CH-11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization – Strategic Management: Creating Competitive Advantages : Book Guide

Chapter 11 Strategic Leadership: Creating a Learning Organization and an Ethical Organization Summary/Objectives Strong and effective leadership is a key organizational success factor. Strategic leadership is needed to successfully formulate and implement strategies. In today’s economy, leaders have two additional roles as well — to create learning organizations and to create an ethical climate. This chapter is organized into four sections. 1. The first section describes three key leadership activities — setting a direction, designing the organization, and nurturing a culture of excellence and ethical practices. 2. The second section addresses two practices and capabilities that enable executives to be more effective leaders overcoming barriers to change and the effective use of power. 3. The third section addresses the critical role of emotional intelligence (EI) in effective strategic leadership. EI refers to an individual’s capacity for recognizing one’s emotions and those of others. We also address some potential drawbacks of EI. 4. The fourth section addresses the importance of leader’s developing competency companions and their role in creating a learning organization. Emphasize the importance of motivating and harnessing individual and collective talents by accumulating and sharing information, and empowering and motivating employees at all levels to use new knowledge. 5. The final section discusses the challenge to leaders to inspire and maintain an ethical organization. Point out the positive benefits of good ethical leadership and the disadvantages for companies that face ethical crises. Four topics are addressed – role models; corporate credos and codes of conduct; rewards and evaluation systems; and, policies and procedures. Lecture/Discussion Outline We open the chapter with the example of Synthes, a firm which produces medical devices. The firm engaged in both unethical and illegal activities—much of which was likely encouraged by the corrupt culture influenced by its founder, Hansjorg Weiss. Ask:  Discussion Question 1: Why would Synthes engage in such risky behavior for such a relatively small gain? Response guidelines: Students should understand what the case suggests. Synthes was sold in 2012 for $20 billion, so it probably has a number of successful products on the market. Norian would be only one of a number of new experimental products that Synthes is developing. Synthes’ unethical and dangerous behavior risked extensive litigation, penalties, and a number of sanctions. Included in these consequences was a loss of reputation that could hurt future business. Synthes was indeed putting a lot at risk! As to why, that is an age-old question. Greed, hubris, and arrogance come to mind. Students should understand that senior executives are not immune to these human failings, even when patients’ lives are at stake. Answer: Synthes may have engaged in risky behavior for a relatively small gain due to pressures to outperform competitors or meet aggressive financial targets. The risk might have seemed justifiable given the potential for high rewards or strategic advantages in a competitive market. To provide some perspective on the “risk/reward” tradeoff: It is interesting to point out that Synthes had revenues of $4 billion at the time of its sale to Johnson and Johnson for $20 billion. Given that Norian was acquired in 1999 for $50 million and sold for $22 million in May, 2011—this subsidiary was a very small part of Synthes. So, the loss of reputation and legal issues that the firm encountered clearly doesn’t seem to justify the enormous risk that they took.  Discussion Question 2: If you are Johnson and Johnson what aspects of Synthes’ culture would you change? Response guidelines: It appears that unethical values were the norm at Synthes. Certainly the convictions will send a positive signal, but it may not be enough. It is very difficult for an acquiring firm to change the culture of an acquisition, but some ideas might be: • Change the corporate mission and vision with ethically virtuous language. • Replace senior executives with executives who are ethical. • Incorporate an ethical audit in all performance reviews. • Make ethical behavior the top criterion in all hiring and promotion decisions. For example, if a candidate for a senior position were a hard worker but also had a blemished record, he or she would not get the promotion. • Increase transparency in all product testing and increase awareness to all stakeholders of the risk associated with each product. Students may come up with different language and different aspects of the culture, which would serve the purpose of the exercise. The goal is to develop awareness of the possibility of unethical behavior and of the difficulties associated with changing it. This chapter provides insights into how organizations can more effectively manage change and cope with increased environmental complexity and uncertainty. First, it defines leadership and introduces three important leadership activities. Second, it discusses three elements of effective leadership – integrative thinking, overcoming barriers to change and the effective use of power. Third, it discusses the important role of emotional intelligence (EI) in effective strategic leadership. Fourth, it emphasizes the leader’s role in learning and adapting in the face of accelerating change. Fifth, it addresses the leader’s role in building an ethical organization. Answer: Johnson & Johnson might focus on changing aspects of Synthes’ culture that emphasize aggressive tactics or risk-taking without sufficient oversight. They could implement stronger ethics training and enhance transparency to foster a more responsible and collaborative environment. I. Leadership: Three Interdependent Activities In this section, a definition of leadership is presented. Leadership is not custodial management. Rather, it is proactive, goal-oriented, and focused on the creation and implementation of a creative vision. Defined succinctly: Leadership is the process of transforming organizations from what they are to what the leader would have them become. Point out that this definition implies a dissatisfaction with the status quo, a vision of what should be, and a process for bringing about change. Leaders must be concerned with both “doing the right thing” and “doing things right.”  Discussion Question 3: What are some examples of leaders who have had a transformative effect on their company? What made their activities transformative? Answer: Leaders like Steve Jobs at Apple and Elon Musk at Tesla have had transformative effects through vision and innovation. Their activities were transformative due to their ability to drive significant industry changes and inspire teams to pursue groundbreaking goals. Discussion Question 4: What challenges do leaders face when trying to balance the task of simultaneously doing the right things and doing things right? Answer: Leaders recognize three interdependent activities that must be continually reassessed for organizations to succeed: 1. Determining a direction 2. Designing the organization 3. Nurturing a culture dedicated to excellence and ethical behavior EXHIBIT 11.1 depicts the interdependent nature of these three leadership activities.  Discussion Question 5: Do unsuccessful leaders fall short more often in one of these activities than others? Why? Answer: Unsuccessful leaders often fall short in balancing both tasks, frequently focusing too much on short-term operational issues rather than long-term strategic goals, or vice versa. This imbalance can undermine both immediate performance and future growth. Discussion Question 6: What are some other qualities that a strong leader needs to exhibit? Answer: Strong leaders need qualities such as vision, resilience, empathy, adaptability, and decisiveness. These traits help them guide teams effectively, make informed decisions, and navigate complex challenges. A. Setting a Direction The leader is closely involved with the vision, mission, and goals of the organization. To establish a direction, the leader must have a holistic perspective that takes into account all of the organizational stakeholders as well as the salient environmental conditions and trends. A vision is important because it provides a framework for problem-solving and developing strategic options. A vision is also important in communicating a clear future direction and enhancing employee participation and commitment.  Discussion Question 7: How have leaders you have worked for helped set the direction of the organization? Answer: Leaders I’ve worked with have set direction by clearly articulating goals, aligning team efforts with organizational vision, and adjusting strategies based on feedback and market changes. Their guidance helped steer the organization towards achieving its objectives. Discussion Question 8: What are some examples of leaders that have used direction setting to lead and/or transform their organizations? Answer: Leaders like Jeff Bezos at Amazon and Satya Nadella at Microsoft have used direction setting to drive significant organizational transformations. Their strategic vision and ability to adapt have reshaped their companies’ industries and growth trajectories. The SUPPLEMENT below points out that even after a direction is set, managers should still be proactive to altering the strategy as new opportunities come about.  Extra Example: Ikea’s Proactive Approach to a Business Opportunity Ikea leverages existing assets and capabilities to experiment with business models. After the firm decided to enter Russia, managers noticed that whenever it opened a store, the value of the nearby real estate dramatically increased. Thus, Ikea decided to explore two business models simultaneously: retailing through its stores and capturing the appreciation in real estate values through mall development. It now makes more profit in Russia from developing and operating malls than from its traditional retail business. Source: Reeves, M. & Deimler, M. 2011. Adaptability: The new competitive advantage. Harvard Business Review, 89 (7/8): 134-141.  Discussion Question 9: Can you think of other examples where a firm modified its initial strategy and benefited from its revised strategy? Answer: Nokia's shift from a mobile phone focus to a technology and network infrastructure focus and IBM's move from hardware to software and services are examples of firms that modified their strategies. These changes allowed them to better align with evolving market demands and technological advancements. STRATEGY SPOTLIGHT 11.1 describes how Joe Ling’s visionary approach to 3M’s sustainability strategy.  Discussion Question 10: Why was Joe Ling so successful? Answer: Joe Ling was successful due to his strategic vision, operational expertise, and ability to effectively lead teams through complex transformations. His focus on customer needs and innovation contributed to his success. B. Designing the Organization Leaders must be actively involved in shaping the organization by building structures, teams, systems, and organizational processes that facilitate implementation of their strategic vision. Failure to provide leadership in shaping and maintaining organizational design can result in numerous problems including: 1. Inadequate understanding of responsibility and accountability among managers and employees. 2. Reward systems that fail to motivate individuals toward common objectives. 3. Poor or inappropriate budgeting and control systems. 4. Inappropriate or insufficient mechanisms to integrate and coordinate activities across the firm.  