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Strategic Leadership: Creating a Learning Organization and an Ethical Organization

McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives

After reading this chapter, you should have a good understanding of:
The three key activities in which all successful leaders must be continually engaged. The importance of recognizing the interdependence of the three key leadership activities, and the salience of power in overcoming resistance to change. The crucial role of emotional intelligence (EI) in successful leadership as well as its potential drawbacks. The value of creating and maintaining a learning organization in todays global marketplace.

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Learning Objectives

After reading this chapter, you should have a good understanding of:
The five central elements of a learning organization. The leaders role in establishing an ethical organization. The benefits of developing an ethical organization. The high financial and nonfinancial costs associated with ethical crises.

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Leadership: Three Interdependent Activities

Leadership is the process of transforming organizations from what they are to what the leader would have them become Leadership should be
- Proactive - Goal-oriented - Focused on the creation and implementation of a creative vision

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Leadership: Three Interdependent Activities

Successful leaders must recognize three interdependent activities:

Insert Exhibit 11.1

Adapted from Exhibit 11.1 Three Interdependent Activities of Leadership

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Setting a Direction
Scan environment to develop
- Knowledge of all stakeholders - Knowledge of salient environmental trends and events

Integrate that knowledge into a vision of what the organization could become Required capacities
- Solve increasingly complex problems - Be proactive in approach - Develop viable strategic options

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Example
DuPonts vision statement is to be the world's most dynamic science company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere.

Source: www.dupont.com

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Designing the Organization

Difficulties in implementing the leaders vision and strategies
- Lack of understanding of responsibility and accountability among managers - Reward systems that do not motivate individuals and groups toward desired organizational goals - Inadequate or inappropriate budgeting and control systems - Insufficient mechanisms to coordinate and integrate activities across the organization

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Nurturing a Culture
In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives must
- Accept personal responsibility for developing and strengthening ethical behavior - Consistently demonstrate that such behavior is central to the vision and mission - Develop and reinforce
Role models Corporate credos Codes of conduct
- Reward and evaluation systems - Policies and procedures

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Overcoming Barriers to Change and the Effective Use of Power

Reasons why organizations and managers at all levels are prone to inertia and slow to learn, adapt, and change
Vested interests in the status quo Systemic barriers Behavioral barriers Political barriers Personal time constraints

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A Leaders Bases of Power

Insert Exhibit 11.2

Exhibit 11.2 A Leaders Bases of Power

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Emotional Intelligence: A Key Leadership Trait

Successful traits of leaders at the highest level

Technical skills
Accounting, business planning, etc.

Cognitive abilities
Analytical reasoning, quantitative analysis, etc.

Emotional intelligence
Ability to work with others, passion for work, etc.

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Emotional Intelligence
Five components of emotional intelligence
Self-awareness Self-regulation Motivation Empathy Social skill

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Five Components of Emotional Intelligence at Work

Definition
Self-management The ability to recognize skills: and understand your Self-awareness moods, emotions, and drives, as well as their effect on others. Self-regulation The ability to control or redirect disruptive impulses and moods.

Hallmarks
Self-confidence Realistic self-assessment Self-deprecating sense of humor Trustworthiness and integrity Comfort with ambiguity Openness to change

The propensity to suspend judgmentto think before acting.

Source: Adapted from D. Goleman, What Makes a Leader, Harvard Business Review, October-November 1998, p. 95 (with permission)

Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

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Five Components of Emotional Intelligence at Work

Definition
Self-management skills: Motivation A passion to work for reasons that go beyond money or status. A propensity to pursue goals with energy and persistence. The ability to understand the emotional makeup of other people. Skill in treating people according to their emotional reactions.
Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

Hallmarks
Strong drive to achieve Optimism, even in the face of failure

Managing Relationships: Empathy

Organizational commitment
Expertise in building and retaining talent Cross-cultural sensitivity Service to clients and customers

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Five Components of Emotional Intelligence at Work

Definition
Managing Relationships: Social Skill Proficiency in managing relationships and building networks.

Hallmarks
Effectiveness in leading change Persuasiveness Expertise in building and leading teams

An ability to find common ground and build rapport.

Source: Adapted from D. Goleman, What Makes a Leader, Harvard Business Review, October-November 1998, p. 95 (with permission)

Adapted from Exhibit 11.3 The Five Components of Emotional Intelligence at Work

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Developing a Learning Organization

Successful learning organizations
- Create a proactive, creative approach to the unknown - Actively solicit the involvement of employees at all levels - Enable all employees to use their intelligence and apply their imagination

Learning environment
Organization-wide commitment to change An action orientation Applicable tools and methods Guiding philosophy Inspired and motivated people with a purpose

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Key Elements of a Learning Organization

Insert Exhibit 11.4

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Key Elements of a Learning Organization

Empowering employees at all levels
- Salient elements of empowerment
Start at the bottom by understanding needs of employees Teach employees skills of self-management Build teams to encourage cooperative behavior Encourage intelligent risk taking Trust people to perform

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Question
Do you agree with this statement by Ken Melrose, the great leader is a great servant?

