Strategic Management-Chapter 11

Strategic
Leadership:
Creating a
Learning
Organization and
an Ethical
Organization
chapter 11
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Learning Objectives
11-2
After reading this chapter, you should have a good

understanding of:
LO11.1 The three key interdependent activities in
which all successful leaders must be continually
engaged.
LO11.2 Two elements of effective leadership:
overcoming barriers to change and using power
effectively.
LO11.3 The crucial role of emotional intelligence
(EI) in successful leadership, as well as its potential
drawbacks.
Learning Objectives
11-3
LO11.4 The importance of creating a learning

organization.
LO11.5 The leader’s role in establishing an ethical
organization.
LO11.6 The difference between integrity-based
and compliance-based approaches to
organizational ethics.
LO11.7 Several key elements that organizations
must have to become an ethical organization.
Strategic Leadership
11-4
Consider . . .
To both create and implement proper strategies,
firms must have strong and effective leadership.
What are the activities that leaders engage in, and
what practices and capabilities enable leaders to
be effective at sustaining a competitive advantage
for their firms?
To what degree does ethical leadership matter?
11-5
▪ 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
▪ Focused on the creation & implementation of a
creative vision – understanding the process
11-6
Exhibit 11.1 Three Interdependent Leadership Activities

Question?
11-7
▪ XYZ’s CEO scrapped the company’s

commission-based reward system because it
was rewarding employees for inappropriate
behavior. This is an example of
A. setting a direction.
B. designing the organization.
C. unethical behavior.
D. failure to maintain the status quo.
11-8
▪ Setting a direction requires the ability to scan

the environment for knowledge about
▪ All stakeholders
▪ Salient environmental trends & events
▪ Then integrate that knowledge into a strategic
vision of what the organization could become
▪ A clear future direction
▪ A framework for the firm’s mission & goals
▪ Leading to enhanced employee communication,
participation, & commitment
11-9
▪ Designing the organization requires building

mechanisms to implement the leader’s vision
and strategies through
▪ Structures & teams
▪ Systems & processes
▪ Lack of appropriate design could cause problems
▪ Managers who don’t understand their
responsibilities
▪ Reward systems that are not motivating
▪ Inappropriate financial control systems
▪ Insufficient integrating mechanisms
11-10
▪ Nurturing an excellent and ethical

organizational culture is a key leadership
activity, requiring that managers & leaders:
▪ 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
Example:
A Strategic Leadership Encore?
11-11
▪ In May, 2013, Procter & Gamble CEO Bob

McDonald stepped down, and ex-CEO A.G. Lafley
returned to the job – during Lafley’s 4-year
absence, P&G lost market share, reduced profits
& shareholder value, and lost some promising
executives.
▪ McDonald’s mantra – purpose-inspired growth

▪ Lafley’s motto – the consumer is boss
▪ Which vision will end up being most successful?
Insights from Executives:
Effective Leadership
11-12
▪ Effective leaders set the direction for the firm by:

▪ Surrounding themselves with exceptional people;
allowing these people to give constructive
feedback
▪ Not being afraid of modifying the vision
▪ Holding themselves accountable; being willing to
admit mistakes
▪ Demonstrating fantastic communication skills
▪ Bad leaders hold everyone accountable except
themselves, therefore are never trusted
11-13
▪ Leaders can design an effective organization by:

▪ Creating core values that are simple, clear, & direct
▪ Guiding employees to interact with each other and,
most importantly, the customer, based on these
values
▪ Providing for transparency & accountability
▪ Creating a “fair” environment that promotes loyalty
▪ Building & reinforcing a culture based on ethical
behaviors; being a role model every day
▪ “Walking the talk,” doing as they say others should do,
following policy
11-14
▪ Leaders must deal with change by:

▪ Creating an environment that is ready for change
▪ Sharing information freely with employees creates buy-in
▪ Establishing a feedback loop builds trust, makes employees
feel part of the process, minimizes anxiety
▪ Strong, effective leaders have self-awareness,
empathy & a strong motivation to do what is
right:
▪ Understanding what you are best at, and NOT so good
at, and finding others to complement your strengths &
weaknesses can lead to “huge” positive effects
Strategic Leadership:
Overcoming Barriers to Change
11-15
▪ Leaders must overcome barriers to change

▪ Organizations are prone to inertia, slow to
learn, adapt, & change because of:
▪ Vested interests in the status quo
▪ Systemic barriers
▪ Behavioral barriers
▪ Political barriers
▪ Personal time constraints
Effective Use of Power
11-16
▪ 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
▪ Sources of power:
▪ Organizational bases of power
▪ Legitimate, reward, coercive, information
▪ Personal bases of power
▪ Referent, expert
Effective Use of Power
11-17
Exhibit 11.2 A Leader’s Bases of