Discussion Question 11: Have you ever worked for an organization with accountability and control problems such as these? What was the leader’s role in causing the problems? What could the leader have done to prevent the problems? Answer: In organizations with accountability issues, leaders may fail to set clear expectations or enforce standards. They could have improved by implementing better monitoring systems, reinforcing ethical guidelines, and fostering an open communication culture. C. Nurturing a Culture Committed to Excellence and Ethical Behavior Leaders play a key role in developing and sustaining — as well as changing, when necessary — an organization’s culture. We discuss how the founder of a Chinese firm (Huawei) went about creating a “wolf culture” at his firm. The SUPPLEMENT below emphasizes why it is important for organizational leaders to continually monitor and reinforce a company’s cultural values. In the case of Northwestern Mutual Life, this means focusing on communication, education, and thriftiness (with humor…).  Extra Example: Reinforcing Values at Northwestern Mutual Life James D. Ericson, CEO of Northwestern Mutual Life, is a leader who manages his company’s values. However, those values may be very different from other companies in the same industry. Here are Ericson’s comments about the values of education, communication, and thriftiness: “Most companies reward agents by whisking them away to far-flung resorts. To say we don’t is an understatement. For more than a hundred years, we’ve held our annual meeting each summer in Milwaukee. Agents bring their families...and even pay their own way. That’s right...I said they pay their own way to Milwaukee, Wisconsin! More than 9,000 agents and family members attended the meeting last July. They enjoyed a number of social events...but education was the main focus of the meeting...as it always is.” “We call it unique...and it is. But our industry colleagues probably just call us cheap. I remember talking to a woman at an industry meeting. She was telling me where her company takes their agents...at company expense. Spain, Italy, the Bahamas. An acquaintance of mine overheard and said, ‘Jim, tell her where you take Northwestern agents.’ So I said, ‘The Milwaukee Zoo’ because that’s where we hold our opening party. As she stood there speechless I added, ‘but we only make them pay for half of their food and drink.’ I don’t think I made a convert to our values and traditions.” Source: Ericson, J. D. 1993. Speech at Corporate Communications Seminar reported in Fortune Magazine, March 13.  Discussion Question 12: Why is it important for the leader to communicate a consistent perspective about a company’s values (stated at the end of the first paragtaph)? Answer: Consistent communication about a company’s values ensures that all employees understand and align with its ethical standards. This helps in maintaining integrity, building trust, and guiding behavior within the organization. Discussion Question 13: What are some of the benefits of a leader using humor to make a point? Answer: At times, executives must make difficult decisions in order to strengthen the culture of the organization. The example below shows a courageous action taken by a leader—firing a large client of the firm. Using humor effectively can break down barriers, ease tension, and enhance communication. It makes leaders more relatable, encourages openness, and can foster a positive work environment.  Extra Example: The Founder Takes a Strong Action: Firing a Huge Client! Fearful that his creative talent would bolt because the main contact for a huge client was abusive, Kim McConnell, founder of agricultural marketing communications firm AdFarm made a courageous decision—he fired the client! Morale improved immediately. “Very quickly the revenue from this very sizable account was made up,” he says. “I guess it put pressure on our people to go and find the revenue we lost from this client.” Source: Harnish, V. 2010. Stop doing these five business killers now. Fortune. December 6: 71.  Discussion Question 14: Do you know of any other courageous decisions that a leader has taken to strengthen (or maintain) his/her firm’s culture? (You might use this to introduce Strategy Spotlight 11.2—how the founder of Infosys instilled a strong culture by refusing to pay a bribe.) Answer: Managers and top executives are responsible for strengthening and modeling ethical behavior throughout an organization as well. To do so, they must consistently demonstrate that ethical values are central to the organizational vision and mission. STRATEGY SPOTLIGHT 11.2 discusses how the chairman of Infosys creates an ethical culture by “walking the talk.” II. Getting Things Done: Overcoming Barriers and Using Power Leaders must perform a variety of task and the success of their organizations often depends on how well they meet challenges and deliver on promises. In this section, we focus on two capabilities that are marks of successful leadership — overcoming barriers to change and the effective use of power. A. Overcoming Barriers to Change Effective leaders must recognize that to bring about meaningful change in their organizations, they must overcome barriers (or resistance) to change. There are several types of resistance to change. Among these are: • Many people have “vested interests in the status quo” • “Systemic” barriers (such as a bureaucratic structure involving many rules and regulations) • “Behavioral” barriers (which is the tendency of managers to look at issues strictly from their biased perspective — based on education, work background, etc.) • “Political” barriers (which refer to conflicts arising from power relationships and self interest) • “Personal time constraints” (which simply means that managers may be so absorbed with operating details and responsibilities that they have little time to see “the big picture”) STRATEGY SPOTLIGHT 11.3 discusses how discusses how two firms (Microsoft and Natura Cosmeticos) overcame resistance by creating a more collaborative environment. B. The Effective Use of Power Leaders derive their power from many bases. There are two primary types of power: Organizational (which includes legitimate, reward, coercive, and information power) and personal (which includes referent and expert power). These sources of power are illustrated in EXHIBIT 11.2. Effective leaders use the different bases of power as the need arises. They often use a combination of them depending on such factors as the nature of the task, the personality characteristics of the subordinates, the urgency of the issue, and other factors. STRATEGY SPOTLIGHT 11.4 discusses some of the subtleties associated with power. It centers on Siemens’ CEO. He uses peer pressure very effectively. The SUPPLEMENT below should be of great interest to your students. It is part of an HBR interview given by Sheryl Sandberg, COO of Facebook, who recently wrote Lean In, a book for women aspiring to leadership positions. It should spur some spirited discussion.  Extra Example: Sandberg’s View on Women and the Use of Power Question: Some have criticized you for essentially blaming women for not being “better,” even though many of the challenges they confront are institutional. How do you respond? Sandberg’s Response: Women face huge institutional barriers. But we also face barriers that exist within ourselves, sometimes as the result of our socialization. For most of my professional life, no one ever talked to me about the ways I held myself back. I’m trying to add to that side of the debate. There’s a great quote from Alice Walker “The most common way people give up their power is by thinking they don’t have any.” I am not blaming women: I’m helping them see the power they’ve got and encouraging them to use it. One important way, as I write in the book is that they “leave before they leave.” That is, they take themselves out of the running for career advancement because they want to have a family. But in some cases they’re making these decisions years in advance—before they even have a partner? That should be a time when they lean in, not pull back. Source: Ignatius, A. 2013. Now is our time. Harvard Business Review. 91(4): 84-88.  Discussion Question 15: Do you agree? What other strategies and tactics should women use to have more successful careers? Answer: Women should use strategies like building networks, seeking mentors, and leveraging unique perspectives to advance their careers. Balancing assertiveness with collaboration and continually developing skills are also crucial for success. Teaching Tip: The issue of power is very interesting to students. It would be interesting to ask them to think of leaders that they have known (or read about) and what type of power they exercised. Then ask if they were effective or ineffective — and what explained their success (or lack thereof). You could also integrate this in with the previous topic and ask whether or not these leaders were able to bring about significant change and if their success (or failure) could be attributed to the application of power (or if there were other factors). III. Emotional Intelligence: A Key Leadership Trait In the previous section, we focused on “what leaders do and how they do it.” In this section, we address “who leaders are.” That is, we focus on individual attributes instead of leader behavior. It is important to point out that these two issues are highly related because successful leaders possess valuable traits that enable them to engage effectively in activities to create value for their organization. Although there have been countless studies of leader traits (e.g., integrity, maturity, energy, intelligence), we address one that has really garnered a lot of attention in both the academic and business presses: Emotional Intelligence (EI). This concept has been popularized by Daniel Goleman who has published best-selling books. Goleman defines EI as the capacity for recognizing one’s own emotions and those of others. Recent studies have found that effective leaders have a high level of EI and that EI is a better predictor of life and career success than IQ (intelligence quotient). The five components of EI are: A. Self-Awareness B. Self-Regulation C. Motivation D. Empathy E. Social Skill These five components are briefly summarized in EXHIBIT 11.3. Teaching Tip: To drive home the importance of EI, it is useful to write on the board, three types of “traits” or “resources” that all managers have to varying degrees. These could be called “human capital” (i.e., skills, technical competencies, etc.), “social capital” (i.e., positive relationships with others), and “political capital” (i.e., an awareness of where power, influence, or resources are located in an organization and a rather high level access to such resources). Then ask students if successful managers need an equal amount of these three types of resources. Many students may contend (correctly) that the “balance” may depend on the type of position in an organization (e.g., people higher in the organization need more social and political capital than human capital). It may be interesting to point out that most of their coursework focuses on developing human capital, but the other two types of capital are also very important for career success. And, you may ask them how social and political capital can be enhanced and developed. The SUPPLEMENT below addresses Daniel Goleman’s (a leading expert on EI) view on the positive implications that EI can have for managers that are working in an international context.  