizational controls facilitate making reactive and proactive corrective adjustments to strategies as they are implemented. Similarly, organizational controls allow senior management to determine when adjustments are needed and what adjustments to make. In light of changing circumstances, senior management can reshape long-term direction and strategy and intervene to align internal activities and behavior with strategy (Hoskisson et al, 2004).
Having looked at the duties of strategic leaders, it is also reasonable to discuss the link between strategic leadership and performance. In general, performance can be defined as the record of outcomes produced on a specified job function or activity during a specified period of time (Amstrong, 1994). Likewise, it is important to mention that performance is measured in terms of output and outcome, profit, internal processes and procedures, organizational structures, employee attitudes, and organizational responsiveness to the environment among others. In other words, organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives). Additionally, Richard et al (2009) mentions that organizational performance encompasses three specific areas of firm outcomes: financial performance (profits, return on assets, return on investment, etc.); product market performance and shareholder return (Richard et al, 2009).
Generally speaking, the concept of organizational performance is based upon the idea that an organization is the voluntary association of productive assets, including human, physical, and capital resources, for the purpose of achieving a shared purpose. Those providing the assets will only commit them to the organization so long as they are satisfied with the value they receive in exchange, relative to alternative uses of the assets. As a consequence, the essence of performance is the creation of value. So long as the value created by the use of the contributed assets is equal to or greater than the value expected by those contributing the assets, the assets will continue to be made available to the organization and the organization will continue to exist. Therefore, value creation, as defined by the resource provider, is the essential overall performance criteria for any organization (Jensen and Meckling, 1976).
Notwithstanding the above, it is important to mention that the role of leadership is of fundamental importance to the performance and success of organizations. This includes many aspects like visionary, motivator, enabler, facilitator as well as mentor and coach. At the start-up stage of a business organization, the managing director or leader is responsible for the supply of the product or service, the administration, the management and the sales and marketing. In effect the business is the leader and the leader is the business (Breene and Nunes, 2006).
Furthermore, as the business grows, the leader has to concentrate on the overall strategic direction and delegate some of the operational and technical decisions to appointed staff and employees. The leader has to give responsibility on the basis of trust or design control systems to monitor individual activity. The leader will now also have to employ management and staff with the necessary specialist skills. In order for the business to grow, sales revenue must increase which means that more products are manufactured or quality is improved to justify an increased unit price or product range (Ibid). In essence, there is a definite relationship among the leadership’s characteristics, an organization’s strategies, and its performance. When the board of directors and the leadership in the organization are involved in shaping an organization’s direction, the organization generally improves its performance critical element of strategic leadership and organizational performance, is the ability of leadership to manage and utilize the organization’s resource portfolio. This includes integrating resources to create capabilities and leveraging those capabilities through strategies to build competitive advantages and high performance (Jensen and Meckling, 1976).
To sum up, it is worth mentioning that effective strategic leadership is indeed important in determining the strategic direction of the firm. Obviously, it creates the vision and mission of the organization. In addition, this type of leadership has major duties and responsibilities which ensure that the strategic management process is managed. Most importantly, the strategic management process helps the firm employ strategies that will see to it that the business is growing and performance is at its level best.
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