The importance of strategic leaders has increased with the growing complexity of the business environment (Menz, 2012 and Higgs, 2009). In the twenty-first century, companies have been facing growing tensions caused by several factors at both the macro and micro levels. Therefore, managing organisations has become more complex with the increases in firm size (Jensen and Zajac, 2004), the environment and technologies (Marcel, 2009). Such volatile and complex organisational environments have emphasised the importance of leadership (Higgs, 2009). The manner in which strategic leaders respond to these challenges determines the company’s chances of success. In fact, their role is crucial to ensure a company’s ‘continuity and change’ (Trice and Beyer, 1991). Even large and mature firms, regardless of their industries, are
influenced by the strategic choices and performance of their top management teams (Thomas and Ramaswamy, 1996).
Looking at different definitions of strategic leadership forms is the first part of this section of the literature review, with the aim of distinguishing leadership or functional leadership from strategic leadership, which is associated with TMT members both as individuals and as a group.
Maccoby (2000) explained the differences between the roles of a manger and a leader as follows. A manger is someone who fulfils a function or occupies a post. The main tasks of a manger are planning, budgeting, evaluating and facilitating. A leader’s function is essentially described with respect to his/her relationship with the people that he/she leads. A strategic or operational leader is responsible for selecting talented people, and motivating, coaching and building trust amongst his/her existing staff. Moreover, leaders lead their teams either by creating a sense of fear, or by building constructive
relationships via trust, and a sense of mutual missions and goals. Acknowledging that a turbulent business context can put stress into an
organisational context, Maccoby (2000) suggested transparency by explaining why and how decisions were taken as a way of increasing trust, stating that there is a need for not only ‘good managers’ but also ‘great leaders’ (Maccoby, 2000: 58). Moreover, regardless of how many observable examples of good or great leadership there may be, there is no one ideal example. Maccoby (2000)
notion of great leaders is similar to that described by Collins (2001), in his in his ‘widely noted book’ (Chatterjee and Hambrick, 2007: 379) Good to Great, as ‘level five leaders’. Deducing from 11 listed companies Collins (2001) proposed that a strategic leader is a ‘paradoxical blend of personal humility and professional will’. Bass (1981: 11) defined a strategic leader as follows: ‘(a) a focus on group processes, (b) a personality trait, (c) the art of inducing
compliance, (d) the exercise of influence, (e) a form of persuasion, (f) a power relation, (g) an instrument of goal achievement and (h) the initiation of
structure’.
Although the two definitions are twenty years apart, both of them focus on professional traits and personal qualities. In the second definition, the paradox of seeing a strategic leader exercising power and influence, yet having the ability to convince other stakeholders by using persuasion and bargaining, emphasises the degree of flexibility required by strategic leaders. A strategic leader with the ability to use more than one leadership style, depending on the existing situations within the organisation, and exhibiting a higher level of flexibility, will have a higher probability of success. Burgelman and Grove (2007) emphasised the importance of strategic leaders’ flexibility with respect to an organisation’s long-term performance. For example, a leaders’ ability, to shift between highly disciplined control over organisational recourses and, in a different context, the ability to relax such control to pursue an opportunity, facilitates organisational evolution (Burgelman and Grove, 2007).
Another definition was produced by Hosmer (1982: 51): ‘Strategic leadership refers to the creation of an overall sense of purpose and direction which guide integrated strategy formulation and implementation in organizations’.
However, Hitt, Ireland and Hoskisson (2009) related strategic leadership with envisioning, and predicting environmental changes, while at the same time enabling self-growth, by being flexible, and others’ growth by empowering them. The flexibility of strategic leaders enables them to work with, and through, firms’ employees to realize the desired strategies. The importance of working with other employees and the ability to influence their behaviours is increasing with the growing vertical and horizontal complexity of firms (Hitt et al., 2009). Certain characteristics of effective strategic leadership are defined through strategic actions. Hitt, et al. (2009) proposed five elements which are
indications of effective strategic leadership. Firstly, effective strategic leaders define the firm’s long-term strategic direction, both the core ideology and the envisioned future. The core ideology is achieved by the use of the firm’s legacy as a tool to motivate employees, while the envisioned future is achieved by stepping beyond the firm’s current legacy. Secondly, the effective management of a firm’s strategic resource portfolio, both tangible assets (financial, core products and human capital) and intangible assets (firm’s culture, social capital and knowledge) to ensure the firm’s longevity and prosperity. Thirdly, that the organisational culture has effective sustainability, represented by the
organization’s values, system of beliefs, ideologies and symbols, evident in the way that a firm conducts business. Fourthly, the stress upon ethical practices which inspire and enable ethical conduct, thus reducing the probabilities of self-centred and I-centric behaviours. Fifthly, effective strategic leaders form balanced firm’s controls, aiding strategic leaders in defining credibility and liability. Establishing financial controls and firm corporate governance systems can work as a compass to a firm’s progress, according to the selected strategy (Hitt, et al., 2009).
Despite their successful history, large organisations, such as Chrysler,
Rubbermaid and Lehman Brothers, have failed to sustain their success due to deteriorating leadership (Collins, 2001; Azadinamin, 2012). In fact, some companies, such as Lehman Brothers, have even disappeared from the
business map after it filed for bankruptcy in 2008. Moreover, companies such as Fannie Mae, which was characterised as built to last by Collins (2001), struggled right from the beginning of the subprime mortgage crisis in 2008. It was taken over by the US Federal Department its CEO with an external
candidate after what was seen as severe leadership failure (U.S. Department of the Treasury, 2008). In a study to detect characteristics of failing TMT,
Hambrick and D’Aveni (1992) compared 57 large bankruptcies with 57
survivors, relying on publically available data by capturing snapshot events of the life of both groups of firms. Hambrick and D’Aveni (1992) suggested that TMT deterioration accelerates firms’ death by strategic errors made by TMT under stress, or TMT of flawed composition, and stakeholder frustration, and that firms’ deterioration accelerate TMT decline through lack of resources, scape-goating and voluntary resignations.
Therefore, despite the sizes of companies and their successful histories, strategic leaders taking strategic decisions are crucial players who are
responsible for the success or failure of organizations (Hambrick et al, 1992; Burgelman, 1994; Thomas and Ramaswamy, 1996; and Collins, 2001). This raises the following question: If strategic leaders shape the company’s performance, what shapes the decisions of strategic leaders in top
management teams? When successful leaders sustain the level of performance in more than one decision, they leave behind physical clues that can guide researchers in opening the ‘black box’ of TMT (Chatterjee and Hambrick, 2007). One of the tools to enable this is Hambrick and Mason (1984) Upper Echelons Theory (UET), which has been perceived as one of the core theories in TMT literature (Hambrick, 2007 and Carpenter et al, 2004). The main premise of the UET is that TMT characteristics and demographics, which include TMT experiences, values, and personalities, work as a lens to filter the information they receive and, therefore, how they react or respond to different business situations, which is translated into the decisions they take (Hambrick and Mason, 1984).
The following part of the literature review discusses the characteristics of strategic leadership research, which has tried to explain strategic orientations and organisational outcomes through strategic leaders’ characteristics and behaviour.