AU Sterling Construction Company Inc Organizational Structure Analysis

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Nepuv

Business Finance

Aberystwyth University

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I’m studying for my Business class and don’t understand how to answer this. Can you help me study?



make the Sterling Construction Company, Inc.'s Organizational Structure




You will use the attachment as your framework for the analysis, and will incorporate information from external sources including the company and other credible sites.


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12 Strategic Leadership Studying this chapter should provide you with the strategic management knowledge needed to: Define strategic leadership and describe top-level managers’ importance. 12-2 Explain what top management teams are and how they affect firm performance. 12-3 Describe the managerial succession process using internal and external managerial labor markets. 12-4 Discuss the value of strategic leadership in determining the firm’s strategic direction. 12-5 Describe the importance of strategic leaders in managing the firm’s resources. 12-6 Explain what must be done for a firm to sustain an effective culture. 12-7 Describe what strategic leaders can do to establish and emphasize ethical practices. 12-8 Discuss the importance and use of organizational controls. © RomanOkopny/Getty Images 12-1 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. CAN YOU FOLLOW AN ICON AND SUCCEED? APPLE AND TIM COOK AFTER STEVE JOBS Bloomberg/Getty Images Steve Jobs was Apple’s founder and icon CEO. Much of Apple’s phenomenal success, especially after 2000, was attributed to Steve Job’s “genius” and leadership. Because of this and Tim Cook having a significantly different style from Jobs, he was given little chance for success. Yet, in 2014, several years after Cook assumed the CEO position, Apple had what Tim Cook referred to as an unbelievable year. Apple sold 200 million iPhones and had $200 billion in revenue. Apple’s stock price increased by 65 percent, and the company’s market value reached more than $700 billion, the largest ever of any U.S. firm. The $700 billion in market value is more than twice as much as either Microsoft or Exxon Mobil. Cook’s primary experience has been as manager of operations; he was Apple’s COO prior to assuming the CEO role. And, much of Apple’s sales are based on products developed and introduced to the market under Job’s leadership. So, the jury is still out on Cook, especially with regard to developing new products and making them a success in the marketplace. Steve Jobs was a master at this process. Cook’s style of leadership is much different from the approach used by Jobs. Some considered Jobs to be ruthless and impulsive and almost maniacal in developing new products and ensuring a high quality product desirable in the market. Cook’s knowledge and skills do not make him an expert in product development, design, or marketing. So, he delegates those responsibilities but remains as the leader and decision maker. Cook tries to buffer and maintain Apple’s corporate culture developed largely by Jobs. Thus, the emphasis remains on innovation that is valued in the marketplace. Cook has learned the importance of hiring other top managers with talent but who also fit into Apple’s culture. He has made some very good hires, such as Angela Ahrendts who now heads Apple’s very important retail stores. Cook takes a much less emotional approach than Jobs. Some refer to it as a “measured emotional approach to leadership.” He empowers his team to manage their functional areas and emphasizes the need to take a long-run perspective. Observers have been able to highlight other differences between Cook’s and Job’s strategic leadership approaches. Cook shares the limelight with his leadership team, whereas Jobs kept the light on himself. In fact, one analyst suggested that Cook is a good leader who builds an effective team around him. Cook is leading Apple to be more philanthropic than in the past. His strategy has entailed a major acquisition (an audio company for $3 billion) and developing enterprise solutions for corporate IT units, both strategic actions that Jobs eschewed. Apple has formed an alliance with IBM to develop enterprise applications many of which will be designed for the iPad, especially the new and larger versions. Innovations developed during Cook’s leadership include the Apple watch, introduced to the market in April 2015. Many are waiting to learn its rate of success. Initial reports suggest that demand is exceeding supply, causing Apple to increase production. In addition, hints provided by Cook suggest that Apple may be planning to enter the television market. Most importantly, Cook claims that Apple’s goal is to change the way people work and will target the development of future products for that purpose. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 384 Sources: T. Loftus, 2015, The morning download: Apple will ‘change the way people work,’ CEO Tim Cook says, CIO Journal, blogs.wsj.com, January 28: 2015, Apple’s Tim Cook cites record sales and ‘unbelievable’ year, New York Times, www.nytimes. com, March 10; A. Chang, 2015, Apple CEO Tim Cook is forging an unusual path as a social activist, Los Angeles Times, www.latimes.com, March 31, A. Lashinsky, 2015, Becoming Tim Cook, Fortune, April 1, 60–72; T. Higgins, 2015, Apple iPhones sales in China outsell the U.S. for first time, BloombergBusiness, www.bloomberg.com, April 27; J. Lewis, 2015, Tim Cook: A courageous innovator, Time, April 27, 26; J. D’Onfro, 2015, Tim Cook dropped a major clue about Apple’s next big product, Yahoo Finance, finance.yahoo.com, April 28. A s the Opening Case suggests, strategic leaders’ work is demanding, challenging, and requires balancing short-term performance outcomes with long-term performance goals. Regardless of how long (or short) they remain in their positions, strategic leaders (and most prominently CEOs) affect a firm’s performance.1 Obviously, Steve Jobs was well known as a highly successful CEO who led Apple to achieve very high performance. There were questions about whether anyone could follow him as CEO and be successful. Those questions dogged Tim Cook, who became Apple’s CEO after Jobs passed away. Yet, three and a half years into his tenure as CEO, Apple had an incredibly successful year and became the first company to achieve a market value of $700 billion. A major message in this chapter is that effective strategic leadership is the foundation for successfully using the strategic management process. As implied in Figure 1.1 in Chapter 1 and through the Analysis-Strategy-Performance model, strategic leaders guide the firm in ways that result in forming a vision and mission. Often, this guidance involves leaders creating goals that stretch everyone in the organization as a foundation for enhancing firm performance. A positive outcome of stretch goals is their ability to provoke breakthrough thinking—thinking that often leads to innovation.2 Additionally, strategic leaders work with others to verify that the analysis and strategy parts of the A-S-P model are completed effectively in order to increase the likelihood the firm will achieve strategic competitiveness and earn above-average returns. We show how effective strategic leadership makes all of this possible in Figure 12.1.3 To begin this chapter, we define strategic leadership and discuss its importance and the possibility of strategic leaders as a source of competitive advantage for a firm. These introductory comments include a brief consideration of different styles strategic leaders may use. We then examine the role of top-level managers and top management teams and their effects on innovation, strategic change, and firm performance. Following this discussion is an analysis of managerial succession, particularly in the context of the internal and external managerial labor markets from which strategic leaders are selected. Closing the chapter are descriptions of five key leadership actions that contribute to effective strategic leadership: determining strategic direction, effectively managing the firm’s resource portfolio, sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organizational controls. Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Strategic change is change brought about as a result of selecting and implementing a firm’s strategies. 12-1 Strategic Leadership and Style Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. Strategic change is change brought about as a result of selecting and implementing a firm’s strategies. Multifunctional in nature, strategic leadership involves managing through others, managing an entire organization rather than a functional subunit, and coping with change that continues to increase in the global economy. Because of the global economy’s complexity, strategic leaders must learn how to effectively influence human behavior, often in uncertain environments.4 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 385 Chapter 12: Strategic Leadership Figure 12.1 Strategic Leadership and the Strategic Management Process Effective Strategic Leadership shapes the formation of and Vision Mission influence Successful Strategic Actions Formulation of Strategies Implementation of Strategies yield s s yield Strategic Competitiveness Above-Average Returns By word or by personal example, and through their ability to envision the future, effective strategic leaders meaningfully influence the behaviors, thoughts, and feelings of those with whom they work.5 The ability to attract and then manage human capital may be the most critical of the strategic leader’s skills,6 especially because the lack of talented human capital constrains firm growth. Indeed, in the twenty-first century, intellectual capital that the firm’s human capital possesses, including the ability to manage knowledge and produce innovations, affects a strategic leader’s