Power
Emotional Intelligence
11-18
▪ The valuable traits of successful leaders:

▪ Technical skills – like accounting, operations
research
▪ Cognitive abilities – like analytical reasoning,
quantitative analysis
▪ Emotional intelligence – like self-management,
managing relationships with others
▪ Self-awareness, self regulation, motivation, empathy,
social skills
Emotional Intelligence
11-19
Exhibit 11.3 The Five Components of

Emotional Intelligence at Work
Source: Reprinted by permission of Harvard Business Review.
Exhibit from “What Makes a Leader,” by D. Goleman, January
2004. Copyright © 2004 by the Harvard Business School
Publishing Corporation; all rights reserved.
Strategic Leadership: Emotional
Intelligence, Pros & Cons
11-20
Effective Leaders Effective Leaders Should

Should:
Effective Leaders Should NOT:
Effective Leaders Should Not
▪ Have empathy for others ▪ Over-identify, confuse

▪ Be astute judges of people empathy with sympathy
▪ Be passionate, persistent ▪ Become overly critical
about pursuing objectives ▪ Allow passion to close their
▪ Create personal minds to other possibilities
connections with people, ▪ Make too many announced
take time to engage visits, creating a culture of
employees individually & in fear & micromanagement
groups ▪ Be manipulative, selfish,
▪ Be altruistic, focused on dishonest, use leadership
the firm’s general welfare, solely to gain power
highly principled
Question?
11-21
▪ Complete the following sentence. “Inspiring

and motivating people with a mission or
purpose is a ____________ for developing an
organization that can learn and adapt.”
A. necessary and sufficient condition
B. necessary, but not a sufficient condition
C. goal, but not a necessary condition
D. goal and a required pre-condition
A Learning Organization
11-22
▪ To enhance the firm’s long-term viability,

leaders also need to build a learning
organization:
▪ Become capable of adapting to change
▪ Able to foster creativity
▪ Willing to question their basic assumptions,
refresh their strategies, reengineer their work
▪ Be ready to ask the probing questions that will
lead to success in highly competitive markets
11-23
Exhibit 11.4 Key Elements of a Learning Organization
11-24
▪ 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
▪ A learning environment involves:
▪ An organization-wide commitment to change
▪ An action orientation, applicable tools & methods
11-25
▪ Successful learning organizations develop leaders

▪ Leadership development programs:
▪ Help people learn new skills, enhance individual
learning, increase the human capital of the firm
▪ Train employees to be more effective at learning, able
to incorporate new information, learn from experience
▪ Successful leadership development programs:
▪ Fit the firm’s overall strategy
▪ Combine real-world experiences with classroom
learning
▪ Identify & overcome organizational biases
▪ Assess the impact of training over time
11-26
▪ Successful learning organizations empower

employees at all levels
▪ The leaders/managers roles involve:
▪ Becoming coaches, information providers, teachers,
decision-makers, facilitators, supporters, or
listeners
▪ Soliciting individuals’ input, valuing others’ ideas &
initiatives
▪ Providing for trust, cultural control, & expertise at
all levels
11-27
▪ Successful learning organizations

accumulate & share internal knowledge
▪ The firm shares information:
▪ Customer expectations & feedback
▪ Financial information
▪ Business goals
▪ How key value-creating activities are related to
each other
▪ The firm allocates rewards based on how
effectively employees use this information
11-28
▪ Successful learning organizations gather &

integrate external information
▪ Firms must recognize opportunities & threats,
both general & industry-specific:
▪ By using a variety of sources to acquire
external information:
▪ Trade journals & membership in professional
organizations, online social networks,
communications from rival firms
▪ By doing both competitive & functional
benchmarking
▪ By asking customers
11-29
▪ Successful learning organizations

challenge the status quo & enable creativity
▪ Leaders must bring about useful change:
▪ Forcefully create a sense of urgency
▪ Establish a “culture of dissent”
▪ Foster a culture that encourages risk-taking &
learning from mistakes
▪ Formalize forums for failure; move the
goalposts; bring in outsiders; prove yourself
wrong, not right
▪ Do the “right thing”
Creating an Ethical Organization
11-30
▪ Ethics has everything to do with leadership

▪ Ethics deals with right and wrong:
▪ Ethical beliefs come from religion, ethnic heritage,
family practices, community standards,
educational experiences, friends & neighbors
▪ Organizational ethics promote an operating
culture & determine acceptable behavior:
▪ Ethical beliefs come from the values, attitudes, &
behavioral patterns of leadership
▪ Unethical business practices involve the tacit, if not
explicit, cooperation of others
11-31
▪ The ethical orientation of the leader is a key

factor in promoting ethical behavior
▪ Integrity & ethical values:
▪ Shape behaviors
▪ Provide a common frame of reference
▪ Act as a unifying force
▪ Have a positive effect on employee commitment
& motivation to excel
▪ Can create value & a competitive advantage
11-32
▪ Ethical frameworks for integrity include:

