Strama Module 10 PDF

MODULE IN
Strategic Management
10
EHM
SAMCIS
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“The real question isn’t how
well you’re doing today against
your own history, but how
you’re doing against your
competitors.”
STRAMA
-Donald Kress-
INSERT RELATE
COURSE LEARNING OUTCOMES

At the end of the module, you should
be able to:
1. Identify and describe the three key
interdependent activities in which all
successful leaders must be continually
engaged
2. Discuss the two elements of effective
leadership: overcoming barriers to
change and using power effectively
3. Explain the crucial role of emotional
intelligence (EI) in successful
leadership, as well as its potential
drawbacks
4. Discuss the importance of creating a
learning organization
5. Discuss the leader’s role in establishing
STRATEGIC an ethical organization
6. Describe the difference between
MANAGEMENT integrity-based and compliance-
based approaches to organizational
ethics
7. Analyze several key elements that
organizations must have to become
ethical organizations.
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 1
“There is no ‘perfect’ strategic decision. One
always has to pay a price. One always has to
balance conflicting objectives, conflicting
opinions, and conflicting priorities. The best
strategic decision is only an
approximation – and a risk.”
-Peter Drucker-
Module 10: Strategic Leadership: Creating a

Learning Organization and an Ethical Organization
Discussion Outline
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 module 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.
In other words, this module 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.
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 1: What are some examples of leaders who have had a
transformative effect on their company? What made their activities transformative?
Discussion Question 2: What challenges do leaders face when trying to balance the
task of simultaneously doing the right things and doing things right?
Leaders recognize three interdependent activities (FIGURE 1) 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
FIGURE 1. Three Interdependent Activities of a Leader
The SUPPLEMENT/EXTRA EXAMPLE below offers insights from Charlie Hazzard, a former
senior executive at Occidental Petroleum and current Clinical Professor of Management,
on the three interdependent activities of leadership.
 Extra Example: An Executive View of the Three Leadership Activities
Charlie Hazzard was Executive Vice President of Administration for OxyChem (the chemical
operations of Occidental Petroleum—“Oxy” on the NYSE) and is currently Clinical Professor
and Executive in Residence for the Jindahl School of Management at the University of
Texas Dallas.
1. One of the key roles of a leader is to set the direction for an organization. In your
experience, what do effective leaders do to formulate and communicate a vision or
direction for the firm?
When Lou Gerstner took over IBM in 1993, it was facing bankruptcy. At his first press
conference, he was asked what the vision was that he wanted to communicate.
Gerstner’s answer has since become a classic: “The last thing this company needs is a
vision.”
Facing two consecutive years of multi-billion-dollar losses, Gerstner needed a sense of

urgency throughout the organization about what it takes to make money in the current
markets IBM served. Ultimately, he sorted out the answers as to how IBM could make
money by rearranging the priorities of his senior executives and asking IBM’s customers
what they needed that IBM could provide.
The customer answers saved IBM. They told Gerstner and his senior executives what they
needed and what they thought IBM could do.
Gerstner inspired his organization by discovering what IBM needed to do (and not do) to
make money. Leaders set the agenda for change and growth.
2. Leaders must also design an organization to achieve their desired direction. This can
include responsibility structures, reward systems, budgeting and control systems, and
systems to integrate activities across organizational units. What have you found to be the
key elements in designing an effective organization?
Agility has many definitions, but my first thought about it involves communication and
teamwork. I think of Southwest Airlines where “blame” for late arrivals or delayed
departures gets translated into teamwork to improve processes so the incident or issue
doesn’t happen again.
Doz & Kosonen referred to the term “Strategic Agility” when they defined strategically agile
companies as those that not only learn to make fast turns and transform themselves
without losing momentum, but their CEOs and top teams also have higher ambitions: to
make their companies able to take advantage of change and disruption.
Some elements of agility that can be turned into policies:

- Reward inventive accountability.
- Manage from the future. (What’s your goal? What does it take to get there?)
- Insist on uncompromising straight talk.
- Infuse an intricate understanding of what drives business success.
- Encourage an informal organization that supports principles like that.
3. Most successful organizations have a culture that is committed to excellence and ethical
behaviors. How can leaders help build, support, and reinforce such a culture in their
organizations?
“Attitude” permeates an organization and it starts at the top. If the top leader’s attitude
reflects in ethical business policies and practices, he reinforces the appropriate
organizational behavior.
Borrowing from John Maxwell, successful leaders:

- Walk slowly through the halls—Interface with the people who support you.
- See everyone as a “10” (see them as who they can become)—People rise to a leader’s
expectations if they like the leader.
- Develop each team member as a person (cherish the “B” performer and help him or her
develop). Those 80 percent in the middle are the backbone of any organization.
- Model the behavior you desire—Leaders need to “BE” what they want to “SEE.”
Source: Interview with Charlie Hazzard conducted by Gerry McNamara.
 Discussion Question 3: Do unsuccessful leaders fall short more often in one of these
activities than others? Why?
Discussion Question 4: What are some other qualities that a strong leader needs to
exhibit?
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 5: How have leaders you have worked for helped set the
direction of the organization?
Discussion Question 6: What are some examples of leaders who have used direction
setting to lead and/or transform their organizations?
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 7: 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?
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 cofounder of Airbnb worked to
reinforce the culture of the firm as it grew.
 Discussion Question 8: Why is it important for the leader to communicate a

consistent perspective about a company’s values?
At times, executives must make difficult decisions in order to strengthen the culture
of the organization. The EXTRA EXAMPLE below shows a courageous action taken by a
leader—firing a large client of the firm.
 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 9: Do you know of any other courageous decisions that a

leader has taken to strengthen (or maintain) his/her firm’s culture
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.
II. Getting Things Done: Overcoming Barriers and Using Power
Leaders must perform a variety of tasks, 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 having “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”)
The following SUPPLEMENT/EXTRA EXAMPLE builds off a quote in the text where Lou
Gestner, the former CEO of IBM, discusses systemic barriers to change.
 Extra Example: Effective Leaders Overcome Barriers to Change
Lou Gerstner, former CEO of IBM, has strong views on why successful companies often fail.
He argues that “Too many companies build up an internal commitment to their existing
businesses.” He goes on to comment that “enduring companies we see are not really
companies that have lasted 100 years. They’ve changed 25 times or 5 times or 4 times over
that 100 years.”
His prescription for this is for strong leaders to inoculate their firms against complacency
and continuously push their firms forward. He concludes, “The leadership that really counts
is the leadership that keeps a company changing in an incremental, continuous fashion.
It’s constantly focusing on the outside, on what’s going on in the marketplace, what’s
changing there, noticing what competitors are doing.”
Sources: Davis, I. 2014. Lou Gerstner on Corporate Reinvention and Values. mckinsey.com.
September: np.
B. Using Power Effectively
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 FIGURE 2 below.
FIGURE 2. Leader’s Bases of Power
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.
The following SUPPLEMENT/EXTRA EXAMPLE is of great interest. 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.
 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 10: Do you agree? What other strategies and tactics should
women use to have more successful careers?
Teaching Tip: The issue of power is a very interesting concern to leaders. Think of
leaders that you have known (or read about) and what type of power they
exercised. Then assess if they were effective or ineffective—and what explained
their success (or lack thereof). Were these leaders able to bring about significant
change or not? Was their success (or failure) be attributed to the application of
power (or were there 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
Leaders possession of EI is important for effective leadership. There are 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 rather high-
level access to such resources). Do you think successful managers need an equal
amount of these three types of resources? Do you think 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)? Aside from human
capital, how do you think social and political capital can be enhanced and
developed?
The SUPPLEMENT/EXTRA EXAMPLE below addresses Daniel Goleman’s (a leading

expert on EI) view on the positive implications that EI can have for managers who 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 11: 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?
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 and 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. Creating a Learning Organization
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.
There are six elements of a learning organization. Each of these items should be
viewed as necessary, but not sufficient. That is, successful learning organizations need all
six elements.
1. Inspiring and motivating people with a mission or purpose

2. Developing leaders
3. Empowering employees at all levels
4. Accumulating and sharing internal knowledge
5. Gathering and integrating external information
6. Challenging the status quo and enabling creativity
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.
B. Developing Leaders
Leadership development programs help a firm learn in two ways. First, it facilitates
skill development so that employees are better equipped for their current roles. Second,
these programs can help individuals develop skills related to learning and growing from
their experiences.
C. 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/EXTRA EXAMPLE 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 it’s 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 12: What are some examples of companies that have
implemented empowerment programs? Have these programs been effective?
 Discussion Question 13: 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.
D. 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.
We discuss Whole Foods Market Inc., a practitioner of internal bench marking—a

practice that requires the sharing of internal information.
The SUPPLEMENT/EXTRA EXAMPLE below provides two other examples of a 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 performance. 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 14: 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)
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.
E. Gathering and Integrating External Information
Recognizing opportunities and threats is vital to a firm’s success. We present three

methods that companies are using to do so in today’s economy:
1. Employees at all levels can use a variety of sources of information on

competitors and the firm’s market. 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. Social network sites, such as LinkedIn,
can also provide information on new employees at competitors and access
to contacts to learn about changes in the external environment. Firms can
also monitor the communications of competitors, such as in press releases,
executive press conferences and earnings’ calls, to learn about competitors’
actions.
2. 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.
3. Obtain information directly from customers.
 Discussion Question 15: What are some other methods companies might use to
gather and integrate useful information?
Discussion Question 16: What are some examples of companies that are using
information gathering to improve their performance?
F. 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 17: Are there potential disadvantages to fostering a climate of

change and experimentation? What are they? What makes them problematic?
Discussion Question 18: What are some examples of companies that encourage risk
taking and “dissent” in order to stimulate creativity, productivity, and growth?
 Discussion Question 19: Do organizations you are familiar with effectively encourage
risk taking and tolerate failure? If so, how?
In the following SUPPLEMENT/EXTRA EXAMPLE 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 United States, 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 20: Does Donahue’s reasoning apply only to online businesses?
Can you think of other examples?
Discussion Question 21: Are there still industries where rapid reaction might not be
necessary? What are some examples?
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.
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 22: Why do you think employees would prefer to work at a
company with ethical leaders?
Discussion Question 23: What are some examples of companies that build loyal ties
with their employees because of the ethical values and behaviors of its leaders?
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.
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.
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? Why do you think 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.
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.
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/EXTRA EXAMPLE 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 United States 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 24: What can be done to promote ethical behavior in