Extra Example: The Value of Emotional Intelligence (EI) in an International Context Globalization is another reason for the increasing importance of empathy (one of the five elements of EI) for business leaders. Cross-cultural dialogue can often result in miscues and misunderstandings. Empathy is a valuable antidote. Managers who have it are attuned to subtleties in body language. They can hear messages beneath the words being spoken. Further, they have a deep understanding of the existence and importance of cultural and ethnic differences. For example, consider the case of an American consultant whose team has just presented a proposal to a Japanese client. When dealing with fellow Americans, the team was accustomed to being bombarded with questions after such a proposal. However, this time it was greeted with a long silence. Most of the members of the team interpreted the silence as disapproval and were ready to leave. However, the lead consultant gestured them to stop. Although he was not very familiar with Japanese culture, he was able to read the client’s face and posture and sensed not rejection but interest — even deep consideration. He was correct. When the client finally spoke, it was to award the consulting firm with the job. Source: Goleman, D. 1998. What makes a leader? Harvard Business Review, 76(6): 93-102.  Discussion Question 16: Think of a situation where you interacted with international students—either at work or in the classroom. Would greater levels of empathy have changed or improved your interactions? If so, how? Answer: Greater empathy in interactions with international students could enhance understanding and communication. It would help in navigating cultural differences and building stronger, more collaborative relationships. STRATEGY SPOTLIGHT 11.5 shows a unique context where empathy paid off – a pediatric dental office. F. Emotional Intelligence: Some Potential Drawbacks and Cautionary Notes This section serves to provide some balance to our discussion of emotional intelligence. We suggest that too much EI can lead to inappropriate behaviors that erode a leader’s ability to excel. We first suggest that a leader could be ineffective if he/she focuses too much on one aspect of EI. For example, too much self-awareness, but a lack of empathy may make a person come across as self-obsessed and too much empathy may cause a leader to become too “hard to read.” We also suggest some potential drawbacks of EI by discussing the “flipside” of the benefits of its essential components: 1. Effective Leaders Have Empathy for Others (leaders may confuse empathy with sympathy and fail to make “hard decisions”) 2. Effective Leaders Are Astute Judges of People (leaders may rely too much on their judgment and dismiss others’ insights) 3. Effective Leaders Are Passionate about What They Do, and They Show It (passion may prevent leaders from other possibilities and ignore realities that others see) 4. Effective Leaders Create Personal Connections with Their People (If there are too many unannounced visits, it may lead to fear and micromanagement.) IV. Developing Competency Companions and Creating a Learning Organization We have added the material on “Competency Companions” for the Seventh Edition. It points out the importance of developing new competencies that complement (or leverage) the skills that they already have. This is “interesting” in that it is counter to the advice that they may hear from advisers and mentors at times—develop your strengths! The example that we provide is that if a leader has strong innovative capabilities, their effectiveness could be significantly enhanced by developing communication skills (so there ideas are more effectively communicated and implemented). We believe that individuals’ development of competency companions in an important antecedent to the creation of learning organizations. STRATEGY SPOTLIGHT 11.6 discusses the process of determining and developing competency companions. Teaching Tip: You might consider breaking students into small groups and asking how they can improve their leader effectiveness by “leveraging” it with a competency companion. One of the most common examples is to leverage a “hard skill” such as technological expertise or marketing skills with strong communication skills. Point on that often “hard skills” may become unrealized if people don’t have the communication skills to make persuasive arguments. (Note: Please put the “light bulb” icon to the left of “Teaching Tip”) Leading-edge organizations recognize the importance of having everyone in the company involved in the process of learning and adapting. The days when company leaders learned for the organization are gone. Today, leaders must stimulate and harness the collective genius of all organization members. Learning and change typically involve an ongoing questioning of an organization’s status quo. Point out that this is simple, but easy to ignore. Most companies get caught-up in carrying out day-to-day activities and rarely stop to think about themselves and their business. To enhance learning, leaders must ask probing questions that question basic assumptions, strategies, and processes. Successful learning organizations create a proactive, creative approach to the unknown, actively solicit the involvement of employees at all levels, and enable everyone to use their intelligence and apply their imagination. A learning organization also requires an organization-wide commitment to change, an action orientation, and the tools and methods needed to create change. Another key role for leaders is to link learning to the organizational vision, mission, and goals. Emphasize that inspiring and motivating people with a mission or purpose is a necessary but not a sufficient condition for developing a learning organization. Four other critical learning processes are discussed next. EXHIBIT 11.4 lists all five elements of a learning organization. A. Inspiring and Motivating People with a Mission or Purpose A critical requirement of all learning organizations is that everyone feels and supports a compelling purpose. We mention that a major finding of a study was that most leaders’ greatest challenge was to effectively communicate an image of the future that draws others in, and speaks to what others see and feel. (We provide the example of a manager at Rockwell Collins.) B. Empowering Employees at All Levels Empowerment involves creating an environment where employees can achieve their own potential as they help move the organization toward its goals. To achieve this balance, leaders must be flexible resources within the organization who are willing to assume numerous support roles. The SUPPLEMENT below addresses the promise and limitations of empowerment from the perspective of learning scholar Chris Argyris. Argyris argues that empowerment requires a delicate balance that is often hard to achieve.  Extra Example: Guidelines for Effectively Empowering Organizations and Employees Chris Argyris, who has been writing about learning and leadership for over 30 years, has some sobering thoughts and useful advice about how to make empowerment programs work. He suggests that effective empowerment is difficult to achieve because its complex: “The change programs and practice we employ are full of inner contradictions that cripple innovation, motivation, and drive. At the same time, CEOs subtly undermine empowerment. Managers love empowerment in theory, but the command-and-control model is what they trust and know best. For their part, employees are often ambivalent about empowerment — it is great as long as they are not held personally accountable. Even the change professionals often stifle empowerment. Thus, despite all the best efforts that have gone into fostering empowerment, it remains very much like the emperor’s new clothes: we praise it loudly in public and ask ourselves privately why we can’t see it.” To create empowerment programs that work, Argyris suggest a few guidelines: 1. Understand that empowerment has its limits. Know how much can be created and what can be accomplished. Once it has been created, do not misuse it. Be clear about who has the right to change things. 2. When implementing empowerment initiatives, calculate factors such as morale, satisfaction, and even commitment into your human relations policies, but do not make them the ultimate criteria. The ultimate goal is performance. Individuals can be excellent performers and report low morale, yet it is performance and not morale that is paramount. 3. Help employees understand the choices they make about their own level of commitment. One of the most helpful things we can do in organizations — indeed, in life — is to require that human beings not knowingly kid themselves about their effectiveness. Source: Argyris, C. 1998. Empowerment: The emperor’s new clothes. Harvard Business Review, 76(3): 98-105.  Discussion Question 17: What are some examples of companies that have implemented empowerment programs? Have these programs been effective? Answer: Companies like Google and Zappos have implemented empowerment programs, granting employees autonomy and decision-making power. These programs have led to increased job satisfaction, innovation, and productivity. The SUPPLEMENT below continues the theme of being careful who you empower with a rather humorous caveat about empowerment from Rick Teerlink, former CEO of Harley-Davidson. His statement emphasizes the importance of combining empowerment with other aspects of organizational learning including skills development and training.  Extra Example: A Cautionary Note about Empowerment from the CEO of Harley-Davidson Rick Teerlink, CEO of Harley-Davidson has helped build his company into one of the most recognizable brands in America. He has worked to create a strong organization through training and organizing his work force. He cautioned, however, “If you empower dummies, you get dumb decisions faster.” His view is that capable organizations come from more committed and more talented employees. Source: Ulrich, D. 1996 The leader of the future: San Francisco: Jossey-Bass: 210-211.  Discussion Question 18: What do you think of empowering lower level employees? Is it likely to benefit the company? Why or why not? Are there potential dangers to the company? What are they? Explain. Answer: Empowering lower-level employees can benefit companies by fostering innovation and responsiveness. However, potential dangers include inconsistent decision-making and risk of misalignment with organizational goals if not properly managed. STRATEGY SPOTLIGHT 11.7 discusses some ideas for enhancing employee empowerment. C. Accumulating and Sharing Internal Knowledge Employees need to understand the overall business in order to make a strong contribution. Emphasize that effective organizations share information and give workers the skills to act on that information. Along with redistributing information and giving employees the knowledge to use it, the reward systems must also encourage this behavior. Springfield ReManufacturing Corporation (SRC) is presented as an example. Its President and CEO, Jack Stack, is a pioneer of “open book” management which advocates three activities: 1) generating numbers daily to monitor the performance of all employees, 2) sharing the information weekly with all employees, and 3) extensive training in how to interpret and use the numbers. We also discuss Whole Foods Market Inc., a practitioner of internal bench marking – a practice that requires the sharing of internal information. The SUPPLEMENT below provides two other examples of firm’s effective use of sharing internal information—Alaska Airlines and Zingerman’s.  Extra Example: The Benefits of Sharing Internal Information People can contribute more effectively when they understand how their efforts fit with the organization’s mission and strategy. Consider two examples:  Alaska Airlines has invested management time in helping employees gain a broad view of the firm’s strategy. The 2010 Plan was launched with traditional communications but also with a months-long road show and training classes designed to help employees share ideas. The CEO, the president, and the COO still go on the road quarterly to gather information about the idiosyncrasies of various markets. Then they disseminate what they’ve learned. The benefits show up in annual measures of employee pride in the company—now at an exceptional 90 percent.  