success.7 Effective strategic leaders also create and then support the context or environment through which stakeholders (such as employees, customers, and suppliers) can perform at peak efficiency.8 Being able to demonstrate the skills of attracting and managing human capital and establishing and nurturing an appropriate context for that capital to flourish Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 386 Part 3: Strategic Actions: Strategy Implementation PATRIK STOLLARZ/Getty Images is important, especially given that the crux of strategic leadership is the ability to manage the firm’s operations effectively and sustain high performance over time.9 The primary responsibility for effective strategic leadership rests at the top, in particular with the CEO. Other commonly recognized strategic leaders include members of the board of directors, the top management team, and divisional general managers. In truth, any individual with responsibility for the performance of human capital and/or a part of the firm (e.g., a production unit) is a strategic leader. Regardless of their title and organizational function, strategic leaders have substantial decision-making responsibilities that cannot be delegated.10 Strategic leadership is a complex but critical form of leadership. Strategies cannot be formulated and implemented for the purpose of achieving aboveaverage returns without effective strategic leaders. As a strategic leader, a firm’s CEO is involved with a large number and variety of tasks, all of which, in some form or fashion, relate to effective use of the strategic management process.11 ThyssenKrupp is the largest steel manufacturer in Germany with a long and successful tenure. However, ThyssenKrupp began to suffer financial problems, and a new CEO was recruited to turnaround the firm’s performance. Accepting responsibility for reshaping the firm and handling the controversies facing it was Dr.-Ing. Heinrich Hiesinger. Formerly affiliated with another large German firm—Siemens—Hiesinger became chair of the executive board of ThyssenKrupp in January 2011. Hiesinger faced a number of issues. For example, the firm reported heavy losses during 2011 and 2012 and another smaller loss in 2013. The resignation, in March 2013, of ThyssenKrupp’s supervisory chair and various scandals that emerged during the chair’s service were additional problems requiring Hiesinger’s attention. The range of issues with which Hiesinger had to deal highlights the complexity of a strategic leader’s work as well as the influence of that work on a firm’s shape and scope. He obviously dealt with the problems effectively because the firm returned to profitability in 2014 and continued on a positive path in 2015.12 A leader’s style and the organizational culture in which it is displayed often affect the productivity of those being led. ThyssenKrupp’s Heinrich Hiesinger has spoken about these realities, saying that in the past at the firm he is leading there was an “understanding of leadership in which ‘old boys’ networks’ and blind loyalty were more important than business success.”13 Hiesinger worked hard to earn both trust and credibility with the firm’s stakeholders. The style of leadership used by those in top management positions is important. Likely, the leader’s style will be based, at least partially, on his or her personal ideology and experience.14 For example, based on his personal ideology, Tim Cook, CEO of Apple, initiated more philanthropic activities for the firm, and he spoke out on important social issues, such as treating all people equally regardless of ethnicity, gender, or sexual orientation. He also delegated responsibility and authority to other members of the Apple leadership team and empowered them to act. In this way, Cook displayed forms of what are referred to as responsible leadership (demonstrating concern for the firm’s stakeholders and society at large).15 Although Heinrich Hiesler, Chairman of the Board for ThyssenKrupp, is addressing Cook has tried to guard the Apple corporate the shareholders as a part of his effort to maintain their trust. culture, he has obviously made changes in Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 387 Chapter 12: Strategic Leadership the way people are managed and in the broader corporate focus. Thus, his style has been transformational as well. Transformational leadership is considered to be one of the most effective strategic leadership styles. This style entails motivating followers to exceed the expectations others have of them, to continuously enrich their capabilities, and to place the interests of the organization above their own.16 Transformational leaders develop and communicate a vision for the organization and formulate a strategy to achieve that vision. They make followers aware of the need to achieve valued organizational outcomes and encourage them to continuously strive for higher levels of achievement. Transformational leaders have a high degree of integrity and character. Speaking about character, one CEO said the following: “Leaders are shaped and defined by character. Leaders inspire and enable others to do excellent work and realize their potential. As a result, they build successful, enduring organizations.”17 Additionally, transformational leaders have emotional intelligence. Emotionally intelligent leaders understand themselves well, have strong motivation, are empathetic with others, and have effective interpersonal skills.18 As a result of these characteristics, transformational leaders are especially effective in promoting and nurturing innovation in firms.19 12-2 The Role of Top-Level Managers To exercise the duties of their role, top-level managers make many decisions, such as the strategic actions and responses that are part of the competitive rivalry with which the firm is involved at a point in time (see Chapter 5). More broadly, they are involved with making many decisions associated with first selecting and then implementing the firm’s strategies. When making decisions related to using the strategic management process, managers (certainly top-level ones) often use their discretion (or latitude for action).20 Managerial discretion differs significantly across industries. The primary factors that determine the amount of decision-making discretion held by a manager (especially a top-level manager) are 1. external environmental sources such as the industry structure, the rate of market growth in the firm’s primary industry, and the degree to which products can be differentiated 2. characteristics of the organization, including its size, age, resources, and culture 3. characteristics of the manager, including commitment to the firm and its strategic outcomes, tolerance for ambiguity, skills in working with different people, and aspiration levels (see Figure 12.2) Because strategic leaders’ decisions are intended to help the firm outperform competitors, how managers exercise discretion when making decisions is critical to the firm’s success21 and affects or shapes the firm’s culture. Top-level managers’ roles in verifying that their firm effectively uses the strategic management process are complex and challenging. Because of this, top management teams, rather than a single top-level manager, typically make these types of decisions.22 12-2a Top Management Teams The top management team is composed of the individuals who are responsible for making certain the firm uses the strategic management process, especially for the purpose of A top management team is composed of the individuals who are responsible for making certain the firm uses the strategic management process, especially for the purpose of selecting and implementing strategies. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 388 Part 3: Strategic Actions: Strategy Implementation Figure 12.2 Factors Affecting Managerial Discretion External Environment Characteristics of the Organization • Industry structure • Rate of market growth • Number and type of competitors • Nature and degree of political/legal constraints • Degree to which products can be differentiated • • • • Size Age Culture Availability of resources • Patterns of interaction among employees Managerial Discretion Characteristics of the Manager • Tolerance for ambiguity • Commitment to the firm and its desired strategic outcomes • Interpersonal skills • Aspiration level • Degree of selfconfidence Source: Adapted from S. Finkelstein & D C. Hambrick, 1996, Strategic Leadership: Top Executives and Their Effects on Organizations, St. Paul, MN: West Publishing Company. selecting and implementing strategies. Typically, the top management team includes the officers of the corporation, defined by the title of vice president and above or by service as a member of the board of directors.23 Among other outcomes, the quality of a top management team’s decisions affects the firm’s ability to innovate and change in ways that contribute to its efforts to earn above-average returns.24 As previously noted, the complex challenges facing most organizations require the exercise of strategic leadership by a team of executives rather than by a single individual. Using a team to make decisions about how the firm will compete also helps to avoid another potential problem when these decisions are made by the CEO alone: managerial hubris. Research shows that when CEOs begin to believe glowing press accounts and to feel that they are unlikely to make errors, the quality of their decisions suffers.25 Top-level managers need to have self-confidence but must guard against allowing it to become arrogance and a false belief in their own invincibility.26 To guard against CEO overconfidence and the making of poor decisions, firms often use a top management team to make decisions required by the strategic management process. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 389 Chapter 12: Strategic Leadership Top Management Teams, Firm Performance, and Strategic Change The job of top-level managers is complex and requires a broad knowledge of the firm’s internal organization (see Chapter 3) as well as the three key parts of its external environment—the general, industry, and competitor environments (see Chapter 2). Therefore, firms try to form a top management team with the knowledge and expertise needed to operate the internal organization and who can deal with the firm’s stakeholders as well as its competitors.27 Firms also need to structure the top management team in a way to best utilize the members’ expertise (e.g., create structural interdependence to make the best decisions).28 To have these characteristics normally requires a heterogeneous top management team. A heterogeneous top management team is composed of individuals with different functional backgrounds, experience, and education. Increasingly, having international experience is a critical aspect of the heterogeneity that is desirable in top management teams, given the globalized nature of the markets in which most firms now compete.29 Research evidence indicates that members of a heterogeneous top management team benefit from discussing their different perspectives.30 In many cases, these discussions, and the debates they often engender, increase the quality of the team’s decisions, especially when a synthesis emerges within the team after evaluating different perspectives.31 In effect, top management team members learn from each other and thereby develop a better decision.32 In turn, higher-quality decisions lead to stronger firm performance.33 In addition to their heterogeneity, the effectiveness of top management teams is also influenced by the value gained when members of these teams work together cohesively. In general, the more heterogeneous and larger the top management team, the more difficult it is for the team to cohesively implement strategies effectively.34 Noteworthy is the finding that communication difficulties among top-level managers with different backgrounds and cognitive skills can negatively affect strategy implementation efforts.35 As a result, a group of top executives with diverse backgrounds may inhibit the process of decision making if it is not effectively managed. In these cases, top management teams may fail to comprehensively examine threats and opportunities, leading to suboptimal decisions. Thus, the CEO must attempt to achieve behavioral integration among the team members.36 Having members with substantive expertise in the firm’s core businesses is also important to a top management team’s effectiveness.37 In a high-technology industry, for example, it may be critical for a firm’s top management team members to have R&D expertise, particularly when growth strategies are being implemented. However, their eventual effect on decisions depends not only on their expertise and the way the team is managed but also on the context in which they make the decisions (the governance structure, incentive compensation, etc.).38 The characteristics of top management teams, and even the personalities of the CEO and other team members, are related to innovation and strategic change.39 For example, more heterogeneous top management teams are positively associated with innovation and strategic change, perhaps in part because heterogeneity may influence the team, or at least some of its members, to think more creatively when making decisions and taking actions.40 Therefore, firms that could benefit by changing their strategies are more likely to make those changes if they have top management teams with diverse backgrounds and expertise. In this regard, evidence suggests that when a new CEO is hired from outside the industry, the probability of strategic change is greater than if the new CEO is from inside the firm or inside the industry.41 Although hiring a new CEO from outside the industry adds diversity to the team, such a change can affect the firm’s relationships with important stakeholders, especially the customers and employees.42 Consistent with A heterogeneous top management team is composed of individuals with different functional backgrounds, experience, and education. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 390 Part 3: Strategic Actions: Strategy Implementation earlier comments, we highlight here the value of transformational leadership to strategic change as the CEO helps the firm match environmental opportunities with its strengths, as indicated by its capabilities and core competencies, as a foundation for selecting and/ or implementing new strategies.43 The CEO and Top Management Team Power We noted in Chapter 10 that the board of directors is an important governance mechanism for monitoring a firm’s strategic direction and for representing stakeholders’ interests, especially shareholders. In fact, higher performance normally is achieved when the board of directors is more directly involved in helping to shape the firm’s strategic direction.44 Boards of directors, however, may find it difficult to direct the decisions and resulting actions of powerful CEOs and top management teams.45 Often, a powerful CEO appoints a number of sympathetic outside members to the board or may have inside board members who are also on the top management team and report to her or him.46 In either case, the CEO may significantly influence actions such as appointments to the board. Thus, the amount of discretion a CEO has in making decisions is related to the board of directors and the decision latitude it provides to the CEO and the remainder of the top management team.47 CEOs and top management team members can also achieve power in other ways. For example, a CEO who also holds the position of chair of the board usually has more power than the CEO who does not.48 Some analysts and corporate “watchdogs” criticize the practice of CEO duality (when the positions of CEO and the chair of the board are held by the same person) because it can lead to poor performance and slow responses to change, partly because the board often reduces its efforts to monitor the CEO and other top management team members when CEO duality exists.49 Although it varies across industries, CEO duality occurs most commonly in larger firms. Increased shareholder activism has brought CEO duality under scrutiny and attack in both U.S. and European firms. In this regard, we noted in Chapter 10 that a number of analysts, regulators, and corporate directors believe that an independent board leadership structure without CEO duality has a net positive effect on the board’s efforts to monitor top-level managers’ decisions and actions, particularly with respect to financial performance. However, CEO duality’s actual effects on firm performance (and particularly financial performance) remain inconclusive.50 Moreover, recent evidence suggests that, at least in a sample of firms in European countries, CEO duality can have a positive effect on performance when a firm encounters a crisis.51 Yet, recent evidence suggests that some firms have begun to separate the CEO and board chair positions. Some of the separations occur because of poor performance but not all. In other cases, the separation is created to allow an experienced board chair to mentor a new CEO (new CEO serves as an apprentice for a period of time).52 Thus, it seems that nuances or situational conditions must be considered when analyzing the outcomes of CEO duality on firm performance. For example, power differentials can occur among top management team members when a family holds an important ownership position even in large public firms. Typically, top managers who are also members of the family may have a special form of power which can cause conflict unless the power can be balanced across the top management team.53 Top management team members and CEOs who have long tenure—on the team and in the organization—have a greater influence on board decisions. In general, long tenure may constrain the breadth of an executive’s knowledge base. Some evidence suggests that with the limited perspectives associated with a restricted knowledge base, long-tenured top executives typically develop fewer alternatives to evaluate when making strategic decisions.54 However, long-tenured managers also may be able to exercise more effective strategic control, thereby obviating the need for board members’ Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 391 Chapter 12: Strategic Leadership involvement because effective strategic control generally leads to higher performance.55 Intriguingly, it may be that “the liabilities of short tenure … appear to exceed the advantages, while the advantages of long tenure—firm-specific human and social capital, knowledge, and power—seem to outweigh the disadvantages of rigidity and maintaining the status quo.”56 Overall then, the relationship between CEO tenure and firm performance is complex and nuanced,57 indicating that a board of directors should develop an effective working relationship with the top management team as part of its efforts to enhance firm performance. Another nuance or situational condition to consider is the case in which a CEO acts as a steward of the firm’s assets. In this instance, holding the dual roles of CEO and board chair facilitates the making of decisions and the taking of actions that benefit stakeholders. The logic here is that the CEO, desiring to be the best possible steward of the firm’s assets, gains efficiency through CEO duality.58 Additionally, because of this person’s positive orientation and actions, extra governance and the coordination costs resulting from an independent board leadership structure become unnecessary.59 In summary, the relative degrees of power held by the board and top management team members should be examined in light of an individual firm’s situation. For example, the abundance of resources in a firm’s external environment and the volatility of that environment may affect the ideal balance of power between the board and the top management team. Moreover, a volatile and uncertain environment may create a situation