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Key Elements of a Learning Organization

Accumulating and sharing internal knowledge
- Open book management
Numbers on each employees work performance and production costs generated daily Information is aggregated once a week from top level to bottom level Extensive training in how to use and interpret the numbers how to understand balance sheets, cash flows and income statements

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Key Elements of a Learning Organization

Gathering and integrating external information
- Awareness of environmental trends and events
Internet accelerates the speed with which useful information can be located Garden variety traditional sources for acquisition of external information Benchmarking Focus directly on customers for information

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Key Elements of a Learning Organization

Challenging the status quo and enabling creativity
- Challenging the status quo
Create a sense of urgency Establish a culture of dissent Foster a culture that encourages risk taking Cultivate culture of experimentation and curiosity

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Creating An Ethical Organization

Organizational ethics is a direct reflection of its leadership Unethical business practices
- Involves tacit, if not explicit, cooperation of others - Reflect the values, attitudes, and behavior pattern that define the organizations operating culture

Driving forces of ethical organizations

- Ethical values - Integrity

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Example
In order to avoid unethical business practices, you should never do the following:
1. Suppress information that might damage your reputation. 2. Deny charges that are relevant and factual.
3. Spend money for public relations or advertising to counter honest complaints.

4. Ignore problems with the products you sell. 5. Refuse to accept blame.

Source: Gerson, Vicki. Avoiding Unethical Business Practices, www.nfib.com. February 21, 2003.

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Creating An Ethical Organization

Ethical values
- Shape the search for opportunities - Shape the design organizational systems - Shape the decision-making process used by individuals and groups - Provide a common frame of reference that serves as a unifying force

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Integrity-Based versus Compliance-Based Approaches to Organizational Ethics

Essential links between organizational integrity and individual integrity
- Cannot be high-integrity organizations without highintegrity individuals - Individual integrity is rarely self-sustaining - Organizational integrity, resting on a concept of
Purpose Responsibility Ideals

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Question
Integrity-based ethics programs combines a concern for law with an ______.
A) emphasis on the proper use of managerial power B) emphasis on legal consequences of unethical behavior C) emphasis on managerial responsibility for ethical behavior D) emphasis on social responsibility for ethical behavior

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Approaches to Ethics Management

Characteristics Compliance-Based Approach
Ethics Objective Leadership Conformity with externally imposed standards Prevent criminal misconduct Lawyer-driven

Integrity-Based Approach
Self-governance according to chosen standards Enable responsible conduct Management-driven with aid of lawyers, HR, and others

Source: L. S. Paine, Managing for Organizational Integrity, Harvard Business Review 72, no. 2 (1994), p. 113 (with permission). Adapted from Exhibit 11.6 Approaches to Ethics Management

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Approaches to Ethics Management

Characteristics Compliance-Based Approach
Methods Education, reduced discretion, auditing and controls, penalties

Integrity-Based Approach
Education, leadership, accountability, organizational systems and decision processes, auditing and controls, penalties Social beings guided by material self-interest, values, ideals, peers

Behavioral Assumptions

Autonomous beings guided by material self-interest

Source: L. S. Paine, Managing for Organizational Integrity, Harvard Business Review 72, no. 2 (1994), p. 113 (with permission). Adapted from Exhibit 11.6 Approaches to Ethics Management

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Key Elements of Highly Ethical Organizations

These interrelated elements must be present and constantly reinforced
Role models Corporate credos and codes of conduct Reward and evaluation systems Policies and procedures

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Key Elements of Highly Ethical Organizations

Role Models
- Leaders are role models for their organizations - Leaders must be consistent in their words and deeds - Values and character of leaders become transparent to an organizations employees - Effective leaders take responsibility for ethical lapses within the organization

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Key Elements of Highly Ethical Organizations

Corporate credos and codes of conduct
- Provide a statement and guidelines for norms, beliefs and decision making - Provide employees with clear understanding of the organizations position regarding employee behavior - Provide the basis for employees to refuse to commit unethical acts - Contents of credos and codes of conduct must be known to employees

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Key Elements of Highly Ethical Organizations

Reward and evaluation systems
- Inappropriate reward systems may cause individuals at all levels of the organization to commit unethical acts that they might not otherwise do - Penalties in terms of damage to reputations, human capital erosion, and financial loss are typically much higher than any gains that could be obtained through such unethical behavior

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Key Elements of Highly Ethical Organizations

Policies and procedures
- Policies and procedures can specify proper relationships with a firms customers and suppliers - Policies and procedures can guide employees to behavior ethically - Policies and procedures must be reinforced
Effective communication Enforcement Monitoring Sound corporate governance practices