CHAPTER 11

Strategic Leadership:
Creating a Learning
Organization and an
Ethical Organization

Copyright Anatoli Styf/Shutterstock

 Strategic Leadership

- To both create and implement proper strategies, firms

must have strong and effective leadership.
- This leadership must be strategic in managing, adapting,
and coping in the face of increased environmental
complexity and uncertainty.
- In order to be successful leaders must engage in several
activities, such as; utilizing key capabilities (one of which
emotional intelligence) and an awareness of how to
create and maintain an ethical organization.
- Effective leaders play an important and pivotal role in
creating an organizational culture that pursues excellence
while adhering to high standards of ethical behavior.
©McGraw-Hill Education.
 Strategic Leadership Definition

- Leadership is the process of transforming

organizations from what they are to what the leader
would have them become.
- Successful leaders are:
• Proactive – dissatisfied with the status quo
• Goal oriented – visualizing successful futures
• Change agents whose success is measured by how
effectively they formulate and implement a strategic
vision and mission.

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 Strategic Leadership Model

Exhibit 11.1 Three Interdependent Leadership Activities

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 Strategic Leadership Model

-Successful leaders should recognize

three interdependent activities that
should be equally considered:-
(1) Setting a direction,
(2) Designing the organization,
and
(3) Nurturing a culture dedicated
to excellence and ethical
behavior.
©McGraw-Hill Education.
 Strategic Leadership: Setting a
Direction
- Setting a direction = is a strategic leadership activity of
strategy analysis and strategy formulation.
- In order to set a direction for the organization, the leader needs a
holistic understanding of the firm’s stakeholders, as well as an
awareness of other salient environmental trends and events.
- This knowledge must be integrated into a vision of what the
organization could become.
- This activity requires the capacity to solve complex problems,
become proactive in approach, and develop viable strategic
options.
- A strategic vision provides: a clear future direction; a framework
for the organization’s mission and goals; and enhanced employee
communication, participation, and commitment. In order to do
this,
©McGraw-Hill leaders sometimes need more creative solutions than
Education.
 Strategic Leadership: Designing the
Organization

-Designing the organization = a strategic leadership activity of building structures,

teams, systems, and organizational processes that facilitate the implementation of
the leader’s vision , strategies and to achieve desired ends.
1. For instance, without appropriately structuring, a firm would generally be unable
to obtain an overall low-cost advantage.
2. For instance, with regard to corporate strategy, an unrelated diversification
strategy would rely on financial or objective indicators of performance, whereas
a related diversification strategy would necessitate reward systems that
emphasize behavioral measures.
-Almost all leaders have difficulty implementing their vision and strategies. Such
problems may stem from a:
(1) a lack of understanding of responsibility and accountability among managers;
(2) reward systems that do not motivate individuals toward desired organizational
goals;
(3) inadequate or inappropriate budgeting and control systems;
©McGraw-Hill Education.
(4) insufficient mechanisms to integrate activities across the organization
 Strategic Leadership: Nurturing a
Culture
- Nurturing an excellent and ethical organizational culture =
an organizational culture focused on core competencies and
high ethical standards.
- Organizational culture can be an effective means of
organizational control. Leaders play a key role in changing,
developing, and sustaining an organization’s culture.
- This key leadership activity, require managers & leaders to:
• Accept personal responsibility for developing & strengthening
ethical behavior
• Consistently demonstrate that such behavior is central to the
mission & vision of the firm
• Develop & reinforce ethical behavior via:
• Role models
• Corporate credos & codes of conduct
• Reward & evaluation systems, policies & procedures
©McGraw-Hill Education.
 Strategic Leadership:
Overcoming Barriers to Change
- Barriers to change = characteristics of individuals and organizations that
prevent a leader from transforming an organization
- Leaders success depends on how they meets challenges and deliver on
promises. This requires them to overcome barriers to change.
- Organizations at all levels are prone to inertia, slow to learn, adapt, &
change because of:
• Vested interests in the status quo (risk aversion)
• Systemic barriers that stem from an organizational design that
impedes the proper flow and evaluation of information.
• Behavioral barriers associated with the tendency for managers to
look at issues from a biased or limited perspective based on their
prior education and experience
• Political barriers that are related to conflicts arising from power
relationships
• Personal time constraints that stems from people’s not having
sufficient time for strategic thinking and reflection.
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 Strategic Leadership:
Effective Use of Power