where a powerful CEO is needed to move quickly. In such an instance, a diverse top management team may create less cohesion among team members, perhaps stalling or even preventing appropriate decisions from being made in a timely manner. In the final analysis, an effective working relationship between the board and the CEO and other top management team members is the foundation through which decisions are made that have the highest probability of best serving stakeholders’ interests.60 12-3 Managerial Succession © Corepics VOF/Shutterstock.com The choice of top-level managers—particularly CEOs—is a critical decision with important implications for the firm’s performance.61 As discussed in Chapter 10, selecting the CEO is one of the boards of directors’ most important responsibilities as it seeks to represent the best interests of a firm’s stakeholders. Many companies use leadership screening systems to identify individuals with strategic leadership potential as well as to determine the criteria individuals should satisfy to be a candidate for the CEO position. The most effective of these screening systems assesses people within the firm and gains valuable information about the capabilities of other companies’ strategic leaders.62 Based on the results of these assessments, training and development programs are provided to various individuals in an attempt to preselect and shape the skills of people with strategic leadership potential. A number of firms have high-quality leadership programs in place, including Procter & Gamble (P&G), GE, IBM, and Dow Chemical. For example, P&G is thought Managers participating in a leadership training program. to have talent throughout the organization Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 392 Part 3: Strategic Actions: Strategy Implementation An internal managerial labor market consists of a firm’s opportunities for managerial positions and the qualified employees within that firm. An external managerial labor market is the collection of managerial career opportunities and the qualified people who are external to the organization in which the opportunities exist. who are trained to accept the next level of leadership responsibility when the time comes. Managing talent on a global basis, P&G seeks to consistently provide leaders at all levels in the firm with meaningful work and significant responsibilities as a means of simultaneously challenging and developing them. The value created by GE’s leadership training programs is suggested by the fact that many companies recruit leadership talent from this firm.63 In spite of the value high-quality leadership training programs can create, there are many companies that have not established training and succession plans for their toplevel managers or for others holding key leadership positions (e.g., department heads, sections heads). With respect to family-owned firms operating in the United States, a recent survey found that only 41 percent of those surveyed have established leadership contingency plans while 49 percent indicated that they “review succession plans (only) when a change in management requires it.”64 The results are similar for family firms on a global basis as a broader survey of family firms in Asia, Europe, and Latin America found that only the most successful companies have a clear understanding of the party responsible for managing the CEO succession process. In 44 percent of the firms surveyed, the board of directors had that responsibility.65 On a global scale, recent evidence suggests that “only 45 percent of executives from 34 countries around the world say their companies have a process for conducting CEO succession planning.”66 Unfortunately, the need for continuity in the use of a firm’s strategic management process is difficult to attain without an effective succession plan and process in place. Organizations select managers and strategic leaders from two types of managerial labor markets—internal and external.67 An internal managerial labor market consists of a firm’s opportunities for managerial positions and the qualified employees within that firm. An external managerial labor market is the collection of managerial career opportunities and the qualified people who are external to the organization in which the opportunities exist. Employees commonly prefer that the internal managerial labor market be used for selection purposes, particularly when the firm is choosing members for its top management team and a new CEO. Evidence suggests that these preferences are often fulfilled. For example, about 66 percent of new CEOs selected in Fortune 500 companies were promoted from within. And, the new CEOs chosen had worked at the firm and average of 12.8 years.68 In the replacement for Steve Jobs at Apple, Tim Cook represents an internal promotion, as discussed in the Opening Case. With respect to the CEO position, several benefits are thought to accrue to a firm using the internal labor market to select a new CEO, one of which is the continuing commitment to the existing vision, mission, and strategies for the firm. Also, because of their experience with the firm and the industry in which it competes, inside CEOs are familiar with company products, markets, technologies, and operating procedures. Another benefit is that choosing a new CEO from within usually results in lower turnover among existing personnel, many of whom possess valuable firm-specific knowledge and skills. In summary, CEOs selected from inside the firm tend to benefit from their 1. clear understanding of the firm’s personnel and their capabilities 2. appreciation of the company’s culture and its associated core values 3. deep knowledge of the firm’s core competencies as well as abilities to develop new ones as appropriate 4. “feel” for what will and will not “work” in the firm69 In spite of the understandable and legitimate reasons to select CEOs from inside the firm, boards of directors sometimes prefer to choose a new CEO from the external Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 393 Chapter 12: Strategic Leadership managerial labor market. Conditions suggesting a potentially appropriate preference to hire from outside include 1. 2. 3. 4. the firm’s need to enhance its ability to innovate the firm’s need to reverse its recent poor performance the fact that the industry in which the firm competes is experiencing rapid growth the need for strategic change70 Overall, the decision to use either the internal or the external managerial labor market to select a firm’s new CEO is one that should be based on expectations; in other words, what does the board of directors want the new CEO and top management team to accomplish? We address this issue in Figure 12.3 by showing how the composition of the top management team and the CEO succession source (managerial labor market) interact to affect strategy. For example, when the top management team is homogeneous (its members have similar functional experiences and educational backgrounds) and a new CEO is selected from inside the firm, the firm’s current strategy is unlikely to change. If the firm is performing well, absolutely and relative to peers, continuing to implement the current strategy may be precisely what the board of directors wants to happen. Alternatively, when a new CEO is selected from outside the firm and the top management team is heterogeneous, the probability is high that strategy will change. This, of course, would be a board’s preference when the firm’s performance is declining, both in absolute terms and relative to rivals. When the new CEO is from inside the firm and a heterogeneous top management team is in place, the strategy may not change, but innovation is likely to continue. An external CEO succession with a homogeneous team creates a more ambiguous situation. Furthermore, outside CEOs who lead moderate change often achieve increases in performance, but high strategic change by outsiders frequently leads to declines in performance.71 In summary, a firm’s board of directors should use the insights shown in Figure 12.3 to inform its decision about which of the two managerial labor markets to use when selecting a new CEO. An interim CEO is commonly appointed when a firm lacks a succession plan or when an emergency occurs requiring an immediate appointment of a new CEO. Companies throughout the world use this approach.72 Interim CEOs are almost always from inside the firm. Figure 12.3 Effects of CEO Succession and Top Management Team Composition on Strategy Managerial Labor Market: CEO Succession Top Management Team Composition Homogeneous Heterogeneous Internal CEO succession External CEO succession Stable strategy Ambiguous: possible change in top management team and strategy Stable strategy with innovation Strategic change Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 394 Part 3: Strategic Actions: Strategy Implementation Helga Esteb/Shutterstock.com Their familiarity with the company’s operations supports their efforts to “maintain order” for a period of time. Indeed, a primary advantage of appointing an interim CEO is that doing so can generate the amount of time the board of directors requires to conduct a thorough search to find the best candidate from the external and internal markets. Not all changes in CEOs are successful. For example, some Japanese firms have experimented with foreign CEOs. The intent is to encourage strategic changes, but foreign-born CEOs must have the capability to gain acceptance from other managers and employees in the firm, or their changes are unlikely to be implemented effectively. Thus, most Japanese firms that hire foreign CEOs search for one who has work experience in Japan so that he or she understands the culture and the typical styles used in Japanese firms.73 Additionally, firms have learned that it is generally important to retain target company executives after the firm is acquired. Without them, integration of the newly acquired firm into the acquiring firm is Sir Howard