▪ The compliance-based ethics program
▪ Prevents, detects, & punishes legal violations
▪ The integrity-based ethics program
▪ Enables ethical conduct
▪ Examines organizational members’ core guiding
values, thoughts, & actions
▪ Defines responsibility & aspirations for ethical
conduct
11-33
Exhibit 11.5 Approaches to Ethics Management

Source: Reprinted by permission of Harvard Business Review. Exhibit from “Managing Organizational Integrity,” by L. S. Paine. Copyright © 1994 by the Harvard
Business School Publishing Corporation; all rights reserved.
Question?
11-34
▪ Proactive measures to prevent organizational

ethics problems include all of the following
except
A. instituting a reward system which considers
outcomes as its primary criterion.
B. using leaders as role models of ethical
behavior.
C. issuing statements describing the
organization’s commitment to certain
standards of behavior.
D. using the organization’s information systems
as a control system.
11-35
▪ Interrelated elements of a highly ethical

organization include:
▪ Ethical role models
▪ Ethically-based reward & evaluation systems
▪ Consistently enforced ethical policies &
procedures
11-36
▪ Ethical role models

▪ Must be consistent in their words & deeds
▪ Their values & character must become
transparent to an organization’s employees
▪ They must take responsibility for ethical lapses
within the organization
▪ Courageous behavior by leaders helps to
strengthen an organization’s ethical environment
11-37

▪ 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
▪ Contents of credos & codes of conduct must
be known to employees
11-38
▪ Reward & evaluation systems can either

support or undermine an ethical orientation:
▪ Support by creating an evaluation system that
rewards ethical thinking
▪ Actions are consistent with words; follows through
on commitments; readily admits mistakes
▪ Undermine by rewarding results regardless of
how they were achieved
▪ Intense competition encourages falsification of data
11-39
▪ Carefully developed policies & procedures

can help guide ethical behavior:
▪ By specifying proper relationships with customers
& suppliers
▪ Through global sourcing guidelines to identify
conflicts of interest
▪ By encouraging employees to behave ethically
▪ Through effective communication, enforcement, &
monitoring
▪ Through sound corporate governance practices
▪ Compliance with Sarbanes Oxley Act of 2002
Example:
Effects of Unethical Leadership?
11-40
▪ In June 2013, video game maker Zynga laid off 18% of its
workforce, in the face of increased competition from
smaller & nimbler rivals
▪ Zynga CEO Mark Pincus, named Founder of the Year in
2010, has said the company culture is “about growth”
▪ Pincus has also been heard to tell employees he doesn’t
want innovation: “You’re not smarter than your competitor.
Just copy what they do and do it until you get their
numbers.”
▪ Perhaps some of those laid-off employees are relieved to
have the chance to work elsewhere? What would you have
done to build the business?

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Strategic

After reading this chapter, you should have a good

LO11.4 The importance of creating a learning

▪ Leadership is the process of transforming

Exhibit 11.1 Three Interdependent Leadership Activities

▪ XYZ’s CEO scrapped the company’s

▪ Setting a direction requires the ability to scan

▪ Designing the organization requires building

▪ Nurturing an excellent and ethical

▪ In May, 2013, Procter & Gamble CEO Bob

▪ McDonald’s mantra – purpose-inspired growth

▪ Effective leaders set the direction for the firm by:

▪ Leaders can design an effective organization by:

▪ Leaders must deal with change by:

▪ Leaders must overcome barriers to change

▪ Leaders must make effective use of power to:

Exhibit 11.2 A Leader’s Bases of

▪ The valuable traits of successful leaders:

Exhibit 11.3 The Five Components of

Effective Leaders Effective Leaders Should

▪ Have empathy for others ▪ Over-identify, confuse

▪ Complete the following sentence. “Inspiring

▪ To enhance the firm’s long-term viability,

Exhibit 11.4 Key Elements of a Learning Organization

▪ Successful learning organizations motivate

▪ Successful learning organizations develop leaders

▪ Successful learning organizations empower

▪ Successful learning organizations

▪ Successful learning organizations gather &

▪ Successful learning organizations

▪ Ethics has everything to do with leadership

▪ The ethical orientation of the leader is a key

▪ Ethical frameworks for integrity include:

Exhibit 11.5 Approaches to Ethics Management

▪ Proactive measures to prevent organizational

▪ Interrelated elements of a highly ethical

▪ Ethical role models

▪ Corporate credos & codes of conduct

▪ Reward & evaluation systems can either

▪ Carefully developed policies & procedures

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