Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin
Strategic Management: Text and Cases, 4e
11
Strategic Leadership:
Creating a Learning Organization
and an Ethical Organization
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Learning Objectives
After reading this chapter, you should have a
good understanding of:
- The three key activities in which all successful
leaders must be continually engaged.
- The importance of recognizing the interdependence
of the three key leadership activities, and the
salience of power in overcoming resistance to
change.
- The crucial role of emotional intelligence (EI) in
successful leadership as well as its potential
drawbacks.
- The value of creating and maintaining a learning
organization in todays global marketplace.
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Learning Objectives
After reading this chapter, you should have a
good understanding of:
- The five central elements of a learning
organization.
- The leaders role in establishing an ethical
organization.
- The benefits of developing an ethical organization.
- The high financial and nonfinancial costs associated
with ethical crises.
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Leadership: Three
Interdependent Activities
Leadership is the process of transforming
organizations from what they are to what the
leader would have them become
Leadership should be
- Proactive
- Goal-oriented
- Focused on the creation and implementation of a
creative vision
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Leadership: Three
Interdependent Activities
Successful
leaders must
recognize three
interdependent
activities:
Adapted from Exhibit 11.1 Three Interdependent Activities of Leadership
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Setting a Direction
Scan environment to develop
- Knowledge of all stakeholders
- Knowledge of salient environmental trends and events
Integrate that knowledge into a vision of what the
organization could become
Required capacities
- Solve increasingly complex problems
- Be proactive in approach
- Develop viable strategic options
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Example
DuPonts vision statement is to be the world's
most dynamic science company, creating
sustainable solutions essential to a better, safer
and healthier life for people everywhere.
Source: www.dupont.com
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Designing the Organization
Difficulties in implementing the leaders vision
and strategies
- Lack of understanding of responsibility and
accountability among managers
- Reward systems that do not motivate individuals and
groups toward desired organizational goals
- Inadequate or inappropriate budgeting and control
systems
- Insufficient mechanisms to coordinate and integrate
activities across the organization
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Nurturing a Culture
In nurturing a culture dedicated to excellence and
ethical behavior, managers and top executives must
- Accept personal responsibility for developing and
strengthening ethical behavior
- Consistently demonstrate that such behavior is central
to the vision and mission
- Develop and reinforce
Role models
Corporate credos
Codes of conduct
- Reward and evaluation systems
- Policies and procedures
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Overcoming Barriers to Change and
the Effective Use of Power
Reasons why organizations and managers at all
levels are prone to inertia and slow to learn,
adapt, and change
- Vested interests in the status quo
- Systemic barriers
- Behavioral barriers
- Political barriers
- Personal time constraints
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A Leaders Bases of Power
Exhibit 11.2 A Leaders Bases of Power
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Emotional Intelligence: A Key
Leadership Trait
Successful traits
of leaders at the
highest level
Technical
skills
Cognitive
abilities
Emotional
intelligence
Accounting,
business
planning, etc.
Analytical reasoning,
quantitative analysis,
etc.
Ability to work with
others, passion for
work, etc.
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Emotional Intelligence
Five components of emotional intelligence
- Self-awareness
- Self-regulation
- Motivation
- Empathy
- Social skill
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Five Components of Emotional
Intelligence at Work
Definition Hallmarks
Self-management
skills:
Self-
awareness
The ability to recognize
and understand your
moods, emotions, and
drives, as well as their
effect on others.
Self-confidence
Realistic self-
assessment
Self-deprecating sense
of humor
Self-regulation
The ability to control or
redirect disruptive
impulses and moods.
The propensity to
suspend judgmentto
think before acting.
Trustworthiness and
integrity
Comfort with ambiguity
Openness to change
Source: Adapted from D. Goleman, What Makes a Leader, Harvard Business Review, October-November 1998, p. 95 (with permission)
Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work
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Five Components of Emotional
Intelligence at Work
Definition Hallmarks
Managing
Relationships:
Empathy
Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work
Self-management
skills:
Motivation
A passion to work for
reasons that go beyond
money or status.
A propensity to pursue
goals with energy and
persistence.
Strong drive to achieve
Optimism, even in the
face of failure
Organizational
commitment
The ability to
understand the
emotional makeup of
other people.
Skill in treating people
according to their
emotional reactions.
Expertise in building
and retaining talent
Cross-cultural
sensitivity
Service to clients and
customers
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Five Components of Emotional
Intelligence at Work
Definition Hallmarks
Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work
Managing
Relationships:
Social Skill
Proficiency in managing
relationships and
building networks.
An ability to find
common ground and
build rapport.
Effectiveness in leading
change
Persuasiveness
Expertise in building
and leading teams
Source: Adapted from D. Goleman, What Makes a Leader, Harvard Business Review, October-November 1998, p. 95 (with permission)
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Developing a Learning Organization
Successful learning organizations
- Create a proactive, creative approach to the unknown
- Actively solicit the involvement of employees at all
levels
- Enable all employees to use their intelligence and
apply their imagination
Learning environment
- Organization-wide commitment to change
- An action orientation
- Applicable tools and methods
- Guiding philosophy
- Inspired and motivated people with a purpose
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Key Elements of a
Learning Organization
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Key Elements of a
Learning Organization
Empowering employees at all levels
- Salient elements of empowerment
Start at the bottom by understanding needs of
employees
Teach employees skills of self-management
Build teams to encourage cooperative behavior
Encourage intelligent risk taking
Trust people to perform
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Question
Do you agree with this statement by Ken Melrose,
the great leader is a great servant?