Stringer, the first foreign CEO of Sony in Japan. commonly more difficult. Moreover, the executives often have valuable knowledge and capabilities that are lost to the acquirer if they depart. Thus, turnover among these executives makes the acquisition less valuable to the acquiring firm.74 Changes in top management positions other than the CEO are also important. These changes often occur because a promising manager is recruited for a better position at another company, as Apple did with Angela Ahrendt who was recruited to manage its retail operations. She received a highly attractive compensation package to join the Apple top management team, as explained in the Opening Case. Adding high performing managers in key positions can help the firm build its capabilities, as Apple has done with Ahrendt. Yet, some managers are asked to depart because of the poor performance of the operations that they oversee.75 In fact, this was the case for Ahrendt’s predecessor who managed Apple’s retail operations. Interestingly, performance was not an issue when Google changed its chief financial officer (CFO) in 2015. Patrick Pichette, Google’s CFO at the time, announced he was retiring after seven years. He wanted to spend more time with his family and achieve more balance between his work and family. He was encouraged to retire by his wife and travel more with her. His replacement was Ruth Porat, who held the CFO position at Morgan Stanley when she accepted the CFO position at Google.76 As we have discussed, managerial succession in the CEO position is an important organizational event. In the Strategic Focus, we further describe the importance of a selection in choosing Mary Barra as CEO of GM. Although an insider, she has made several changes to increase efficiency (e.g., reducing the number of lead engineers Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 395 Chapter 12: Strategic Leadership Strategic Focus Trial by Fire: CEO Succession at General Motors Regardless, Barra paid blue collar workers a larger bonus in 2015 than required by the union contract showing her commitment to GM employees. She also announced plans to distribute about $5 billion in dividends to shareholders by the end of 2016. She also hopes to bolster GM’s stock price by buying back about $5 billion in stock in the same time period. Thus, Mary Barra made history being named as CEO of GM. She came up through the ranks and knew the firm but still faced substantial challenges during her first year in the position. She has weathered the trial by fire and has a vision for the future. JEWEL SAMAD/AFP/Getty Images Late in 2013, Dan Akerson, the CEO of General Motors (GM) during a time of intense scrutiny and criticism of the firm, announced that he was accelerating his retirement. He had planned to retire at the end of 2014, but he learned that his wife had a severe illness, so he decided to retire early. To succeed Akerson, Mary Barra was chosen. She became the first woman CEO of a major automaker in the world. Her selection to become the new CEO for GM was a major celebration for breaking the “glass ceiling” in a formerly male-dominated industry. Her choice represented an inside succession, as she had spent her entire career at GM. Barra had her hands full trying to create change in an archaic structure and corporate governance system. For example, for years GM used three lead engineers for every new product, requiring more time, extra coordination and often significant inefficiencies. Barra announced changes that resulted in only one lead engineer for every new vehicle. As it turned out the inefficient structure was a minor problem relative to what she soon encountered. She learned about a substantial problem with an ignition switch on GM vehicles that evidently caused wrecks, major injuries, and even death. Worse, the company had known about the problem for years but took no action to fix the problem or to acknowledge it. When she learned of the problem, Barra acted swiftly (although not quick enough for some). GM acknowledged the problem and made compensation offers to families of people who were killed in accidents because of the defective ignition switch. Additionally, GM recalled almost 30 million vehicles to fix the problem. But, this was a public relations disaster, and she was called to testify before Congress about the problem. Beyond these actions, Barra is trying to change the culture at the company so that such problems do not occur in the future. Her “trial by fire” has been recognized by GM’s board of directors because she earned $16.2 million in 2014, which is 80 percent more than her predecessor received. Her challenges continue. Barra is trying to increase capital spending by 20 percent to improve existing product lines and to continue developing an enhanced electric vehicle. However, she also has to deal with declining profits in GM’s European and Latin American markets. Mary Barra, CEO of General Motors, introduces the new Chevrolet Volt. Sources: G. Gardner, 2013, Dan Akerson leaves GM stronger than he found it, Detroit Free Press, www.freep.com, December 10; J. Jusko, 2014, CEO Mary Barra is driving culture change at General Motors, IndustryWeek, www.industryweek. com; 2014, Mary Barra General Motors, European CEO, www.europeanceo.com, November 27; B. Vlasic, 2015, General Motors chief pledges to move beyond recalls, New York Times, www.nytimes.com, January 8; C. M. Portillo, 2015, Let’s take a peek at Mary Barra’s 2015 to-do list at General Motors, bizwomen, www. bizjournals.com/bizwomen, January 14; B. Vlasic, 2015, Despite recalls, GM pays workers a big bonus, New York Times, www.nytimes.com, February 4; M. Lewis, 2015, GM’s Barra bets she can deliver where predecessors fell short, New York Times, www.nytimes.com, March 9; R. Wright, 2015, GM disappoints as Europe and South America reverse, Financial Times, www.ft.com, April 23; J. D. Stoll, 2015, GM chief executive Mary Barra earned $16.2 million in 2014, Wall Street Journal, www.wsj. com, April 24. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 396 Part 3: Strategic Actions: Strategy Implementation on a new product from three to one) trying to change the culture. Changing the culture is very important to avoid future problems similar to the ignition switch malfunction. Barra is trying to resolve the ignition switch problem and increase the company’s transparency on such problems. She appears to have been a very good choice as the new CEO of General Motors. Next, we discuss key actions that effective strategic leaders demonstrate while helping their firm use the strategic management process. 12-4 Key Strategic Leadership Actions Certain actions characterize effective strategic leadership; we present the most important ones in Figure 12.4. Many of the actions interact with each other. For example, managing the firm’s resources effectively includes developing human capital and contributes to establishing a strategic direction, fostering an effective culture, exploiting core competencies, using effective and balanced organizational control systems, and establishing ethical practices. The most effective strategic leaders create viable options in making decisions regarding each of the key strategic leadership actions.77 12-4a Determining Strategic Direction Determining strategic direction involves specifying the vision and the strategy or strategies to achieve this vision over time. Determining strategic direction involves specifying the vision and the strategy or strategies to achieve this vision over time.78 The strategic direction is framed within the context of the conditions (i.e., opportunities and threats) that strategic leaders expect their firm to face in roughly the next three to five years. The ideal long-term strategic direction has two parts: a core ideology and an envisioned future. The core ideology motivates employees through the company’s heritage while the envisioned future encourages them to stretch beyond their expectations of accomplishment and requires significant change and progress to be realized.79 The envisioned future serves as a guide to many aspects of a firm’s strategy implementation process, including motivation, leadership, employee empowerment, and organizational design. Figure 12.4 Exercise of Effective Strategic Leadership Effective Strategic Leadership Determining Strategic Direction Effectively Managing the Firm’s Resource Portfolio Establishing Balanced Organizational Controls Sustaining an Effective Organizational Culture Emphasizing Ethical Practices Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 12: Strategic Leadership The strategic direction could include a host of actions such as entering new international markets and developing a set of new suppliers to add to the firm’s value chain.80 Sometimes though, the work of strategic leaders does not result in selecting a strategy that helps a firm reach the vision. This can happen when top management team members and, certainly, the CEO are too committed to the status quo. While the firm’s strategic direction remains rather stable across time, actions taken to implement strategies to achieve the vision should be somewhat fluid, largely so the firm can deal with unexpected opportunities and threats that surface in the external environment. An inability to adjust strategies as appropriate is often caused by an aversion to what decision makers conclude are risky actions. An aversion to risky actions is common in firms that have performed well in the past and for CEOs who have been in their jobs for extended periods of time.81 Research also suggests that some CEOs are erratic or even ambivalent in their choices of strategic direction, especially when their competitive environment is turbulent and it is difficult to identify the best strategy.82 Of course, these erratic or ambivalent behaviors are unlikely to produce high performance and may lead to CEO turnover. Interestingly, research has found that incentive compensation in the form of stock options