At Zingerman’s, a community of food- related businesses, information is as transparent as possible. The firm has never consciously withheld its numbers—financial information was tacked up for employees to see. However, when cofounders Ari Weinzweig and Paul Saginaw studied open book management in the mid-1990s, they came to believe that employees would show greater interest if they got involved in the “game.” Source: Spreitzer, G. & Porath, C. 2012. Creating sustainable perfomance. Harvard Business Review, 91 (1/2): 92-99. We also point out the importance of listening skills (which involves more than not talking until the other person stops!). Ask: Discussion Question 19: What do you see as some of the benefits of practicing effective listening skills? (e.g., obtaining valuable information, developing rapport and respect enhancing your “personal” bases of power) Answer: Informal information also needs to be shared for effective management. Point out that executives who are regarded as good listeners are more likely to make good decisions and get promoted. D. Gathering and Integrating External Information Recognizing opportunities and threats is vital to a firm’s success. We present four methods companies are using to do so in today’s economy: 1. The Internet has made it easier to rapidly locate valuable people and information. 2. Employees at all levels can use traditional sources of information such as trade and professional journals, books, business periodicals, and published reports. Membership in trade and professional organizations provides important information via networking. 3. Benchmarking is a technique for using external information to make comparisons to best practices in an industry. Two types are highlighted: competitive benchmarking is limited to the best practices of competitors; functional benchmarking is used to assess similar functions regardless of industry. 4. Obtain information directly from customers.  Discussion Question 20: What are some other methods companies might use to gather and integrate useful information? Answer: Companies might use methods like regular surveys, feedback systems, and data analytics to gather and integrate useful information. These approaches help in making informed decisions and adapting strategies. Discussion Question 21: What are some examples of companies that are using information gathering to improve their performance? Answer: Companies like Netflix and Amazon use data analytics and customer feedback to improve performance. By analyzing user behavior and preferences, they refine offerings and enhance customer experiences. E. Challenging the Status Quo and Enabling Creativity Leaders can use several means to overcome the inertia of the status quo. In general, efforts to create a learning organization help establish an environment that is receptive to change. Another solution is to encourage and enable creativity to keep organization members open to new ideas. Generating a sense of urgency by painting a picture of what will happen if the company does not change is another way to make employees receptive to change and motivate them to practice information sharing and trust. Fostering a “culture of dissent” is another way to challenge the status quo. Norms are established whereby dissenters can openly question authority without fear of retaliation. Companies such as Microsoft and Motorola are presented as examples of companies that encourage dissent. Related to a culture of dissent is a culture of risk taking in which failure is not punished. Point out that companies that don’t make mistakes aren’t taking risks and risk taking is needed to push ahead. Companies that cultivate cultures of experimentation and curiosity make sure that failure is not “a four-letter word.” People who push the envelope and stretch their creative wings are protected.  Discussion Question 22: Are there potential disadvantages to fostering a climate of change and experimentation? What are they? What makes them problematic? Answer: Fostering a climate of change and experimentation can lead to potential disadvantages like resistance to change, increased uncertainty, and short-term disruptions. These issues can challenge stability and affect performance. Discussion Question 23: What are some examples of companies that encourage risk taking and “dissent” in order to stimulate creativity, productivity, and growth? Answer: We also provide examples of how several firms encourage risk taking and celebrate failures. Companies like 3M and Facebook encourage risk-taking and dissent to stimulate creativity and growth. Their cultures support experimentation and open dialogue, leading to innovative solutions and advancements.  Discussion Question 24: Do organizations you are familiar with effectively encourage risk taking and tolerate failure? If so, how? Answer: Organizations I’ve worked for that encouraged risk-taking fostered environments where creativity thrived. They provided safety nets for failures and recognized innovative efforts, which motivated employees to explore new ideas. In the following SUPPLEMENT we present an interview with John Donahue, eBay’s CEO, who shares his insights into how his firm maintains risk taking to spur growth.  Extra Example: How do you Cultivate and Sustain Risk-Taking as the Company Expands? According to CEO Donahue: “By talking about it. By celebrating failure-cases where we took bold risks and things didn’t work out exactly as we imagined, but we recognized that and made adjustments. In 2010, we introduced the largest pricing change in eBay’s history in the U.S., to make our marketplace truly balanced between auctions and fixed price. Six or eight weeks in, I knew something wasn’t right. There was a second-order dynamic in the marketplace that was depressing it, so over the summer we really drilled down to understand what was going on. That was a period of anxiety, but I had no regrets. It was one of those changes where you either flip the switch and you go for it or you don’t do it. We diagnosed the issues, we made adjustments, and we benefited in the fourth quarter. That’s a lot of what business is today: the old ‘Ready, fire, aim.’ You’re better off moving and, if you don’t get it exactly right, making an adjustment. That’s the only way to compete on the Internet today, because it’s moving so fast.” Source: Ignatius, A. 2011. How eBay developed a culture of experimentation. Harvard Business Review. 89(3): 96.  Discussion Question 25: Does Donahue’s reasoning apply only to online businesses? Can you think of other examples? Answer: Donahue’s reasoning can apply beyond online businesses. For instance, traditional retailers must also react quickly to changing consumer preferences to stay competitive. Adaptability is crucial in various industries. Discussion Question 26: Are there still industries where rapid reaction might not be necessary? What are some examples? Answer: Industries like utilities or heavy manufacturing might not need rapid reaction as much due to stable demand and long-term projects. However, even these sectors benefit from flexibility in adapting to technological and regulatory changes. V. Creating an Ethical Organization Ethics can be defined as a system of right and wrong. Ethics assist individuals in deciding when an act is moral or immoral, socially desirable or not. There are many sources of ethics: religious beliefs, national and ethnic beliefs, community standards, family practices, educational experiences, and friends. Business ethics is the application of ethical standards to commercial enterprise. The SUPPLEMENT below provides an excerpt from a speech by Richard F. Syron, Chairman and CEO of the American Stock Exchange regarding the sources and importance of ethical beliefs.  Extra Example: What Ethics Really Means “Most of us think we learn about ethics in the normal course of our lives. We learn about it from our parents, hopefully, at an early age. We learn about it from our teachers. We learn about it from religious leaders. And we see ethics in action in the workplace. But I think it’s very important that we consider what ethics really means in a broader sense.” “Ethics doesn’t mean just not doing what is wrong. It doesn’t mean just avoiding fraud or lying. Ethics means – more and more — doing the right thing because the right thing works in the long run. Ethics also means doing the right thing even if it’s unpopular and difficult in the short run.” Source: Syron, R. F. 1999. Ethical imperatives for stock markets in the new millennium. Speech made at Bentley College Center for Business Ethics, February 8.  Discussion Question 27: What other sources of ethical beliefs influence actions in the workplace? Answer: Ethical beliefs influenced by societal norms, religious teachings, and personal values shape workplace actions. These beliefs can guide behavior, decision-making, and interactions within the organization. Discussion Question 28: Is there a conflict when business leaders apply ethical beliefs from outside the workplace to business decisions? Why or why not? Answer: Applying external ethical beliefs to business decisions can create conflicts if they clash with organizational goals or industry norms. It’s essential to balance personal ethics with professional responsibilities and legal requirements. A. Individual Ethics versus Organizational Ethics Many leaders think of ethics as a question of personal scruples, a confidential matter between employees and their consciences. Such leaders are quick to describe any wrongdoing as an isolated incident. In fact, however, ethics is strongly influenced by leadership. Seldom does the character flaw of a lone actor completely explain corporate misconduct. Instead, unethical business practices usually reflect the values, attitudes, and sometimes even the cooperation, of other organizational members. Businesses face many types of ethical issues. In addition to lying and fraud, for example, concerns about protecting the environment, fair employment practices, distributing unsafe products, fetal tissue research, disproportionate executive pay, and discrimination have all raised questions about corporate ethical performance. Without a strong ethical culture, the chance that one of these issues might lead to an organization crisis is enhanced. The potential benefits of an ethical organization are many, but may be indirect. Research has shown positive relationships between ethical performance and strong organizational culture, increased efforts by employees, lower turnover, higher organizational commitment, and enhanced social responsibility. An ethically sound organization can also strengthen its bonds with external stakeholders.  