Strategic leadership in the 21st century

Strategic leadership is all about making choices on behalf of an organization and its stakeholders, choices that have significant impact on the organization’ s present and future and sometimes on the society’s present and future as well.


By Syed Md Enamul Kabir

Strategic leadership is a widely used but less understood phrase. Strategic leadership is more of a set of behaviors than of a position or a person. It can be argued that primary responsibility for strategic leadership lies at the top of an organization, but all the C-suit leaders should be strategic leaders to some extent for their organizations to achieve and sustain competitive advantage. But, what exactly should a strategic leader do or, in other words, what are the components of strategic leadership? In a time characterized by fleeting competitive advantage, deep uncertainty, rampant corruptions and degrading natural environment, strategic leadership should have the following components.

Setting the strategic direction

Setting the strategic direction is probably the most important job of strategic leaders, particularly in today’s volatile and uncertain business environment. Setting the strategic direction starts with defining the business, what business a company is in, more importantly, what business the company is not in (Lafley,2009), because such definition provides framework for all business decisions like what type of organization a company needs to build, what types of innovation it needs to pursue and what types of merger and acquisitions it should be engaged in. Defining the business is not that easy because different stakeholders have different perspectives and interests and it is very tempting to keep the doors open by not defining what the company should not do. Apart from balancing the interests of stakeholders in setting the strategic direction, strategic leaders need to keep an eye on outside the company so that strategic direction can be changed in response to the relevant changes in the environment.

Building adaptable and flexible organizations

Strong strategic relationships with suppliers, distributors, customers and even with competitors, where possible, are a critical intangible resource.

Organizations need to learn to adapt to the changes and strategic leaders, therefore, need to focus on building a learning organization based on a supportive learning environment (where employees feel psychological safety for expressing opposing views, taking risks and making mistakes), concrete learning processes and practices (for experimentation, information collection and dissemination, training) and leadership behaviors (active listening, seeking alternative points of view and asking probing questions) that reinforce learning culture (Garvin et al.,2008). Experimentation is a way of learning and sensing the future and that’s why ability to do frequent, inexpensive and quick experiments with not only products and services but also processes, business models and strategies is seen as an important organizational capability that fosters rapid adaptation (Reeves and Deimler,2011). Strong strategic relationships with suppliers, distributors, customers and even with competitors, where possible, are a critical intangible resource (termed as social capital for organizations by Hitt et al.,2010) in a volatile and uncertain environment, because such relationships not only provide access to critical information about the emergent changes in technology, products, processes and business models but also help joint experimentation with and development of new products, services and technologies and thus provide significant strategic flexibility. Strategic leaders need to maintain such relationships both at the organization level and at individual level.

Leading for present and future business growth

The challenge for the strategic leaders is to balance between innovations that strengthen existing market position and innovations that create new market opportunities and create an organizational culture that supports both types of innovations.

Competitive advantage no matter how strong ultimately withers and it may happen quickly and suddenly in a volatile environment. Hence, strategic leaders need to lead continuous innovation of products, processes and business models in their organizations. Based on the contemporary researches on innovations, Pisano (2015) categorized innovations into four types along two dimensions (technology and business model): routine innovation (existing technology and existing business model), disruptive innovation (existing technology and new business model), radical innovation (new technology and existing business model) and architectural innovation (new technology and new business model). While routine innovations make the existing products or services better (e.g. new model of iPhone) and thus make the current strategic position stronger, other three types of innovation create new market opportunities (e.g. Apple’s iTunes). Researchers found that established firms perform well in sustaining/routine innovations, but underperform in disruptive innovations because of two reasons: established firms concentrate more on existing customers and thus concentrate on sustaining/routine innovations valued by existing customers, and established firms’ internal processes and decision rules that have made them successful so far prevent them from shifting investments to disruptive innovations (Christensen et al.,2015). The first reason also echoes in Kim and Mauborgne (2015) where they considered ‘seeing market-creating strategies as customer-oriented approach’ as one of six red ocean traps and suggested that organizations need to focus on non-customers to create new markets (blue ocean). The challenge for the strategic leaders is to balance between innovations that strengthen existing market position and innovations that create new market opportunities and create an organizational culture that supports both types of innovations. Gerard J. Tellis in his book Unrelenting Innovation (cited in Hayashi,2013) suggested that culture is the single most important driver of innovation in any organization and cited three traits of a culture of innovation: a willingness to cannibalize existing products, a risk-taking attitude and the ability to focus on the future. Strategic leaders, however, need to make sure that such culture (particularly risk-taking attitude) does not spawn unethical behaviors.

Ethical leadership

Strategic leaders need to make sure that organizations’ reward systems and cultures promote ethical decision making and people in authority including them lead by examples.

Ethics begins where the law ends and is about issues of right and wrong from the perspective of social mores and moral standards not yet codified as the law (Crane and Matten,2010). The problem with social mores and moral standards not yet reflected in the law is that there is no consensus on these and hence business ethics is a grey area and there is no definitive right answer to many ethical problems (Crane and Matten,2010). Globalization has added more complexity to this already complex issue, because moral values taken for granted in one society may be questioned in another society. Despite the given complexity of ethical issues, it is the duty of the strategic leaders to set the values and moral standards of the organizations. As Peter Drucker said, ‘CEOs set the values, the standards, the ethics of an organization. They either lead or they mislead.’ (quoted in Lafley, 2009,p.61).  Among the individual and contextual factors that weigh on ethical decision making in organizations, contextual factors should be of much concern for strategic leaders because they are ‘at least equally, and probably more important in shaping our ethical decision-making’ (Crane and Matten, 2010,p.160). Among the contextual factors, reward system, behavior of people in authority and organizational culture have been found to have significant influence on ethical decision making (Crane and Matten, 2010). Hence, strategic leaders need to make sure that organizations’ reward systems and cultures promote ethical decision making and people in authority including them lead by examples. Zhu et al. (2016) found in their study that leaders who are regularly attentive to ethical issues are considered ethical leaders by their followers and more importantly, leaders’ moral attentiveness positively influences followers’ moral attentiveness.