encourages talented executives to select the best strategies and thus achieve the highest performance. However, the same incentives used with less talented executives produce lower performance.83 In contrast to risk-averse CEOs, charismatic ones may foster stakeholders’ commitment to a new vision and strategic direction. Nonetheless, even when being guided by a charismatic CEO, it is important for the firm not to lose sight of its strengths and weaknesses when making changes required by a new strategic direction. The most effective charismatic CEO leads a firm in ways that are consistent with its culture and with the actions permitted by its capabilities and core competencies.84 Finally, being ambicultural can facilitate efforts to determine the firm’s strategic direction and select and use strategies to reach it. Being ambicultural means that strategic leaders are committed to identifying the best organizational activities to take particularly when implementing strategies, regardless of their cultural origin.85 Ambicultural actions help the firm succeed in the short term as a foundation for reaching its vision in the longer term.86 12-4b Effectively Managing the Firm’s Resource Portfolio Effectively managing the firm’s portfolio of resources is another critical strategic leadership action. The firm’s resources are categorized as financial capital, human capital, social capital, and organizational capital (including organizational culture).87 Clearly, financial capital is critical to organizational success; strategic leaders understand this reality.88 However, the most effective strategic leaders recognize the equivalent importance of managing each remaining type of resource as well as managing the integration of resources (e.g., using financial capital to provide training opportunities to the firm’s human capital). Most importantly, effective strategic leaders manage the firm’s resource portfolio by organizing the resources into capabilities, structuring the firm to facilitate using those capabilities, and choosing strategies through which the capabilities can be successfully leveraged to create value for customers.89 Exploiting and maintaining core competencies and developing and retaining the firm’s human and social capital are actions taken to reach these important objectives. Exploiting and Maintaining Core Competencies Examined in Chapters 1 and 3, core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals. Typically, core competencies relate to skills within organizational functions, such as manufacturing, finance, marketing, and research and development. Strategic leaders must verify that the firm’s core competencies Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 397 398 Part 3: Strategic Actions: Strategy Implementation are understood when selecting strategies and then emphasized when implementing those strategies. This suggests, for example, that with respect to their strategies, Apple emphasizes its design competence, while Netflix recognizes and concentrates on its competence of being able to deliver physical, digital, and original content.90 Core competencies are developed over time as firms learn from the results of the competitive actions and responses taken during the course of competing with rivals. On the basis of what they learn, firms continuously reshape their capabilities for the purpose of verifying that they are, indeed, the path through which core competencies are being developed and used to establish one or more competitive advantages. Dan Akerson became CEO of GM in July 2009, a time when the firm required a transformation in order to survive as the foundation for then being able to compete successfully against its global rivals. One of the first decisions Akerson made was to allocate resources for the purpose of building new capabilities in technology development and in marketing, especially in customer service. Akerson helped to turnaround the company, bringing it out of bankruptcy and trying to enrich its core competencies. Now, as explained in the Strategic Focus, Mary Barra is changing the culture and trying to increase the efficiency of GM. In addition, she is trying to gain the trust of human capital (e.g., by paying special bonuses to blue collar workers) thereby building her internal social capital. Strong human capital and social capital are critical for GM to develop and maintain strong core competencies.As we discuss next, human capital and social capital are critical to a firm’s success. This is the case for GM as the firm strives to continuously improve its performance. One reason for human capital’s importance is that it is the resource through which core competencies are developed and used. Developing Human Capital and Social Capital Human capital refers to the knowledge and skills of a firm’s entire workforce. From the perspective of human capital, employees are viewed as a capital resource requiring continuous investment. Human capital refers to the knowledge and skills of a firm’s entire workforce. From the perspective of human capital, employees are viewed as a capital resource requiring continuous investment.91 Bringing talented human capital into the firm and then developing that capital has the potential to yield positive outcomes. A key reason for this is that individuals’ knowledge and skills are proving to be critical to the success of many global industries (e.g., automobile manufacturing) as well as industries within countries (e.g., leather and shoe manufacturing in Italy). This fact suggests that “as the dynamics of competition accelerate, people are perhaps the only truly sustainable source of competitive advantage.”92 In all types of organizations—large and small, new and established, and so forth—human capital’s increasing importance suggests a significant role for the firm’s human resource management function.93 As one of a firm’s support functions on which firms rely to create value (see Chapter 3), human resource management practices facilitate selecting and especially implementing the firm’s strategies.94 Effective training and development programs increase the probability that some of the firm’s human capital will become effective strategic leaders. Increasingly, the link between effective programs and firm success is becoming stronger because the knowledge gained by participating in these programs is integral to forming and then sustaining a firm’s competitive advantage.95 In addition to building human capital’s knowledge and skills, these programs inculcate a common set of core values and present a systematic view of the organization, thus promoting its vision and helping form an effective organizational culture. Effective training and development programs also contribute positively to the firm’s efforts to form core competencies.96 Furthermore, the programs help strategic leaders improve skills that are critical to completing other tasks associated with effective strategic leadership, such as determining the firm’s strategic direction, exploiting and maintaining Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 399 Chapter 12: Strategic Leadership the firm’s core competencies, and developing an organizational culture that supports ethical practices. Thus, building human capital is vital to the effective execution of strategic leadership. When investments in human capital (such as providing high-quality training and development programs) are successful, the outcome is a workforce capable of learning continuously. This is an important outcome in that continuous learning and leveraging the firm’s expanding knowledge base are linked with strategic success.97 Learning also can preclude errors. Strategic leaders may learn more from failure than success because they sometimes make the wrong attributions for the successes.98 For example, the effectiveness of certain approaches and knowledge can be context specific. Thus, some “best practices” may not work well in all situations. We know that using teams to make decisions can be effective, but sometimes it is better for leaders to make decisions alone, especially when the decisions must be made and implemented quickly (e.g., in crisis situations).99 As such, effective strategic leaders recognize the importance of learning from success and from failure when helping their firm use the strategic management process. To ensure more effective use of the strategic management process, firms have begun to create more diversity among top management team leaders.100 When facing challenging conditions, firms may decide to lay off some of their human capital, a decision that can result in a significant loss of knowledge. Research shows that moderate-sized layoffs may improve firm performance primarily in the short run, but large layoffs produce stronger performance downturns in firms because of the loss of human capital.101 Although it is also not uncommon for restructuring firms to reduce their investments in training and development programs, restructuring may actually be an important time to increase investments in these programs. The reason for this is that restructuring firms have less slack and cannot absorb as many errors; moreover, the employees who remain after layoffs may find themselves in positions without all the skills or knowledge they need to create value through their work. Viewing employees as a resource to be maximized rather than as a cost to be minimized facilitates successful implementation of a firm’s strategies, as does the strategic leader’s ability to approach layoffs in a manner that employees believe is fair and equitable. A critical issue for employees is the fairness in the layoffs and how they are treated in their jobs, especially relative to their peers.102 Social capital involves relationships inside and outside the firm that help in efforts to accomplish tasks and create value for stakeholders.103 Social capital is a critical asset given that employees must cooperate with one another and others, including suppliers and customers, in order to complete their work. In multinational organizations, employees often must cooperate across country boundaries on activities such as R&D to achieve performance objectives (e.g., developing new products).104 External social capital is increasingly critical to firm success in that few if any companies possess all of the resources needed to successfully compete against their rivals. Firms can use cooperative strategies, such as strategic alliances (see Chapter 9), to develop social capital. Social capital can be built in strategic alliances as firms share complementary resources. Resource sharing must be effectively managed to ensure that the partner trusts the firm and is willing to share its resources.105 Social capital created this way yields many benefits. For example, firms with strong social capital are able to be more ambidextrous; that is, they can develop or have access to multiple capabilities, providing them with the flexibility to take advantage of opportunities and to respond to threats.106 Research evidence suggests that the success of many types of firms may partially depend on social capital. Large multinational firms often must establish alliances in order to enter new foreign markets; entrepreneurial firms often must establish alliances to gain access to resources, venture capital, or other types of resources (e.g., special expertise Social capital involves relationships inside and outside the firm that help in efforts to accomplish tasks and create value for stakeholders. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 400 Part 3: Strategic Actions: Strategy Implementation Strategic Focus All the Ways You Can Fail! of risk. Investors at Standard Charter should hope it is true, as they now need that expertise and a leader who makes good decisions. The problems experienced by each of the firms were due to poor executive decisions. In the case of NBC, top managers failed to provide appropriate oversight to ensure the credibility of its news. Also, poor personnel decisions were made. In the case of Nokia, substantial conservatism led to a very poor product decision. In that case, the company fell from market leader to no longer being in existence. Finally, Standard Charter leaders made poor decisions, failing to manage its risks. Additionally, it made perhaps unethical decisions for which the firm was fined. Finally, inadequate technologies led to additional failures. Bobby Bank/Getty Images NBC News experienced several major problems in 2014. Likely, the biggest problem was the suspension of popular nightly news anchor, Brian Williams, for embellishing his role in several past news stories. When this came to light, concerns about his credibility and thus NBC News credibility caused the top executives to take action. In addition, NBC’s former top morning show, the Today Show, fell in the ratings. Because of this, Jamie Horowitz was hired from ESPN to make major changes. However, Horowitz and the staff on the show had major differences of opinion, especially with the manner in which Horowitz dealt with staff. These high profile clashes led top executives to let Horowitz go. As a result, Andrew Lack, former president of NBC News, was hired to replace Patricia Fili-Krushel as chair of the NBC Universal News Group. Time will tell if Lack can restore stability, credibility, and high ratings to NBC. Nokia is an almost textbook case on how to fail. In 2009, Nokia was the market leader in the global smartphone market, but by 2014 it was not listed as a rival in the market. The Nokia brand had disappeared. Before the launch of the Apple iPhone, Nokia had access to the touch screen technology, and Nokia technology specialists recommended integrating it into its smartphones. But, the top leadership at Nokia rejected this idea because Nokia was doing well and using this technology entailed risk. Of course, rivals Samsung and Apple implemented the technology, and those two firms along with others took the smartphone market from Nokia. Nokia’s leaders made absolutely horrible decisions and failed because of it. The Standard Charter bank’s profits declined in 2014 by 37 percent relative to the profit achieved in 2013. Most people attribute the bank’s performance problems to its weak capital position and its major exposures to risk in Asian markets. The CEO, Peter Sands, was asked to resign. Investors and others had lost confidence in his ability to manage the bank effectively. Essentially, he made minor changes (e.g., reducing costs) but avoided large changes likely needed to turn around the performance of the bank. To replace Sands as CEO, the bank chose William T. Winters, a former head of JPMorgan Chase’s investment bank. Standard Charter has experienced many problems in recent years. For example, it has experienced losses on bad loans in increasing amounts. In 2012, it paid fines of $667 million because of charges that it had transferred billions of dollars to Iran and other such countries in violation of the OFAC sanctions. In 2014, it paid $300 million to settle claims that its computer system failed to identify suspicious transactions with high-risk clients. Winters is said to be a very savvy manager Andrew Lack hired to become the chair of the NBC Universal News Group. Sources: J. Bean, 2014, Bye Nokia—A failure of management over leadership, Jonobean, jonobean.com, November 12: P. J. Davies, 2015, How to give Standard Chartered breathing room it needs, Wall Street Journal, www.wsj.com, February 26; J. Anderson & C. Bray, 2015, Standard Charter overhauls leadership, New York Times, www.nytimes.com, February 26; J. Flint, 2015, NBC News bringing in new leadership, after high-profile stumbles, Wall Street Journal, www.wsj.com, March 3; C. Bray, 2015, Standard Charter profit fell 37% in 2014, New York Times, www.nytimes.com, March 4. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 12: Strategic Leadership that the entrepreneurial firm cannot afford to maintain in-house).107 However, a firm’s culture affects its ability to retain quality human capital and maintain strong internal social capital. As explained in the Strategic Focus, NBC News, Nokia, and Standard Charter all experienced failures because of poor top managers’ decisions. NBC News made poor decisions in the way it managed its human capital, and because of this, it lost the confidence of its audience (loss of social capital). Nokia was overly conservative. Its top executives made monumental mistakes. Standard Charter was losing the confidence of its investors with very poor decisions (including perhaps some unethical ones). 12-4c Sustaining an Effective Organizational Culture In Chapter 1, we defined organizational culture as the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business. Because organizational culture influences how the firm conducts its business and helps regulate and control employees’ behavior, it can be a source of competitive advantage.108 Given that each firm’s culture is unique, it is possible that a vibrant organizational culture is an increasingly important source of differentiation for firms to emphasize when pursuing strategic competitiveness and above-average returns. Thus, shaping the context within which the firm formulates and implements its strategies—that is, shaping the organizational culture—is another key strategic leadership action.109 Entrepreneurial Mind-Set Especially in large organizations, an organizational culture often encourages (or discourages) strategic leaders and those with whom they work from pursuing (or not pursuing) entrepreneurial opportunities. (We define and discuss entrepreneurial opportunities in Chapter 13.) This is the case in both for-profit and not-for-profit organizations.110 This issue is important because entrepreneurial opportunities are a vital source of growth and innovation.111 Therefore, a key action for strategic leaders to take is to encourage and promote innovation by pursuing entrepreneurial opportunities.112 One way to encourage innovation is to invest in opportunities as real options—that is, invest in an opportunity in order to provide the potential option of taking advantage of the opportunity at some point in the future.113 For example, a firm might buy a piece of land to have the option to build on it at some time in the future should the company need more space and should that location increase in value to the company. Oil companies acquire land leases with an option to drill for oil. Firms might enter strategic alliances for similar reasons. In this instance, a firm might form an alliance to have the option of acquiring the partner later or of building a stronger relationship with it (e.g., developing a new joint venture).114 In Chapter 13, we describe how firms of all sizes use strategic entrepreneurship to pursue entrepreneurial opportunities as a means of earning above-average returns. Companies are more likely to achieve the success they desire by using strategic entrepreneurship when their employees have an entrepreneurial mind-set.115 Five dimensions characterize a firm’s entrepreneurial mind-set: autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness.116 In combination, these dimensions influence the actions a firm takes to be innovative when using the strategic management process. Autonomy, the first of an entrepreneurial orientation’s five dimensions, allows employees to take actions that are free of organizational constraints and encourages them to do so. The second dimension, innovativeness, “reflects a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, or technological processes.”117 Cultures with a tendency toward innovativeness Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 401 402 Part 3: Strategic Actions: Strategy Implementation encourage employees to think beyond existing knowledge, technologies, and parameters to find creative ways to add value. Risk taking reflects a willingness by employees and their firm to accept measured levels of risks when pursuing entrepreneurial opportunities. The fourth