In the recent years, there has been increased interest in strategic leadership by top executives. A possible explanation is that strategic leadership gives purpose and meaning to organizations. Undoubtedly, effective strategic leadership is a prerequisite to successfully using the strategic management process. With this in mind, the main purpose of the present essay therefore, is to discuss strategic leadership taking into account its effect in determining the firm’s strategic direction. In order to achieve this purpose, the essay will address three key areas: definition of strategic leadership; actions or characteristics of strategic leadership which will include strategic direction and lastly, the link between strategic leadership and organizational performance.
In general, Strategic leadership can be defined as an ability of firms to anticipate, envision and maintain flexibility, and empower others to create a strategic chance and a viable future of the organization. On the other hand, Guillot (2003) defines strategic leadership as the ability of an experienced, senior leader who has wisdom and vision to create and execute plans and make consequential decisions in the volatile, uncertain, complex and ambiguous strategic environment. Therefore, strategic leadership involves anticipating and envisioning a viable future for the organization and working with others to create such a future (Kjelin, 2009).
Additionally, 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. Likewise, Amos (2007) has a similar view to Rowe and defines strategic leadership as the ability to understand the entire organization and the environments within which they operate and using this understanding to create strategic change through other people so as to position the organization in the environment for both short-term stability and long-term viability.
However, it is important to note that Montgomery (2008) argues that, few leaders allow themselves to think about strategy and the future. Hence, leaders should give direction to every part of the organization from the corporate office to the loading dock. Strategic leadership is therefore the ability of the leaders to create and re-create reasons for the organization’s continued existence. The leader must have the ability to keep one eye on how the organization is currently adding value and the other eye on changes, both inside and outside the organization, that either threaten its position or present some new opportunity for adding value. That is the main reason why some researchers belief that strategic leadership concept may become the most apt concept to embracing better value driven culture in public sector in the era of the 21st century. However, leadership in public sector tend to face the great challenges due to the prominent rule-based and too bureaucratic leadership styles, non performance based Human Resource Management (HRM) culture, and lack of innovative management practices. Several key roles of strategic leadership can be offered as strategies to sustain public organization performance outcome (Ireland and Hitt, 2005).
Notwithstanding the above, it is important to mention that several identifiable actions characterize strategic leadership that positively contributes to effective use of the firm’s strategies. These actions include managing the firms resources effectively (includes developing human capital), establishing a strategic direction, fostering an effective culture, exploiting core competencies using effective organizational control systems, and establishing ethical practices (Dyck et al, 2002). At this point, let us look at these actions. However, before looking at other actions or characteristics, it is reasonable to first look at strategic direction which is vital to our discussion.
In this respect, strategic direction involves developing long-term vision of the firm’s intent. A long-term vision typically looks at least five to ten years in future. Clearly, the purpose and vision of an organization aligns the actions of people across the whole organization. Identically, a real vision is very active and all the people in the organization understand the vision and live it. In addition, it is also filled with drive and energy and people are proud to talk about their organization’s purpose and vision (Prokesch, 1997).
However, it is also vital to note that the biggest trap that leadership in organizations falls to is when they are so sure of their vision and direction that they fail to see new opportunities. Therefore, when an organization’s strategic leadership fails to continuously address the full spectrum of issues that may have an effect on the performance of the organization it is likely that the organization will encounter challenges for which it is not prepared. It is therefore expected of leadership in the organization to provide certainty together with uncertainty. It is also necessary for the leadership to create constant tension between the desirable future and those elements of the present that could inhibit progress. To achieve this, leaders must continuously create burning platforms so that it is impossible for the organization to maintain the status quo (Nel, 2008).
Likewise, another important task for strategic leaders is effectively managing the firm’s portfolio of resources which can be categorized into financial capital, human capital, social capital and organizational culture (Barney and Arikan, 2001). Similarly, Distefano and Maznevski (2003) asserted that building human capital is vital to the effective execution of strategic leadership. Strategic leaders must acquire the skills necessary to help develop human capital in their areas of responsibility. In this regard, Nel (2008) asserted that human capital is the knowledge and skills of an organization’s entire workforce. Strategic leaders are those who view organizational employees as a critical resource on which many core competencies are built and through which competitive advantages are exploited successfully (Nel, 2008).