Discussion Question 29: Why do you think employees would prefer to work at a company with ethical leaders? Answer: Employees prefer to work at companies with ethical leaders because it fosters trust, integrity, and a positive work environment. Ethical leadership enhances job satisfaction and aligns with personal values. Discussion Question 30: What are some examples of companies that build loyal ties with their employees because of the ethical values and behaviors of its leaders? Answer: Companies like Patagonia and Ben & Jerry’s build loyalty through strong ethical values and behaviors. Their commitment to social and environmental causes resonates with employees, creating a sense of shared purpose and commitment. STRATEGY SPOTLIGHT 11.8 highlights potential ethical problems at utility companies that are trying to capitalize on consumers’ desire to participate in efforts to curb global warming. We address what actually happened to customer payments that “green” utility companies said would be used for renewable energy development. B. Integrity-Based versus Compliance-Based Organizational Ethics There is an important link between organizational integrity and the personal integrity of an organization’s members. While there can’t be high-integrity organizations without high-integrity individuals, individual integrity is seldom self-sustaining. Even good people can lose their bearings when faced with pressures, temptations, and heightened performance expectations. Organizational integrity goes beyond personal integrity. It is based on the concept of purpose, responsibility, and ideals for the entire organization. A key responsibility or leadership in building organizational integrity is to create this ethical framework and develop organizational capabilities to make it operational. Lynn Paine, a scholar at Harvard, has identified two approaches that organizations typically take when dealing with ethics: compliance-based and integrity-based approaches. EXHIBIT 11.5 provides a distinction between these two approaches. Compliance-based programs are generally designed by corporate counsel with the goal of preventing, detecting, or punishing legal violations. On the other hand, an integrity-based approach to ethics combines a concern for the law with an emphasis on managerial responsibility for ethical behavior. Such an approach is broader, deeper, and more demanding than a legal compliance initiative. We provide the example of Texas Instruments, an organization that goes beyond the mere compliance to laws to building an ethical organization. To sum up, compliance-based approaches are externally motivated, that is, based on fear for doing something unlawful. In contrast, integrity-based approaches are driven by a personal and organizational commitment to ethical behavior. Four key elements — role models; corporate credos and codes of conduct; reward and evaluation systems; and, policies and procedures — contribute to an ethical organization. Teaching Tip: Ask students which of these four elements — role models, corporate credos/codes of conduct, reward and evaluation systems, policies and procedures — are the most important to ensure an ethical organization. Then ask why it is important to have consistency among these elements (e.g., if the last three are present but top executives aren’t good role models, i.e., “walk the talk,” the other elements will not be as effective in shaping behavior). C. Role Models Leaders are role models in their organizations. (The example of General Dynamics’ CEO dramatically illustrates how her behavior was mimicked!) Leaders must be consistent in their words and deeds because their values and beliefs become transparent to organizational members through their behaviors. Dennis Bakke, CEO of energy company AES, is presented as an example. When lower level employees lied to the EPA, Bakke and other senior managers took responsibility. D. Corporate Credos and Codes of Conduct Corporate credos and codes of conduct are statements that describe a firm’s commitment to certain standards or values. They provide guidelines for norms, beliefs, and decision making. They also provide a basis for employees to refuse to commit unethical acts. STRATEGY SPOTLIGHT 11.9 identifies four key reasons why codes of conduct support organizational efforts to maintain a safe and ethical workplace. E. Reward and Evaluation Systems Inappropriate reward systems may cause individuals at all levels of an organization to commit unethical acts that they might not otherwise do. The penalties for such acts in terms of damage to reputations, human capital erosion, and financial loss are usually much higher than any gains that could be obtained through such behavior. The SUPPLEMENT below provides some insights on unethical behavior and some of the possible underlying causes.  Extra Example: Unethical Behavior and Some of the Underlying Causes Ernst & Young conducted its 12th annual Global Fraud Survey of more than 1,700 senior executives in 43 countries, including chief financial officers and heads of legal and compliance audits. It found that 15 percent were willing to make cash payments to win or retain business. The corruption perception index of Transparency International, a multinational organization dedicated to curbing corruption in business, ranked countries according to its level of corruption. The U.S. ranked 24. New Zealand was first and Canada was tenth, in terms of the absence of corruption. Malcolm Slater, in a Harvard Business Review article, argues that the short-term focus of businesses invites corruption. He cites examples such as Wall Street’s mortgage banking fiasco, defining it as “institutionally supported behavior that while not necessarily unlawful, undermines a company’s legitimate processes and core values. In the private sector, institutional corruption typically entails gaming society’s laws and regulations, tolerating conflicts of interest, persistently violating accepted norms of fairness and pursuing various forms of cronyism.” Salter contends that the excessive focus of executive on short-term results discourage long-term investments and weakens the economy. Source: Williams, R. 2012. How competition can encourage unethical business practices. business.financial.post. July 31: np.  Discussion Question 31: What can be done to promote ethical behavior in organizations/reduce unethical behavior? (Address some of the issues in this section of the chapter and others, of course—such as reduced focus on short-term results and a broader stakeholder, long-term perspective.) Answer: To promote ethical behavior, organizations can implement robust ethics training, establish clear guidelines, and foster a culture of transparency and accountability. Encouraging long-term thinking and stakeholder consideration helps reduce unethical practices. F. Policies and Procedures Policies and procedures are used to guide employees in handling routine occurrences or events in a uniform manner. It is important to develop policies and procedures carefully so that all employees will be encouraged to behave in an ethical manner. Policies and procedures must also be reinforced with effective communication, enforcement, and monitoring. I VI. Issue for Debate Here, we consider the ethics of a decision made by PIMCO’s president to have ten of his credit analysts pose as real estate buyers in order to better understand the mortgage market in 2006. His intention in dispatching these “imposer buyers” was to learn how to better protect his investors from “liar loans” and “extravagant lending practices.” QUESTIONS: 1. What do you think about the ethics of pretending to buy homes? Answer: You might begin by asking the class if motives matter. Does your view of the situation depend on whether he was trying to protect his investors versus simply exploiting mortgage lenders and real estate agents? The deceit is relatively minor and the benefit could be quite substantial. Is it right to deceive those who are engaged in unethical practices? Is it the same to deceive innocent people? How would you feel about posing as a customer at a competing firm, an upstream supplier, or a downstream firm? Pretending to buy homes can be unethical as it involves deception and misrepresentation, potentially misleading sellers, agents, and others involved in the transaction. Such actions can undermine trust in real estate markets and damage reputations. Transparency and honesty are crucial in maintaining ethical standards in business practices. 2. Do the means justify the ends? Answer: First, you may want to take a survey of the class: “How many of you support this approach?” Then, you can discuss the issue from various philosophical perspectives. You could ask how a utilitarian theorist (e.g. Mill, Bentham, and Sidgwick) might respond – “the greatest good for the greatest number.” However, a truly utilitarian approach would require Bill Gross to publicly “blow the whistle” on any inappropriate practices as this may help the country (or even the world) from economic struggle, recession, etc. Now, you can describe an opposing view. A deontologist, especially Kant, would claim that misleading others is not justifiable – “the end does never justifies the means.” However, if taken as a categorical imperative, it is unlikely that many students would prescribe to this logic. For example, is it not acceptable to lie when somebody asks where your child is hiding if they wish to harm your child? In ethics, the means do not justify the ends; actions should be morally sound regardless of the outcomes. Ethical principles emphasize integrity and honesty, ensuring that methods used align with values and standards. 3. Was this effective leadership? Answer: There were those in PIMCO who were pushing for greater investment in mortgage-backed securities. Bill Gross felt that he needed to gather his own data as a way to overcome barriers to change (i.e., avoiding high risk securitized debt instruments – which was perceived as a very attractive investment option at the time by many rivals). Integrative thinking can be used in a prospective way (predicting the causal chain yet to play out in the market) to address this case. We discuss integrative thinking in Chapter 13 (pages 425 to 427).  VII. Reflecting on Career Implications Below, we provide some suggestions on how you can lead the discussion on the career implications for the material in Chapter 11.  Strategic Leadership: The chapter identifies three interdependent activities that are central to strategic leadership, namely, setting direction, designing the organization, and nurturing a culture dedicated to excellence and ethical behavior. Both during your life as a student and in organizations you work, you have often assumed leadership positions. To what extent have you consciously and successfully engaged in each of these activities? Observe the leaders in your organizations and assess to what extent you can learn from them the qualities of strategic leadership that you can use to advance your own careers. This discussion is largely visionary. One approach is to ask students to think about a leader in their lives. Then ask students how this leader effectively does each of the three leadership activities. It may be useful to have a dialogue about how each of these three activities is important to the success of the organization. Have students share their observed activities to bring out the breadth of possible responses. To extend the discussion, ask students to identify one way that each of them could more effectively engage in each of the three activities. At the conclusion of the discussion, ask students to focus on the leadership activities of their supervisor over the next week and see if they can add to their personal list of desired leadership traits.  Power: Identify the sources of power used by your superior at work. How do his or her primary source of power and the way he/she uses it affect your own creativity, morale, and willingness to stay with the organization? In addition, identify approaches you will use to enhance your power as you move up your career ladder. Explain why you chose these approaches. This discussion is mostly about students’ relationships with their supervisors. Ask students about their perceived quality of this relationship, and there are likely to be a range of responses. Ask students about the importance of a good relationship with their supervisors. Is there an effect on creativity, morale, and willingness to stay with the organization? Are there other consequences? It is relevant to establish the importance of good supervisor-employee relationships. Now ask students about the type of power the supervisor uses. You might find that the worse relationships are with supervisors who use coercive power. Other patterns may be that worse managers rely on reward power and better ones rely on referent power. In any case, ask students to identify the power base of their supervisor. Ask how the supervisor enhances and maintains his or her power. As this topic evolves, shift the issue to whether or not the students could or should use similar approaches. The point of the discussion is that power can be established and maintained in various ways, but students may not want to use all the ways. They may feel more comfortable using their own approach. There may be more to being a manager than maximizing power.  