Responsible leadership

Three ways of creating shared value: reconceiving products and markets (developing products and services to meet societal needs), redefining productivity in the value chain to reduce resource consumption and enabling local cluster development (addressing weaknesses in the communities, which constrain the companies’ own productivity and growth).

There is a growing awareness among business leaders that businesses have social and environmental responsibilities apart from economic ones. For example, nine thousand companies have joined the UN Global Compact since it was established in 2000 and 75% of the world’s largest companies now use the Global Reporting Initiative’s process for tracking and reporting their sustainability performance (Kiron et al.,2017). Strategic leaders working in for-profit organizations, however, are facing two challenges: firstly, how to approach when solving these issues does not undermine economic responsibility of the organizations and secondly, how to approach when socio-environmental responsibilities have conflict with economic ones. For the first case, strategic leaders need to convert relevant socio-environmental problems into business opportunities and pursue both ends (a concept called ‘Creating Shared Value (CSV)’ by Porter and Kramer, 2011). Porter and Kramer (2011) proposed three ways of creating shared value: reconceiving products and markets (developing products and services to meet societal needs), redefining productivity in the value chain to reduce resource consumption and enabling local cluster development (addressing weaknesses in the communities, which constrain the companies’ own productivity and growth). However, conversion of socio-environmental problems into business opportunities is not easy either and thus such efforts are still limited to a few big companies. The role of strategic leaders is very important in this case to redefine the corporate identity through commitment from the top and engagement with multiple stakeholders and then to codify the new identity through employee engagement and development of sustainable strategy execution mechanism (Eccles et al.,2012).

There is, however, no easy answer to the second challenge. Solution of such socio-environmental issues requires industry-led and government-led initiatives. For example, when funding research & development for a low-carbon solution is burdensome for one firm, several firms can collaborate to fund that project and government can also incentivize the participating firms through fiscal policies.  Strategic leaders need to play active roles in driving those initiatives.

Conclusion

Strategic leadership is all about making choices on behalf of an organization and its stakeholders, choices that have significant impact on organizations’ present and future and sometimes on society’s present and future as well. Hence, strategic leaders need not only to approach the issues from long-term perspective but also to take a holistic view of the issues. Strategic leaders also need to get buy-in from important stakeholders to ensure translation of the choices they make into effective actions. The success largely depends on how well strategic leaders connect their organizations to the constantly changing outside. And this is something only strategic leaders can do.

References

Christensen, C. M., Raynor, M. and Mcdonald, R. 2015. What is Disruptive Innovation? Harvard Business Review. 93(12), pp. 44-53.
Crane, A. and Matten, D. 2010. Business Ethics. 3rd ed. New York: Oxford University Press.
Eccles, R.G., Perkins, K.M. and Serafeim, G. 2012. How to Become a Sustainable Company. MIT Sloan Management Review. 53(4), pp. 42-50.
Garvin, D. A., Edmondson, A. C. and Gino, F. 2008. Is Yours a Learning Organization? Harvard Business Review. 86(3), pp. 109-116.
Hayashi, A.M. 2013. The Inside and Outside View of Innovation. MIT Sloan Management Review. 54(3), pp.38-42.
Hitt, M.A., Haynes, K.T. and Serpa, R. 2010. Strategic leadership for the 21st century. Business Horizons. 53, pp. 437- 444.
Kim, W.C. and Mauborgne, R. 2015. Red Ocean Traps. Harvard Business Review. 93(3), pp. 68-73.
Kiron, D., Unruh,G., Kruschwitz, N., Reeves, M., Rubel, H. and Felde, A.M.Z. 2017. Corporate Sustainability at a Crossroads: Progress Toward Our Common Future in Uncertain Times. [Online]. MIT Sloan Management Review. [Accessed 12 February 2017]. Available from: https://sloanreview-mit-edu.ezproxy.is.ed.ac.uk/projects/corporate-sustainability-at-a-crossroads/
Lafley, A.G. 2009. What Only the CEO Can Do. Harvard Business Review. 87(5), pp.54-62.
Pisano, G. P.  2015. You Need an Innovation Strategy. Harvard Business Review.93(6), pp.44-54.
Porter, M. E. and Kramer, M. R. 2011. Creating Shared Value. Harvard Business Review. 89(1/2), pp.62-77.
Reeves, M. and Deimler, M. 2011. Adaptability: The New Competitive Advantage. Harvard Business Review. 89(7/8), pp.134-141.
Zhu, W., Trevino, L. K. and Zheng, X. 2016. Ethical Leaders and Their Followers: The Transmission of Moral Identity and Moral Attentiveness.  Business Ethics Quarterly. 26 (1), pp. 95-115.


About the author

Syed Md Enamul Kabir MBA, FCA is the Managing Partner of ESS & Partners.

The opinion expressed in this paper is of author’s personal one and is for general information purposes only. It should not be used as a substitute for consultation with professional advisors.

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