- Effective exercise of power is essential

for successful leadership. Leaders must
make effective use of power to:
• Influence other people’s behavior
• Persuade them to do things they
otherwise would not do
• Overcome resistance & opposition.
• Overcome barriers to change

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 Strategic Leadership:
A Leader’s Bases of Power

Exhibit 11.2 A Leader’s Bases of Power

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 Strategic Leadership:
A Leader’s Bases of Power
- A leader derives his power from several sources or
bases:-
1. Personal bases = leader’s personality characteristics
and behavior. They include:
A. Referent power : identification with the leader.
Here leader’s personal attributes
or charisma influence subordinates
& make them devoted to the leader.
B. Expert power is the leader’s expertise and
knowledge. The leader is the
expert on who subordinates
depend for information that they need
to do their job successfully
©McGraw-Hill Education.
 Strategic Leadership:
A Leader’s Bases of Power

2. Organizational bases =This is power that a person wields

because of his or her formal management position, and includes
legitimate, reward, coercive, and information power.
A. Legitimate power: is derived from organizationally conferred
decision-making authority and is exercised by virtue of a
manager’s position in an organization.
B. Reward power: depends on the ability of the leader or manager
to confer rewards for positive behaviors or outcomes.
C. Coercive power: is the power a manager exercises over
employees using fear of punishment for errors of omission or
commission. Information power: arises from a manager’s
access, control, and distribution of information that is not freely
available to everyone in an organization.
N.B: Successful leaders use different bases of power, and often a
combination of them, as appropriate to a situation, such as the
nature of the task, the personality characteristics of the
subordinates, and the urgency of the issue..
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 Strategic Leadership:
Emotional Intelligence
- Valuable traits of successful leaders can be grouped
into three broad sets of capabilities:
1. Purely technical skills (like accounting or operations
research),
2. Cognitive abilities (like analytical reasoning or
quantitative analysis),
3. Emotional intelligence (like self-management and
managing relationships). Emotional intelligence = an
individual’s capacity for recognizing his or her own
emotions and those of others, including the five
components of self-awareness, self-regulation,
motivation, empathy, and social skills.
©McGraw-Hill Education.
 Strategic Leadership:
Emotional Intelligence at Work

Exhibit 11.3 The Five Components of

©McGraw-Hill Education. Emotional Intelligence at Work
 Strategic Leadership: Emotional Intelligence, Pros & Cons

- Effective Leaders should:

1. Have empathy for others: However, they also must be able to make the “tough decisions.”
Leaders must be able to appeal to logic and reason and acknowledge others’ feelings so that
people feel the decisions are correct.
2. Be astute judges of people: A danger is that leaders may become judgmental and overly
critical about the shortcomings they perceive in others. They are likely to dismiss other people’s
insights, making them feel undervalued.
3. Be passionate about what they do, and to show it: However, there is a fine line between
being excited about something and letting your passion close your mind to other possibilities or
cause you to ignore realities that others may see.
[Link] personal connections with their people: listening to their ideas, suggestions, and
concerns and responding in ways that make people feel that their ideas are respected and
appreciated. However, if the leader makes too many unannounced visits, it may create a culture of
fear and micromanagement.
[Link] altruistic, focused on the general welfare of the company and its employees, and highly
principled.
- Effective leaders should NOT:
• Over-identify, confuse empathy with sympathy
• Become overly critical
• Allow passion to close their minds to other possibilities
• Make too many announced visits, creating a culture of fear & micromanagement
• Be manipulative, selfish, dishonest, use leadership solely to gain power

©McGraw-Hill
Education.
 Strategic Leadership:
A Learning Organization
-To enhance the long-term viability of organizations, leaders need
to build a learning organization and be capable of adapting to
change, fostering creativity, and succeeding competitive markets.
-Organizations should think objectively about themselves and their
business and should ask probing questions that might lead them
to question their basic assumptions, to refresh their strategies, or
to reengineer their work processes.
-Learning organizations = organizations that create a proactive,
creative approach to the unknown; characterized by:-
1. inspiring and motivating people with a mission and purpose,
2. developing leaders,
3. empowering employees at all levels,
4. accumulating and sharing internal knowledge,
5. gathering and integrating external information, and
6. challenging the status quo and enabling creativity.
©McGraw-Hill Education.
 Key Elements of a Learning Organization