Emotional Intelligence: The chapter identifies the five components of Emotional Intelligence (self-awareness, self-regulation, motivation, empathy, and social skills). How do you rate yourself on each of these components? What steps can you take to improve your Emotional Intelligence and achieve greater career success? Emotional intelligence (EI) is an effective topic to complement that of power (above). Students can rate themselves on EI, and they may also rate their superiors. There may be a very close association between students’ ratings of their relationships with superiors and the students’ perceived level of their superiors’ EI. The gist of this discussion is to emphasize the importance of EI. It is also useful to have students rate themselves on each of the dimensions. It may be that some students rate themselves high on some components and low on others. Ratings on the five components do not correlate very strongly. As a result, note that EI can be of different types. There can be managers with high “empathy” EI but low “motivation” EI, and vice versa. There may be as many different types of EI as there are students. However, most students will understand that all components of EI are useful, and it would be nice to improve on them. Studies show that EI can be changed, but it is not easy. It takes time and effort, but students should understand that it is possible. Changing your EI score may be as difficult as turning an introvert into an extrovert. Introverts may never feel comfortable in social situations, but they can learn to function. Similarly, managers with low empathy can learn how to pay attention to others’ emotional cues. They may never find it “natural”, but they can develop a reasonable level of empathy with practice. It would be valuable if students agreed that the effort was worth it.  Creating an Ethical Organization: Identify an ethical dilemma that you personally faced in the course of your work. How did you respond to it? Was your response compliance-based, integrity-based, or even unethical? If your behavior was compliance-based, speculate on how it would have been different if it were integrity-based. What have you learned from your experience that would make you a more ethical leader in the future? With all the unethical behavior reported in the business press, casual readers may assume that business executives are ethically challenged. That perception may not be true, but certainly appears to be true that unethical behavior has caused many firms and the economy great harm. (The Bernie Madoff scandal, and the possible scandals associated with the 2008 recession – possible fraudulent mortgages, possible conflict of interest in selling mortgage-backed securities, and possible deception in rating mortgage-backed securities as AAA.) So ethics is a critical issue that students should discuss and consider throughout their careers. Ask students to identify an ethical dilemma such as conflict of interest, misrepresenting facts to a potential customer, and the like. Regardless of how students claim they responded to the dilemma, they should be able to articulate an unethical response, a compliance-based response, and an integrity-based response. A discussion of the different implications of each response should bring out the short-term and long-term implications of each to the firm. It is also worth discussing the consequences to individuals of each response. What effects on managers result from frequent unethical behavior? Ask students if they want to be a manager who frequently has unethical behaviors. Would they want to work for an organization that has a culture of tolerating unethical behavior among top managers? Also, ask if students would prefer an organization with compliance-based or integrity-based ethics. For those students who prefer the integrity-based approach, ask how they personally can help the organization develop and ensure its high ethical standards. As students progress in their careers, challenge them to maintain their commitment to high standards. They can help to improve the business community’s reputation.  VIII. Summary Strategic leadership is vital in ensuring that strategies are formulated and implemented in an effective manner. Leaders must play a central role in performing three critical and interdependent activities: setting the direction, designing the organization, and nurturing a culture committed to excellence and ethical behavior. In the chapter we provided the imagery of these three activities as a “three-legged stool.” If leaders ignore or are ineffective in performing any one of the three, the organization will not be very successful. The success of today’s organizations depends on how well their leaders meet challenges and deliver on promises. The demands of the business environment require leaders to learn to effectively overcome barriers to change and be aware of how they use their organizational and personal bases of power. For leaders to effectively fulfill their activities, emotional intelligence (EI) is very important. Five elements that contribute to EI are self-awareness, self-regulation, motivation, empathy, and social skills. The first three elements pertain to self-management skills, whereas the last two are associated with a person’s ability to manage relationships with others. We also address some of the potential drawbacks of EI. Leaders must also play a central role in creating a learning organization. Gone are the days when the top-level managers can “think” and everyone else in the organization “does.” With the rapidly changing, unpredictable, and complex competitive environments that characterize most industries, leaders must engage everyone in the ideas and energies of people throughout the organization. Great ideas can come from anywhere in the organization; from the executive suite to the factory floor. The elements that we discussed as central to a learning organization are inspiring and motivating people with a mission or purpose, empowering people at all levels throughout the organization, accumulating and sharing both internal and external sources of information, and challenging the status quo to stimulate creativity. In the final section of the chapter, we addressed a leader’s central role in instilling ethical behavior in the organization. We discussed the enormous costs that firms face when faced with ethical crises in terms of financial and reputation loss as well as the erosion of human capital and relationships with suppliers, customers, society at large, and governmental agencies. And, as one would expect, the benefits of having a strong ethical organization are also numerous. We contrasted compliance-based and integrity-based approaches to organizational ethics. Compliance-based approaches are largely externally motivated, that is, motivated by fear of punishment for doing something that is unlawful. Integrity-based approaches, on the other hand, are driven by a personal and organizational commitment to ethical behavior. We addressed the four key elements of an ethical organization: role models, corporate credos and codes of conduct, reward and evaluation systems, and policies and procedures. Chapter 11: Strategic Leadership: Creating a Learning Organization and Ethical Organization Identify a business leader whom you admire the most. Discuss his or her most valuable traits, attributes, or skill. Also, what types of activities (e.g., creating a vision) does this leader engage in that are particularly impressive. Teaching Suggestions: There are many ways in which you can take the discussion. You might first ask the students to come up with lists of traits/attributes/skills and then list of the types of activities that characterize the leader. There have been countless articles on leader traits in the leadership literature, including traits such as energy, integrity, judgment, and so on. One listing that may be particularly interesting to your students was developed in a Fortune article (The superior CEO: A profile; June 21, 1999: 78) by R. Charan and G. Colvin (the former is a well-known consultant to “blue chip” multinational corporations and the latter is a long-time senior editor of Fortune magazine). Charan and Colvin’s list included the following: * Integrity, maturity, and energy * Business acumen (deep understanding of the business) * People acumen (leading teams, growing and coaching people, etc.) * Organizational acumen (engendering trust, sharing information, etc.) * Curiosity, intellectual capacity, and a global mindset * Superior judgment * An insatiable appetite for accomplishments and results * Powerful motivation to grow and convert learning to practice In addition, the text addresses the two primary bases of power (pages 404-405; including the example of William Bratton, Chief of the Los Angeles Police Department in STRATEGY SPOTLIGHT 11.4 (page 406.): Organizational (legitimate, reward, coercive, and information) Personal (referent, expert) You may ask them whether or not this individual makes effective use of power in attaining organizational goals. Similarly, the text discusses the five components of Emotional Intelligence (EI): Self-Management Skills (self-awareness, self-regulation, motivation) Managing Relationships (empathy, social skill) You may ask them whether or not this individual would “score high” on the various dimensions of EI. The text also addresses the three primary activities that leader engage in: Determining a direction Designing an organization Nurturing a culture dedicated to excellence and ethical behavior As suggested before, ask students if the leader has a good balance of each of these activities. What often becomes an interesting general question to ask is: Can the leader traits and activities be learned or are they inherent in the leader (i.e., the “nature vs. nurture” argument)? Here, you typically get a wide range of answers. For example, some students may feel that traits such as integrity, intelligence, energy, and referent power are rather inherent in the leader; while others such as business acumen, perhaps, some elements of emotional intelligence (EI), and expert power can be learned. It becomes important to encourage students that through hard work, practice and dedication, one can reach their true potential. (An interesting quote by Arnold Schwarznegger is appropriate: “Nobody ever got muscles by watching me lift weights.”) And, becoming engaged in something in which one is truly interested enables one to achieve their goals. So, at times, it might be best to change the situation instead of trying to change the leader. Obviously, leadership is a topic that should generate interest and it is always helpful to “personalize it” by discussing the implications for students’ careers. End of Chapter Teaching Notes Chapter 11: Strategic Leadership: Creating a Learning Organization and an Ethical Organization Summary Review Questions 1. Three key activities—setting a direction, designing the organization, and nurturing a culture and ethics—are all part of what effective leaders do on a regular basis. Explain how these three activities are interrelated. Response: Leadership is the process of transforming organizations from what they are to what the leader would have them become. Effective leaders are able to transform their organizations by implementing visions and missions. Setting a direction refers to a clear organizational mission that a leader communicates with passion and that followers believe. Designing the organization refers to the leader’s ability to implement the organizational mission using an appropriate organizational structure and design. Nurturing a culture and ethics refers to an effective set of behavioral controls. The interrelation of these three key activities is apparent when considering an organization without any one of them. First, consider an organization without clear direction but with an effective design and a nurturing culture. This organization would be disciplined and efficient but aimless. Its activities would not be adjusted to the business environment. Second, consider an organization without an effective organizational design but with a clear direction and strong culture. There would be a well-conceived strategy but the organizational design would not effectively implement it. Executives would be motivated and work hard, but lack of accountability, inappropriate reward structures, and inadequate budgeting systems would send misleading signals about how work should be done. Third, consider an organization without a nurturing culture and ethics but with a clear direction and effective organizational design. This organization might look good on paper, but the lack of commitment by employees and lack of effort will render the rewards system impotent and the achievement of organizational mission difficult. Answer: Setting a direction provides a vision, designing the organization structures to support that vision, and nurturing culture and ethics aligns behaviors with goals. These activities reinforce each other to ensure cohesive and effective leadership. 