Although strategic leaders are said to be ‘cut from the same cloth’ (Collins, 2001: 22), their leadership styles differ, distinguishing their company from others owing to the different background in values and experience (Thomas and Ramaswamy, 1996).
Drawing on individual or personal traits and characteristics of leaders or organisations, different scholars have built different typologies or patterns trying to label different forms of strategic leadership and to link its effect on organisational outcomes. Typologies gather commonalities and similarities related to a specific strategy, which mostly include TMT and strategic decision making, enabling researchers to look at strategic patterns to help predict organisational outcome (Thomas and Ramaswamy, 1996).
Shrivastava and Nachman (1989), for example, developed four strategic leadership patterns, building on the UET premise. Using 27 existing business cases, Shrivastava and Nachman (1989) categorised the patterns as follows: (i) entrepreneurial, (ii) bureaucratic, (iii) political, and (iv) professional. The first typology, entrepreneurial strategic leadership, is characterized by a
combination of strong personality and charisma and entrepreneurial leaders create their own roles and give themselves the right to initiate and guide the company strategy with knowledge and confidence. The second typology, bureaucratic strategic leadership, bases the formation of company strategy on the company’s policies and procedures. Therefore, in this leadership pattern, strategic plans are not formulated by one person or a group of people, but by the structure and the system. The leader’s role is to analyse the information, guided by the system, and to generate strategy options for the company.
However, the selection of the strategy will occur only according to the company’s policy.
The third typologies, political strategic leaders, are strong and dominant characters, who formulate the company’s strategy by using their functional power and authority. A political leader does not delegate authority to other line mangers, and gives them the minimum amount of power that they require to conduct their daily operational work. This can have a negative impact in that it may increase the opportunistic behaviour of managers, where every manager attempts to fulfil his/her own interests. However, it can also encourage debate, negotiation, open systems and new ideas over strategic decisions. The fourth and last typology, professional strategic leaders, are the creators of new rules, possessing professional expertise and/or are highly trained autonomy
seekers, and they maintain high ethical standards with commitment to their work. They work in small groups within the guidelines of the company, but by introducing new rules. Professional leaders are responsible for creating and maintaining the cultures in their companies. Therefore, the decision making process is conducted by making sense of their environment and the data collected from the organisational members.
Shrivastava and Nachman (1989) concluded that their research provided evidence of the variability of the upper echelons’ effect on organisational strategy. Organisational strategic leadership comes in the form of a group, not necessarily large but not in the form of an individual, aided by the
organisational culture and environment. But, as noted by Shrivastava and Nachman (1989), the research sample was drawn from US and European organisations, which limits the categorisation of strategic leadership, calling for researchers to investigate different social and cultural contexts.
Maccoby (2000) bureaucratic leadership pattern was described as having more mangers and fewer staff than required. This usually results in a lack of
motivation and enthusiasm amongst the staff. On the other hand, Maccoby (2000) entrepreneurial leadership was described as being more leadership- oriented and less manager-oriented at the start of its business cycle. Such a pattern would result in higher levels of motivation and enthusiasm, but a loss
of control over financial resources and at the appearance of unexpected challenges.
By investigating the managers who like to do things differently versus those who like to do things better i.e. being innovative versus being efficient, Miles and Snow (1978) empirical research relates the bases of organisation strategy to leaders’ preferences (Thomas and Ramaswamy, 1996 and Miles, Snow, Meyer and Coleman, 1978). Miles and Snow (1978) developed four typologies by categorizing organisations into four types according to their strategies. Miles and Snow (1978) typologies were derived from four industries namely: electronics, food processing, publishing and health care. Their study
addressed business level strategy, which is looking at how organisations compete in a specific business, as opposed to corporate level strategy, which looks at the business an organisation should be in (Hambrick, 1983a). Each of these four typologies has three organisational strategy domains:
entrepreneurial, administration and technological. The four typologies are presented as follows:
I. A prospector strategy, which is adopted by companies that undergo continuous strategic change. For example, a strategy for introducing changes in services or products in pursuit of achieving the first-mover advantage. Such companies are flexible and focus on introducing innovative ideas into the market to gain increasing market share.
II. A defender strategy, which is adopted by companies who are not seeking first-mover advantage, and hence do not introduce any changes to their products and services. Such companies focus on maintaining their market share with increased efficiency.
III. An analyser strategy, which is adopted by companies that apply formal and thorough investigation before introducing a change. Selectivity in introducing changes stabilises the company’s lines of products. The decisions of companies adopting this strategy exhibit a balance between risk and reward.
IV. A reactor strategy, which is adopted by companies that do not have a clearly defined purpose or strategy and follow the dictates of the
market. Tracing back a reactor company strategy will reveal the adoption of different strategies at different times. It is difficult to determine the identity of companies that adopt the reactor strategy.
Miles and Snow (1978) typologies attracted a wide interest in the research, testing its validity on different sample sets. For example, Snow and Hrebiniak (1980) found that in a competitive context, analysers and defenders perform better than reactors, but this does not hold true in highly regulated sectors. However, their research was critiqued for its limited sample size, vague performance measurement and the subjectivity of the strategy measurement (Hambrick, 1983a). Hambrick (1983a) showed a consistent outperformance by defenders in comparison to prospectors in terms of cash flow and profit
generation. However, defenders underperformed in comparison to prospectors in terms of both innovation and market share.