organizations/reduce unethical behavior? (Address some of the issues in this section
of the module and others, of course—such as reduced focus on short-term results
and a broader stakeholder, long-term perspective.)
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.
VI. 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 module 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 module, 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.
Application Questions and Exercises
1. Reflecting on Career Implications
• Strategic Leadership: The module 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. In your life as a
student, 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 organization/university 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 think about a leader in your life.
Then ponder on how this leader effectively does each of the three leadership activities.
• Power: Identify the sources of power used by your instructor. 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 in your class/university Are there other consequences? It is relevant to
establish the importance of good instructor-student relationships?
• Emotional Intelligence: The module 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?
• Creating an Ethical Organization: Identify an ethical dilemma that you personally faced
in the course of your life. 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?
2. Identify a business leader whom you admire the most. Discuss his or her most valuable
traits, attributes, or skills. Also, what types of activities (e.g., creating a vision) does this
leader engage in that are particularly impressive?
3. 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.
4. How can the five central elements of “learning organizations” be incorporated into
global companies?
5. What are the most important differences between an “integrity organization” and a
“compliance organization” in a firm’s approach to organizational ethics?

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MODULE IN

COURSE LEARNING OUTCOMES

Module 10: Strategic Leadership: Creating a

Strong and effective leadership is a key organizational success factor. Strategic

1. The first section describes three key leadership activities—setting a direction,

4. The fourth section addresses the importance of leader’s developing

I. Leadership: Three Interdependent Activities

In this section, a definition of leadership is presented. Leadership is not custodial

Leaders recognize three interdependent activities (FIGURE 1) that must be

 Extra Example: An Executive View of the Three Leadership Activities

Facing two consecutive years of multi-billion-dollar losses, Gerstner needed a sense of

Some elements of agility that can be turned into policies:

Borrowing from John Maxwell, successful leaders:

Source: Interview with Charlie Hazzard conducted by Gerry McNamara.

B. Designing the Organization

Leaders must be actively involved in shaping the organization by building structures,

Failure to provide leadership in shaping and maintaining organizational design can

1. Inadequate understanding of responsibility and accountability among

 Discussion Question 7: Have you ever worked for an organization with

C. Nurturing a Culture Committed to Excellence and Ethical Behavior

 Discussion Question 8: Why is it important for the leader to communicate a

 Discussion Question 9: Do you know of any other courageous decisions that a

II. Getting Things Done: Overcoming Barriers and Using Power

A. Overcoming Barriers to Change

• Many people having “vested interests in the status quo”

 Extra Example: Effective Leaders Overcome Barriers to Change

B. Using Power Effectively

These sources of power are illustrated in FIGURE 2 below.

FIGURE 2. Leader’s Bases of Power

The following SUPPLEMENT/EXTRA EXAMPLE is of great interest. It is part of an HBR

 Extra Example: Sandberg’s View on Women and the Use of Power

III. Emotional Intelligence: A Key Leadership Trait

The SUPPLEMENT/EXTRA EXAMPLE below addresses Daniel Goleman’s (a leading

 Extra Example: The Value of Emotional Intelligence (EI) in an International Context

F. Emotional Intelligence: Some Potential Drawbacks and Cautionary Notes

This section serves to provide some balance to our discussion of emotional

We also suggest some potential drawbacks of EI by discussing the “flipside” of the

1. Effective Leaders Have Empathy for Others

IV. Creating a Learning Organization

Leading-edge organizations recognize the importance of having everyone in the

Learning and change typically involve an ongoing questioning of an organization’s

Successful learning organizations create a proactive, creative approach to the

1. Inspiring and motivating people with a mission or purpose

A. Inspiring and Motivating People with a Mission or Purpose

A critical requirement of all learning organizations is that everyone feels and

C. Empowering Employees at All Levels

Empowerment involves creating an environment where employees can achieve

The SUPPLEMENT/EXTRA EXAMPLE below addresses the promise and limitations of

 Extra Example: Guidelines for Effectively Empowering Organizations and Employees

To create empowerment programs that work, Argyris suggest a few guidelines:

2. When implementing empowerment initiatives, calculate factors such as morale,

D. Accumulating and Sharing Internal Knowledge

Employees need to understand the overall business in order to make a strong

We discuss Whole Foods Market Inc., a practitioner of internal bench marking—a

 Extra Example: The Benefits of Sharing Internal Information

E. Gathering and Integrating External Information

Recognizing opportunities and threats is vital to a firm’s success. We present three

1. Employees at all levels can use a variety of sources of information on

2. Benchmarking is a technique for using external information to make

3. Obtain information directly from customers.

F. Challenging the Status Quo and Enabling Creativity

Related to a culture of dissent is a culture of risk taking in which failure is not

 Discussion Question 17: Are there potential disadvantages to fostering a climate of