2. Define emotional intelligence (EI). What are the key elements of EI? Why is EI so important to successful strategic leadership? Address potential “downsides.” Response : EI is 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. Self awareness refers to a person having a deep understanding of his or her emotions, strengths, weaknesses, and drives. Self regulation refers to a person being in control of his or her feelings and impulses. Motivation refers to a person’s deeply embedded desire to achieve for the sake of achievement, not by external factors such as money or status. Empathy refers to a manager thoughtfully considering an employee’s feelings, along with other factors, in the process of making intelligent decisions. Social skill is friendliness with a purpose, or the ability to move people in a desired direction. Research has shown that effective leaders have three sets of capabilities: (1) technical skills, (2) cognitive capabilities, and (3) EI. EI is important because it pertains to leaders’ ability to persuade and motivate others, and manage relationships, which are critical to nurturing a culture and ethics. The downside of EI is that it should be used in moderation. For example, leaders need to be empathetic, but they also need not to be too empathetic. To maintain efficiency, leaders need to make tough decisions about people. And leaders need to be motivated and have a passion for their organization, but they have to be constrained in expecting others to have the same passion, or to be too critical to their employees. Answer: Emotional Intelligence (EI) encompasses self-awareness, self-regulation, motivation, empathy, and social skills. EI is crucial for strategic leadership as it enhances decision-making, communication, and conflict resolution, though excessive reliance on EI might overlook technical competencies. 3. The knowledge a firm possesses can be a source of competitive advantage. Describe ways that a firm can continuously learn to maintain its competitive position. Response: Generally, individuals in different parts of an organization are learning, but that learning may not be contributing to the organization’s competitive advantage. To continuously learn as an organization, it needs to collect information from all levels of employees, from top down and bottom up. It needs to process this information into organizational actions that will help achieve the organization’s mission, which will involve contributions from employees at all levels. And the organization needs to be able to challenge past practices, and change them, when the organization learns how to do better. To facilitate these processes, even lower-level employees and managers have to feel empowered, that their insights and understandings will be respected and, if appropriate, incorporated into strategy. Answer: Firms can continuously learn through feedback systems, knowledge sharing, and investing in employee development. Staying updated with market trends and fostering a culture of innovation also supports maintaining a competitive edge. 4. How can the five central elements of “learning organizations” be incorporated into global companies? Response: Learning organizations create a proactive, creative approach to the unknown, characterized by (1) inspiring and motivating people with a mission and purpose, (2) empowering employees at all levels, (3) accumulating and sharing internal knowledge, (4) gathering and integrating external information, and (5) challenging the status quo and enabling creativity. Global companies have closely integrated operations in multiple countries. Incorporating the five elements into global companies is more complicated than for domestic companies because of the internal barriers between operations in different countries. For each of the five central elements, some implementing issues are: • Mission has to apply to operations in multiple countries, so involvement of individuals from all countries in creating and communicating the mission will make the message more consistent across parts of the organization and promote commitment. • Empowering employees at all levels will require trusting people at all levels and in all countries. People from all national cultures will have to overcome nationalistic biases and develop trust throughout the organization. Also, as lower-level employees make significant contributions, they need to be recognized and rewarded for their insights. • Accumulating and sharing internal knowledge should include sharing across national boundaries. Communication barriers will have to be bridged to include operations from all countries. Internal databases of best practices will have to be adapted to each national business environment and made available to select individuals globally. • Gathering and integrating external information will involve training employees throughout the organization on methods for gathering external information, which should be similarly intensive in all countries. Integrating the information globally will present challenges because interpreting information is somewhat dependent on the business context. So the organization will have to develop capabilities for interpreting external information from around the world and integrating it. • • Challenging the status quo involves developing a culture of dissent. This culture will have to be instilled in each nation, and tailored to various national norms. In addition, there is a problem integrating the various national cultures of dissent into a global organizational culture that will involve challenging the organization-wide mission. And the dissent has to be focused on organizational improvement, not a reflection of national differences. Applying the learning organization elements to global companies will present various challenges associated with international differences. Answer: Global companies can integrate learning organization principles by promoting cross-cultural knowledge sharing, adapting training programs to local contexts, and encouraging continuous improvement across all regions. 5. What are the benefits to firms and their shareholders of conducting business in an ethical manner? Response: The benefits of an ethical organization are often indirect and not reflected in financial performance. However, ethical performance has been associated with strong organizational culture, increased employee efforts, lower turnover, higher organizational commitment, and enhanced social responsibility. Answer: Ethical business practices enhance trust, improve reputation, and foster long-term relationships with stakeholders, benefiting firms and their shareholders through sustainable growth and reduced legal risks. 6. Firms that fail to behave in an ethical manner can incur high costs. What are these costs and what is their source? Response: Lawsuits based on unethical behavior, such as discrimination, options backdating, tax evasion, or fraud can be costly to settle, but the larger lack of confidence can threaten the organization’s existence. But a greater cost is the loss of confidence by investors, suppliers, customers, and regulators. This paragraph from the text describes the costs in more detail. The past several years have been characterized by numerous examples of unethical and illegal behavior by many top-level corporate executives. These include executives of firms such as Enron, Tyco, WorldCom, Inc., Adelphia, and Healthsouth Corp., who were all forced to resign and are facing (or have been convicted of) criminal charges. Perhaps the most glaring example is Bernie Madoff, whose Ponzi scheme, which unraveled in 2008, defrauded investors of $50 billion in assets they had set aside for retirement and charitable donations. Answer: Ethical lapses can lead to financial penalties, reputational damage, and loss of customer trust. These costs often arise from legal fees, lost business, and increased scrutiny from regulators and the public. 7. What are the most important differences between an “integrity organization” and a “compliance organization” in a firm’s approach to organizational ethics? Response: An integrity organization (IO) combines a concern for law with an emphasis on managerial responsibility. A compliance organization (CO) prevents, detects, and punishes legal violations. Some of the differences are as follows. A CO seeks conformity with externally imposed standards (i.e. laws) while an IO pursues self-governance according to chosen standards. A CO seeks to prevent criminal misconduct while an IO seeks to enable responsible conduct. A CO has lawyers in charge of ethics programs while an IO has managers in charge with the assistance of lawyers, HR staff and others. A CO uses methods such as education, reduced discretion (boundaries), auditing and controls, and penalties while an IO uses education leadership, accountability, organizational systems and decision processes, auditing and controls, and penalties. A CO assumes that individuals are autonomous beings subject to self-interest while an IO assumes that individuals are social beings guided by material self-interest, values, ideals, and peers. Exhibit 11.5 illustrates these. Answer: An integrity organization prioritizes ethical values and internal commitment, while a compliance organization focuses on adhering to regulations and avoiding legal violations. Integrity fosters long-term ethical behavior, whereas compliance may only address minimum standards. 