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Accumulating and sharing internal knowledge
- Open book management
Numbers on each employees work performance and
production costs generated daily
Information is aggregated once a week from top level to
bottom level
Extensive training in how to use and interpret the
numbers how to understand balance sheets, cash
flows and income statements
Key Elements of a
Learning Organization
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Key Elements of a
Learning Organization
Gathering and integrating external information
- Awareness of environmental trends and events
Internet accelerates the speed with which useful
information can be located
Garden variety traditional sources for acquisition of
external information
Benchmarking
Focus directly on customers for information
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Key Elements of a
Learning Organization
Challenging the status quo and enabling
creativity
- Challenging the status quo
Create a sense of urgency
Establish a culture of dissent
Foster a culture that encourages risk taking
Cultivate culture of experimentation and curiosity
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Creating An Ethical Organization
Organizational ethics is a direct reflection of its
leadership
Unethical business practices
- Involves tacit, if not explicit, cooperation of others
- Reflect the values, attitudes, and behavior pattern that
define the organizations operating culture
Driving forces of ethical organizations
- Ethical values
- Integrity
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Example
In order to avoid unethical business practices,
you should never do the following:
1. Suppress information that might damage your
reputation.
2. Deny charges that are relevant and factual.
3. Spend money for public relations or advertising to
counter honest complaints.
4. Ignore problems with the products you sell.
5. Refuse to accept blame.
Source: Gerson, Vicki. Avoiding Unethical Business Practices, www.nfib.com. February 21, 2003.
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Creating An Ethical Organization
Ethical values
- Shape the search for opportunities
- Shape the design organizational systems
- Shape the decision-making process used by
individuals and groups
- Provide a common frame of reference that serves as a
unifying force
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Integrity-Based versus Compliance-Based
Approaches to Organizational Ethics
Essential links between organizational integrity
and individual integrity
- Cannot be high-integrity organizations without high-
integrity individuals
- Individual integrity is rarely self-sustaining
- Organizational integrity, resting on a concept of
Purpose
Responsibility
Ideals
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Question
Integrity-based ethics programs combines a
concern for law with an ______.
A) emphasis on the proper use of managerial
power
B) emphasis on legal consequences of unethical
behavior
C) emphasis on managerial responsibility for ethical
behavior
D) emphasis on social responsibility for ethical
behavior
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Approaches to Ethics Management
Characteristics Compliance-Based Integrity-Based
Approach Approach
Ethics Conformity with externally Self-governance according to
imposed standards chosen standards
Objective Prevent criminal Enable responsible conduct
misconduct
Leadership Lawyer-driven Management-driven with aid of
lawyers, HR, and others
Source: L. S. Paine, Managing for Organizational Integrity, Harvard Business Review 72, no. 2 (1994), p. 113 (with permission).
Adapted from Exhibit 11.6 Approaches to Ethics Management
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Approaches to Ethics Management
Characteristics Compliance-Based Integrity-Based
Approach Approach
Source: L. S. Paine, Managing for Organizational Integrity, Harvard Business Review 72, no. 2 (1994), p. 113 (with permission).
Adapted from Exhibit 11.6 Approaches to Ethics Management
Methods Education, reduced Education, leadership,
discretion, auditing and accountability, organizational
controls, penalties systems and decision
processes, auditing and
controls, penalties
Behavioral Autonomous beings Social beings guided by
Assumptions guided by material material self-interest, values,
self-interest ideals, peers
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Key Elements of Highly
Ethical Organizations
These interrelated elements must be present and
constantly reinforced
- Role models
- Corporate credos and codes of conduct
- Reward and evaluation systems
- Policies and procedures
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Key Elements of Highly
Ethical Organizations
Role Models
- Leaders are role models for their organizations
- Leaders must be consistent in their words and deeds
- Values and character of leaders become transparent
to an organizations employees
- Effective leaders take responsibility for ethical lapses
within the organization
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Key Elements of Highly
Ethical Organizations
Corporate credos and codes of conduct
- Provide a statement and guidelines for norms, beliefs
and decision making
- Provide employees with clear understanding of the
organizations position regarding employee behavior
- Provide the basis for employees to refuse to commit
unethical acts
- Contents of credos and codes of conduct must be
known to employees
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Key Elements of Highly
Ethical Organizations
Reward and evaluation systems
- Inappropriate reward systems may cause individuals
at all levels of the organization to commit unethical
acts that they might not otherwise do
- Penalties in terms of damage to reputations, human
capital erosion, and financial loss are typically much
higher than any gains that could be obtained through
such unethical behavior
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Key Elements of Highly
Ethical Organizations
Policies and procedures
- Policies and procedures can specify proper
relationships with a firms customers and suppliers
- Policies and procedures can guide employees to
behavior ethically
- Policies and procedures must be reinforced
Effective communication
Enforcement
Monitoring
Sound corporate governance practices