Hambrick (1983a) indicated that the Miles and Snow (1978) typology was exploratory and did not elucidate the influence of firm strategy on firm performance. According to Hambrick (1983a), the typology explains the business-level strategy and its contribution to the corporate-level strategy would be limited, adding that the typologies ignore the effect of industry peculiarities. To overcome the shortfalls of the typology, Hambrick (1983a) proposed financial performance measurement, such as the returns on
investment (ROI), cash flow (CF) and market share (MS), to be a clearer and a more objective method for measuring performance. Moreover, Hambrick (1983a) supported the need to consider the environment in the formulation of organisational strategy. When leaders select a strategy, it should enable the organization to fulfil the requirements of the environment and achieve the desired performance (i.e. ROI, CF or MS).
Relying on publicly available data from the PIMS project, Hambrick (1983a) tested defenders’ and prospectors’ financial performance in four
environments, which were growth, mature, innovative, and non-innovative, environments. Hambrick (1983a) found that organisations following a defender
strategy outperformed in every type of environment tested in terms of current profitability and cash flow. Nevertheless, organisations following the
prospector’s strategy in innovative industries were found to achieve a higher market share. However, prospector organisations operating in non-innovative industries ended up wasting cash on unnecessary prospecting, and lost profit and cash flow with no market share return. Therefore, the market rewarded prospectors investing in new products and research for their adoptive abilities in an innovative environment, and punished unnecessarily risky prospecting in a non-innovative environment.
Zajac and Shortell (1989) found that in a turbulent environment, prospectors and analysers outperformed defenders. This finding corresponds with that of Shortell and Zajac (1990) who tested the Miles and Snow (1978) typology by using different strategic contexts: Mintzberg (1978) theory of intended and realised strategies, Henderson (1973) strategic approach to portfolio
management, and Hambrick (1983b) rules for introducing new products and services.
Shortell and Zajac (1990) described the benefits of the Miles and Snow (1978) typology to be its applicability to a different range of sectors and industries when measuring strategy. Shortell and Zajac (1990) assessed the validity and reliability of the Miles and Snow (1978) typology by using data from 574 hospitals. The data was collected over two different periods to monitor the strategic changes because the strategies were assessed over a period of time. The main informants in the data collection process were the CEOs of the hospitals. However, they were permitted to seek the assistance of other key staff, such as vice presidents and planning analysts. The findings of the
research showed considerable support for the Miles and Snow (1978) typology. The findings of Sortell and Zajac (1990) indicated that prospectors exerted greater efforts when entering new market domains and introducing new diversified services than both analysers and defenders. With respect to high- growth areas, the percentage of services offered by defender organisations was lower than those offered by analysers, while those offered by prospectors were the highest. Prospectors paid greater attention to developing new markets in their main existing line of business than analysers and defenders. Prospectors
had a higher probability of offering more diversified services in the same line of business than starting new diversified services within the two-year period following the collection of the market data than analysers, although the probability of analysers in this regard would be higher when compared to defenders.
In terms of planning, innovation and market research, prospectors scored higher than analysers, and analysers scored higher than defenders. However, in terms of planning, both prospectors and analysers had significantly high levels and they outperformed defenders. Moreover, in a sector where technology is changing rapidly, and in an environment stressing the importance of diversification, adopting ‘a pure defender strategy’ was not sustainable.
Applying the Miles and Snow (1978) prospector and defender typology as the theoretical lens, Thomas and Ramaswamy (1996) investigated the performance implications of top managers’ characteristics alignment with an organisation’s strategy using a sample of firms listed in the fortune 500 and operating in the following industries: petroleum refining, chemicals and electronics.
Demographic characteristics used were education, age, and tenure. The performance indicators used were return on assets (ROA), return on equity (ROE), and return on sales (ROS) and the demographic characteristics were collected from sources such as ‘Dun and Bradstreet’s Reference Book of Corporate Management (1987), and America’s Corporate Families (1987)’, which were available publicly. Thomas and Ramaswamy (1996) found that firms with noticeably different strategies have noticeably differently
characterised leaders and that performance is positively related to a firm’s strategy alignment with its leader’s characteristics. Moreover, the firms’ strategy alignment with leader’s characteristics had a greater influence on performance over a firm’s contextual characteristics i.e. size, age, and
industry. Thomas and Ramaswamy (1996) indicated that leaders described as prospectors were younger, with shorter tenures and higher educational levels, as compared to defenders. Moreover, they found that defenders usually came from within the firm with throughput oriented experience i.e. engineering, finance, and manufacturing, while prospectors’ functional experience was found to be output i.e. marketing and product research and development. The
research did not include analysers, as their research focus was only on prospectors and defenders. Moreover, it did not include the processes and mechanics of how firms can select and/or align leaders for a preferred strategy. The research also relied on publicly available data; therefore, the actual strategy process undertaken by leaders of the firms was not addressed. The findings of the research presented in this section can be summarized as follows: executive leaders do exercise an influence on firms, either through their personalities or the strategies that they select for the organisation (Thomas and Ramaswamy, 1996; Shrivastava and Nachman, 1989; Maccoby, 2000; Shortell and Zajac, 1990; Hambrick, 1983a and 1983b; Miles and Snow, 1978).
The following section discusses strategic decision making definitions and processes.