-Learning and change typically involve the ongoing

questioning of an organization’s status quo or method of
procedure.
-Five key elements of a learning organization:
1. Inspiring and motivating people with a mission or
purpose
2. Empower employees at all levels
3. Accumulating and sharing internal knowledge
4. Gathering and integrating external information
5. Challenging the status quo and enabling creativity
©McGraw-Hill Education.
 Successful Learning Organizations
Motivate People

-A critical requirement of all organizations is that everyone

feels and supports a compelling purpose. Higher-level skills
are required of everyone, not just those at the top.
-Successful learning organizations motivate people with a
mission or purpose.
• Create a proactive, creative approach to the unknown.
• Actively solicit the involvement of employees at all levels.
• Enable all employees to use their intelligence & apply their
imagination.

- The learning environment involves:

• An organization-wide commitment to change
• An action orientation, applicable tools & methods
©McGraw-Hill Education.
 Successful Learning Organizations
Empower Employees

-Successful learning organizations empower employees

at all levels. Instead of viewing themselves as resource
controllers and powerbrokers, leaders must envision
themselves as flexible resources willing to assume
numerous roles.
-The leaders/managers roles involve:
• Becoming coaches, information providers, teachers,
decision-makers, facilitators, supporters, or listeners
• Soliciting individuals’ input, valuing others’ ideas &
initiatives to enjoy better employees moral. It also helps
create a culture in which middle- and lower-level employees
feel that their ideas and initiatives will be valued.
• Providing for trust, cultural control, & expertise at all levels
©McGraw-Hill Education.
 Successful Learning Organizations
Share Internal Knowledge

-Effective organizations must redistribute information,

knowledge and rewards. In addition to enhancing the
sharing of company information, leaders have to develop
means to tap into some of the more informal sources of
internal information, by listening to what their people,
customers, and suppliers are telling them.
- Successful learning organizations accumulate & share
internal knowledge. The firm develops a culture that
encourages:
• Employee involvement
• Widespread sharing from various sources
• Identifying opportunities, experimentation
• Collaborative decision making
• Sharing of best practices
©McGraw-Hill Education.
 Successful Learning Organizations
Gather External Knowledge
-Recognizing O&T in the external environment is vital to a firm’s
success. As environments become more complex and evolve rapidly,
it is critical for employees and managers to become more aware of
environmental trends and events – both general and industry-
specific . This external information can come from various sources:
1. From partners, suppliers and competitors via participation in
networks, customers and alliances;
2. By monitoring the direct communications from rival firms and their
executives, such as press releases and quarterly-earnings calls.
3. Via benchmarking = managers seeking out best examples of a
particular practice to improve their own organization. Ex.:-
A. Competitive benchmarking = benchmarking where the
examples are drawn from competitors in the industry.
B. Functional benchmarking = benchmarking in which the
examples are drawn from any organization, even those
©McGraw-Hill Education.
outside the industry.
 Successful Learning Organizations
Challenge the Status Quo
- Leaders face the status quo barrier when trying to bring about change in an
organization. For a firm to become a learning organization, it must overcome this
barrier in order to foster creativity and enable it to permeate the firm.
- The best way to challenge the status quo is for the leader to:-
1. Forcefully create a sense of urgency. Such initiative, establishes a shared mission
and the need for major transformations. It can channel energies to bring about
both change and creative endeavors.
2. Establishing a “culture of dissent” that serves as a spur toward creativity. Here
norms are established whereby dissenters can openly question the superior’s
perspective without fear of retaliation or retribution.
3. Foster a culture that encourages risk taking and learning from mistakes- failure is
not an obscene word. Some approaches to encourage risk taking and learning
from mistakes include:-
- Formalizing forums for failure by sharing lessons of failure,
moving the goalposts to create flexibility while forecasting,
bringing in outsiders to help neutralize the emotions and
biases that might prop up a flop.
- looking for supporting rather than countervailing evidence to
prove yourself
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wrong, not right.
 Strategic Leadership:
Creating an Ethical Organization
- Ethics = a system of right and wrong that assists individuals in
deciding when an act is moral or immoral and/or socially
desirable or not.
- Sources for an individual’s ethics include religious beliefs,
national and ethnic heritage, family practices, community
standards, educational experiences, and friends and neighbors.
- Organizational ethics = the values, attitudes, and behavioral
patterns that define an organization’s operating culture and that
determine what an organization holds as acceptable behavior.
- Business ethics has everything to do with leadership . Leaders
who fail to provide proper leadership to institute proper controls
and systems that facilitate ethical conduct share responsibility
with those who conceive, execute, and knowingly benefit from
corporate misleads.