Most importantly, in a global economy, significant investments will be required for the organization to derive full competitive benefit from its human capital. Some economists argue that these investments are essential to robust long term growth in modern economies that depend on knowledge, skills, and information. Continual, systematic work on the productivity of knowledge and knowledge workers enhances the organizations ability to perform successfully. Employees appreciate the opportunity to learn continuously and feel greater involvement with their community when encouraged to expand their knowledge base. Developing employees result in a motivated and well educated workforce. That is, the type of workforce that is capable of performing very well (Miller, 1996).
In fact, Grant (1996) mentions that the core competencies are the resources and capabilities that give an organization a competitive advantage over its rivals. The relatively unstable market conditions resulting from innovations, diversity of competitors, and the array of revolutionary technological changes occurring in the new competitive landscape have caused core competencies rather than served markets to become the basis upon which organizations establish their long-term strategies (Grant, 1996).
Indeed, the core challenge for organizations is to provide sufficient clear structure to ensure that all people in the organization are familiar with and willing to endorse good strategic leadership practices. This may in practice, mean that people must initially be directly involved in debating and defining the need for such a strategy. The surest way of achieving this is to develop and utilize an integrated strategic leadership framework that is capable of being applied to the broadest possible range of business-related issue and components (Ibid).
Comparatively, sustaining 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).
Having considered sustaining organizational culture, it is also reasonable to look at emphasizing ethical practices. In this regard, it is worth mentioning that 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 the firm’s strategies. For instance Royal Ahold NV, a large international supermarket chain based in the Netherlands had major accounting problems. It overstated its earnings in 2001 and 2002 and also it had illegal transactions in its Argentine subsidiary. Because of these problems the CEO and the CFO of Ahold were discharged (Ball, Zimmerman and Veen, 2003). These incidents suggest that firm’s need to employ ethical strategic leaders who include ethical practices as part of their long-term vision for the firm, who desire to do the right thing and for whom honesty, trust and integrity are important (Robertson and Crittenden, 2003).
The last characteristic or rather action of strategic leadership in our discussion is establishing balanced organizational controls. In this context, controls are necessary to help ensure that firm’s achieve their desired outcomes. These are 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 (Shields, Deng and Kato, 2000). According to Hitt and Hoskisson (1996) the organization’s capacity to control, monitor and track progress for programmes, projects and monthly results need to be well established. Leaders are therefore responsible for the development and effective use of two types of internal controls, namely strategic controls and financial controls (Hitt and Hoskisson, 1996).
Firstly, strategic controls require information-based exchanges among the CEO, leadership team members, and employees. To exercise effective strategic control, leaders must acquire deep understanding of the competitive conditions and dynamics of each of the units or divisions for which they are responsible. Exchange of information occur through both informal, unplanned meetings and interactions scheduled on a routine formal basis. The effectiveness of strategic controls is increased substantially when strategic leaders are able to integrate disparate sets of information to yield competitively relevant insights. On the other hand, financial controls focus on short-term financial outcomes (Laverty, 1996).
Interestingly, the balanced scorecard is a framework that firms can use to verify that they have established both strategic and financial controls to assess their performance. The underlying premise of the balanced scorecard is that firm’s jeopardize their future performance possibilities when financial controls are emphasized at the expense of strategic controls (Kaplan and Norton, 2001).
Now that we have defined strategic leadership and also discussed the actions that characterize it, at this point, it is also important to look at the linkage between strategic leadership and organizational performance. To start with, Amstrong (1994) defines performance as the record of outcomes produced on a specified job function or activity during a specified period of time. Therefore 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 (William, 2002).
To put it differently, organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives). According to Richard et al (2009) organizational performance encompasses three specific areas of firm outcomes: financial performance (profits, return on assets, return on investment, etc.); product market performance (sales, market share, etc.) and shareholder return (total shareholder return, economic value added). 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).
Unquestionably, 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).
Further, 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).
Clearly, 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 (Ireland and Hitt, 2002).
All things considered, strategic leadership is very important in determining the strategic direction of the firm. In fact, the success of a firm can greatly be influenced by the way strategic leadership is managed. Obviously, from the definition of strategic leadership, we can clearly see that it encompasses the ability to anticipate events and envision possibilities to create strategic change. Therefore, where the firm will be, say, in the next five to ten years, entirely depends on strategic leadership. On the other hand, it is important to mention that strategic leadership also determines the performance of the organization. This includes many aspects like visionary, motivator, enabler, facilitator as well as mentor and coach. In essence, it is very important for every organization to have effective strategic leadership.
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