8. What are some of the important mechanisms for promoting ethics in a firm? Response: Four important mechanisms are role models, corporate credos and codes of conduct, reward and evaluation systems, and policies and procedures. Role models means that leaders must be consistent in their words and deeds. Leaders sometimes need to take responsibility for ethical lapses within their organizations even if they were not directly involved. Corporate credos and codes of conduct provides a clear, transparent statement of norms and beliefs as well as guidelines for decision making. These codes also provide a justification for employees to refuse to do certain things, which will reinforce ethical behavior and reputation. Corporate credos and codes of conduct, and associated guides for behavior, should be promoted within the organization and reinforced with corporate communications from top managers. Reward and evaluation systems can discourage ethical conduct by rewarding outcomes without regard to the behaviors that led to the outcomes. An inappropriate rewards system can lead to unethical behavior that causes much higher damage than whatever gain would be possible. Policies and procedures refer to written, transparent guidelines for conduct in certain routine activities. Examples include relationships with suppliers, setting up alliances, or developing budgets. Answer: Important mechanisms for promoting ethics include establishing a code of conduct, providing ethics training, setting up reporting systems for unethical behavior, and ensuring leadership exemplifies ethical behavior. Experiential Exercise Select two well-known business leaders—one you admire and one you do not. Evaluate each of them on the five characteristics of emotional intelligence. Response: There are, of course, a nearly unlimited set of possibilities. This exhibit is illustrative and debatable! Assessing leaders from afar is a matter of conjecture and perhaps debate. Emotional Intelligence Characteristics Admired Leader Martin Luther King Leader Not Admired Adolph Hitler Self-awareness High – speaks from his heart. Devotes his life to a heartfelt and unpopular cause. High – Had a fanatical devotion to German nationalism, and was able to tap into others’ patriotic emotions. Self-regulation High – able to focus energy on the goal of racial equality. Able to adapt to situations as needed, such as the management of the Selma to Montgomery march. Moderate – Able to focus emotions on cause of German nationalism, but not able to adapt to situations without thinking. Questionable judgment in invading Russia and the battle of Stalingrad. Motivation High – worked tirelessly on his cause High – worked tirelessly on his cause Empathy Moderate – very focused on his cause and only limited ability, perhaps, to understand others’, especially hostile, perspectives. Low – Was not very understanding of others’ perspectives. Social skills High – was able to organize many different types of people to his cause. Was able to operate in a variety of social settings. Low or unknown – Was able to build a network, but only under conditions of extreme duress as existed in Germany after World War I. Also, network of trusted associates included sociopaths. (Note to instructor) The goal of this exercise is to increase students’ awareness of emotional intelligence and its role in leadership. Ask students to separate the traits of the business leaders into technical knowledge, cognitive abilities, and emotional intelligence. What is the relative contribution of each type of trait? Then for each of the five characteristics of emotional intelligence, ask students for their evaluations and to provide justification for each, including examples. It is also interesting to isolate the key characteristics that separate admired from not-admired leaders. They may not be as different as commonly thought. Answer: Admired Leader: Satya Nadella (Microsoft) Nadella excels in empathy, self-regulation, and social skills, fostering a culture of collaboration and inclusivity at Microsoft. Disliked Leader: Elizabeth Holmes (Theranos) Holmes struggled with self-awareness and transparency, which contributed to the company's ethical and operational failures. Application Questions Exercises 1. Identify two CEOs whose leadership you admire. What is it about their skills, attributes, and effective use of power that causes you to admire them? Response: (Note to instructor) Ask students to evaluate their CEO on technical skills, cognitive ability, emotional intelligence, and ethical role model. Ask which of these categories most causes their admiration. Or is the CEO admired for some other reason? An interesting extension might be to ask how difficult it was for the CEO to achieve their skills, attributes, and effective use of power. And evaluate how the student needs to train in order to be as admirable. Answer: Satya Nadella (Microsoft): Nadella is admired for his emotional intelligence, empathy, and ability to drive a culture of innovation and inclusion. His leadership has significantly revitalized Microsoft’s culture and performance. Tim Cook (Apple): Cook is respected for his operational excellence, strategic vision, and focus on corporate ethics and sustainability, effectively continuing Apple's legacy of innovation and growth. 2. Founders have an important role in developing their organization’s culture and values. At times, their influence persists for many years. Identify and describe two organizations in which the cultures and values established by the founder(s) continue to flourish. You may find research on the Internet helpful in answering these questions. Response: Some corporations such as Apple, HP, GE, and WalMart still have web pages devoted to the corporate founders. These pages usually contain short bios on the founder(s) with some vignettes that demonstrate corporate values. (Interestingly, we did not find much on Henry Ford on the Ford Motor Company website, which indicates that corporations sometimes and eventually evolve away from close identification with their founders) (Note to instructor) The purpose of this exercise is to show the enduring power of a founder/leader in shaping organizational culture, design, ethical standards, and mission. It may be useful to ask students to show how the founder (a) determined the organization’s mission, (b) designed the organization, and (c) nurtured a culture dedicated to excellence and ethical behavior. To which of these activities is the founder’s influence strongest? Are there other activities besides these where the founder made an impact? Answer: Apple (Steve Jobs): Steve Jobs' emphasis on innovation, design excellence, and a relentless pursuit of quality continue to drive Apple’s culture and product development. Google (Larry Page and Sergey Brin): The founders' values of innovation, openness, and a focus on big ideas are still central to Google’s culture, influencing its organizational practices and creative environment. 3. Some leaders place a great emphasis on developing superior human capital. In what ways does this help a firm to develop and sustain competitive advantages? Response: Sustainable competitive advantages are by definition rare, valuable, costly to imitate, and costly to substitute. Human capital developed within the firm will likely contribute to a sustainable competitive advantage. So effective leaders appropriately focus on developing human capital in order to transform their organizations and improve organizational performance. Knowledge-driven organizations especially benefit from human capital. Leaders can develop human capital through all leadership activities, but at the individual level, the activity of nurturing a culture dedicated to excellence and ethical behavior has arguably the greatest impact on developing human capital. Through interpersonal relationships, leaders can use their emotional intelligence to motivate colleagues to work hard towards achieving organizational goals. And as an ethical role model, leaders can help their organizations’ ethical performance, which is associated with strong culture, employee efforts, lower turnover, higher commitment, and greater social responsibility. These results should have the effect of increasing human capital and improving sustainable competitive advantage. Answer: Developing superior human capital helps firms by fostering innovation, improving operational efficiency, and enhancing competitive positioning through a highly skilled and motivated workforce. 4. In this chapter we discussed the five elements of a “learning organization.” Select a firm with which you are familiar and discuss whether or not it epitomizes some (or all) of these elements. Response: (Note to instructor) We recommend that you start with the student justifying why he or she thinks the organization is a learning organization that has a proactive approach to the unknown (or not, but it is better to discuss an organization that is purported to be a learning organization). Then ask students to show how the organization performs on all five elements. Which elements most contribute to the organization’s status as a learning organization? Answer: Google epitomizes the five elements of a learning organization: it fosters a culture of continuous learning, promotes knowledge sharing, encourages experimentation, supports employee development, and adapts to changes effectively. Ethics Questions 1. Sometimes organizations must go outside the firm to hire talent, thus bypassing employees already working for the firm. Are there conditions under which this might raise ethical considerations? Response: The primary ethical considerations pertain to fair treatment of the employees bypassed. If they are not treated with dignity and respect, or not perceived to be treated so, then their perception of the organization and its work environment could become less positive. As a result, motivation and organizational culture, including ethical values, can become less strong. Employees would be more likely to pursue self-interest such as outside employment opportunities. The conditions under which the ethical considerations are most likely are where the bypassed employees perceive unfair treatment. This treatment might be that (a) they were not informed on consulted regarding the new hire, (b) their concerns were not addressed by top management, (c) those bypassed report directly to the new hire, and (d) the new hire means that the bypassed employees have fewer opportunities for job enrichment or resources under their control. These conditions can be reduced by effective leadership that makes (a) appropriate organizational design changes that reduce potential conflicts between the new hire and those bypassed, and (b) appropriate use of emotional intelligence at the interpersonal level in dealing with the bypassed employees. Answer: Yes, hiring external talent while bypassing internal candidates can raise ethical concerns, especially if it undermines internal career development or disregards employees’ contributions and qualifications. 2. Ethical crises can occur in virtually any organization. Describe some of the systems, procedures, and processes that can help to prevent such crises. Response: Ethical crises can occur at even low levels of the organization, such as Sears’ auto repair operations or Society Generale’s derivatives operations. An effective way to reduce such ethical crises is to elevate ethics programs to be integrity-based, rather than compliance-based, and have management directing ethics compliance rather than lawyers. Some systems, procedures, and programs that help to prevent such crises include: • Implementing education programs that clearly delineate acceptable and unacceptable behavior. Acceptable behavior focuses on achieving organization-wide performance, not personal or division performance. • Having leaders be role models of ethical behavior, including clearly articulating and emphasizing the importance of ethical conduct. • Having leaders share accountability for ethical lapses, even if they were not directly involved in the misconduct. • Having reward systems that include an evaluation of whether managers are acting in an ethical manner. • Formulating explicit policies for how to deal with certain routine activities such as managing relationships with suppliers and customers. • Publishing a comprehensive corporate credo and code of conduct. • Incorporating ethical guidelines for making decisions, such as hiring decisions. • Establishing a system of regular auditing of the entire organization, from top to bottom, for ethical performance. • Consistently and severely penalizing unethical behavior whenever it is discovered. • Changing organizational design after unethical behavior is discovered such that the behavior will not be repeated. Answer: To prevent ethical crises, firms should implement robust ethical guidelines, regular training, effective whistleblower systems, and transparent reporting processes to ensure ethical behavior and accountability. Solution Manual for Strategic Management: Creating Competitive Advantages Gregory G. Dess, Alan Eisner, G.T. (Tom) Lumpkin, Gerry McNamara 9780077636081, 9781259245558