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 Strategic Leadership:
Ethical Orientation
-Ethical orientation = the practices that firms use to promote an ethical business
culture, including ethical role models, corporate principles and codes of conduct,
ethically-based reward and evaluation systems, and consistently enforced ethical
policies and procedures.
-Ethical leaders must take personal, ethical responsibility for their actions and
decision making. Leaders who exhibit high ethical standards become role models for
others and raise an organization’s overall level of ethical behavior. They are the key
factor in promoting ethical behavior
-The ethical organization is characterized by a conception of ethical values and
integrity as a driving force of the enterprise. Integrity and Ethical values :-
1. Shape the search for opportunities, the design of organizational systems, and the
decision-making process used by individuals and groups.
2. Provide a common frame of reference that serves as a unifying force across
different functions, lines of business, and employee groups.
3. Help to define what a company is and what it stands for. Also can have a positive
effect on employee commitment and motivation to excel.
4. Are critical in creating value and competitive advantages.
©McGraw-Hill Education.
 Strategic Leadership:
Elements of an Ethical Organization

- A firm must have several key elements to

become a highly ethical organization. These
elements are highly interrelated. They include:
• Ethical role models
• Corporate credos(principles) & codes of
conduct
• Ethically-based reward & evaluation systems
• Consistently enforced ethical policies &
procedures
©McGraw-Hill Education.
 Strategic Leadership:
Ethical Organization Role Models

- The values as well as the character of leaders become

transparent to an organization’s employees through
their behaviors. When leaders do not believe in the
ethical standards that they are trying to inspire, they
will not be effective as good role models.
- As ethical role models leaders:-
• Must be consistent in their words & deeds
• Values & character must become transparent to an
organization’s employees
• Responsibility for ethical lapses within the organization
• Courageous behavior by leaders helps to strengthen an
©McGraw-Hill Education.
organization’s ethical environment.
 Strategic Leadership:
Ethical Organization Corporate Credos
- Corporate credo = a statement of the beliefs typically held by
managers in a corporation.
- Corporate credos and codes of conduct are mechani[Link] that provide
statements of norms and beliefs as well as guidelines for decision
making.
- Corporate credos & codes of conduct:-
• Provide a statement & guidelines for norms, beliefs & decision
making
• Provide employees with clear understanding of the organization’s
position regarding behavior
• Provide the basis for employees to refuse to commit unethical acts
and help them aware of issues before that are faced with the
situation
• Contents of credos & codes of conduct must be known to employees

©McGraw-Hill Education.
 Strategic Leadership:
Ethical Organization Reward Systems

- A flaw in the organization’s reward system may cause

individuals to act in an inappropriate manner if
rewards are seen as being distributed on the basis of
outcomes rather than the means by which goals and
objectives are achieved.
- Reward & evaluation systems can either support or
undermine an ethical orientation:-
A. Support by creating an evaluation system that
rewards ethical thinking. Actions consistent with
words; follows through on commitments; readily
admits mistakes
B. Undermine by rewarding results regardless of how
they were achieved.
©McGraw-Hill Education.
 Strategic Leadership:
Ethical Organization Policies
-Many situations that a firm faces have regular, identifiable patterns.
Leaders tend to handle such routine by establishing a policy or
procedure to be followed that can be applied uniformly to each
occurrence.
-Carefully developed policies & procedures can help guide ethical
behavior. They can be useful:-
1. By specifying the proper relationships with the firm’s customers
and suppliers, i.e. through stringent global sourcing guidelines that
determine the relationship between the company and its suppliers
when awarding new contracts.
2. By encouraging employees to behave ethically through effective
communication, enforcement, & monitoring and through sound
corporate governance practices

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