dimension of an entrepreneurial orientation, proactiveness, describes a firm’s ability to be a market leader rather than a follower. Proactive organizational cultures constantly use processes to anticipate future market needs and to satisfy them before competitors learn how to do so. Finally, competitive aggressiveness is a firm’s propensity to take actions that allow it to consistently and substantially outperform its rivals.118 Changing the Organizational Culture and Restructuring Changing a firm’s organizational culture is more difficult than maintaining it; however, effective strategic leaders recognize when change is needed. Incremental changes to the firm’s culture typically are used to implement strategies.119 More significant and sometimes even radical changes to organizational culture support selecting strategies that differ from those the firm has implemented historically. Regardless of the reasons for change, shaping and reinforcing a new culture requires effective communication and problem solving, along with selecting the right people (those who have the values desired for the organization), engaging in effective performance appraisals (establishing goals that support the new core values and measuring individuals’ progress toward reaching them), and using appropriate reward systems (rewarding the desired behaviors that reflect the new core values).120 Evidence suggests that cultural changes succeed only when the firm’s CEO, other key top management team members, and middle-level managers actively support them.121 To effect change, middle-level managers in particular need to be highly disciplined to energize the culture and foster alignment with the firm’s vision and mission.122 In addition, managers must be sensitive to the effects of other changes on organizational culture. For example, downsizings can negatively affect an organization’s culture, especially if they are not implemented in accordance with the dominant organizational values.123 Mary Barra is trying to change the General Motors corporate culture as explained in the earlier Strategic Focus. In so doing, she appears to be sensitive to having the right people in key managerial positions and in supporting the firm’s employees as demonstrated by giving the blue collar employees bonuses even though the firm had to pay for injuries caused by the ignition switch failure and endure the high costs of a large recall of vehicles to fix the problem. 12-4d Emphasizing Ethical Practices The effectiveness of processes used to implement the firm’s strategies increases when they are based on ethical practices. Ethical companies encourage and enable people at all levels to act ethically when taking actions to implement strategies. In turn, ethical practices and the judgment on which they are based create “social capital” in the organization, increasing the “goodwill available to individuals and groups” in the organization.124 Alternatively, when unethical practices evolve in an organization, they may become acceptable to many managers and employees.125 Once deemed acceptable, individuals are more likely to engage in unethical practices to meet their goals when current efforts to meet them are insufficient.126 To properly influence employees’ judgment and behavior, ethical practices must shape the firm’s decision-making process and be an integral part of organizational culture. In fact, a values-based culture is the most effective means of ensuring that employees comply with the firm’s ethical standards. However, developing such a culture requires constant nurturing and support in corporations located in countries throughout the world.127 As explained in Chapter 10, some strategic leaders and managers may occasionally act opportunistically, making decisions that are in their own best interests. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 12: Strategic Leadership This tends to happen when firms have lax expectations in place for individuals to follow regarding ethical behavior. In other words, individuals acting opportunistically take advantage of their positions, making decisions that benefit themselves to the detriment of the firm’s stakeholders.128 Sometimes executives take such actions due to their own greed and hubris.129 However, when there is evidence of executive wrongdoing, such as having to restate the financial earnings, stockholders and other investors often react very negatively. In fact, it is not uncommon for new CEOs to be hired when wrongdoing comes to light.130 Strategic leaders as well as others in the organization are most likely to integrate ethical values into their decisions when the company has explicit ethics codes, the codes are integrated into the business through extensive ethics training, and shareholders expect ethical behavior.131 Thus, establishing and enforcing a meaningful code of ethics is an important action to take to encourage ethical decision making as a foundation for using the strategic management process. Strategic leaders can take several actions to develop and support an ethical organizational culture. Examples of these actions include 1. establishing and communicating specific goals to describe the firm’s ethical standards (e.g., developing and disseminating a code of conduct) 2. continuously revising and updating the code of conduct, based on inputs from people throughout the firm and from other stakeholders 3. disseminating the code of conduct to all stakeholders to inform them of the firm’s ethical standards and practices 4. developing and implementing methods and procedures to use in achieving the firm’s ethical standards (e.g., using internal auditing practices that are consistent with the standards) 5. creating and using explicit reward systems that recognize acts of courage (e.g., rewarding those who use proper channels and procedures to report observed wrongdoings) 6. creating a work environment in which all people are treated with dignity132 The effectiveness of these actions increases when they are taken simultaneously and thereby are mutually supportive. When strategic leaders and others throughout the firm fail to take actions such as these—perhaps because an ethical culture has not been created—problems are likely to occur. 12-4e Establishing Balanced Organizational Controls Organizational controls (discussed in Chapter 11) have long been viewed as an important part of the strategic management process particularly the parts related to implementation (see Figure 1.1). Controls are necessary to help ensure that firms achieve their desired outcomes. Defined as the “formal, information-based … procedures used by managers to maintain or alter patterns in organizational activities,” controls help strategic leaders build credibility, demonstrate the value of strategies to the firm’s stakeholders, and promote and support strategic change.133 Most critically, controls provide the parameters for implementing strategies as well as the corrective actions to be taken when implementation-related adjustments are required. For example, in light of an insider-trading scandal, KPMG LLP reviewed its training and monitoring programs. The firm’s existing safeguards “include training for employees, a whistleblower system, and monitoring of the personal investments of partners and managers.” KPMG also moved to safeguard its reputation, even though it was not implicated in the scandal.134 In this chapter, we focus on two organizational controls—strategic and financial— that were introduced in Chapter 11. Strategic leaders are responsible for helping the firm develop and properly use these two types of controls. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 403 404 Part 3: Strategic Actions: Strategy Implementation As we explained in Chapter 11, financial control focuses on short-term financial outcomes. In contrast, strategic control focuses on the content of strategic actions rather than their outcomes. Some strategic actions can be correct but still result in poor financial outcomes because of external conditions, such as an economic recession, unexpected domestic or foreign government actions, or natural disasters. Therefore, emphasizing financial controls often produces more short-term and risk-averse decisions because financial outcomes may be caused by events beyond leaders and managers’ direct control. Alternatively, strategic control encourages lower-level managers to make decisions that incorporate moderate and acceptable levels of risk because leaders and managers throughout the firm share the responsibility for the outcomes of those decisions and actions resulting from them. The challenge for strategic leaders is to balance the use of strategic and financial controls for the purpose of supporting efforts to improve the firm’s performance. The balanced scorecard is a tool strategic leaders use to achieve the sought after balance. The Balanced Scorecard The balanced scorecard is a tool firms use to determine if they are achieving an appropriate balance when using strategic and financial controls as a means of positively influencing performance.135 This tool is most appropriate to use when evaluating business-level strategies; however, it can also be used with the other strategies firms implement (e.g., corporate, international, and cooperative). The underlying premise of the balanced scorecard is that firms jeopardize their future performance when financial controls are emphasized at the expense of strategic controls.136 This occurs because financial controls provide feedback about outcomes achieved from past actions but do not communicate the drivers of future performance. Thus, an overemphasis on financial controls may promote behavior that sacrifices the firm’s longterm, value-creating potential for short-term performance gains. In effect, managers can make self-serving decisions when they focus on the shortterm. Research shows that decisions balancing short-term goals with long-term goals generally lead to higher performance.137 An appropriate balance of strategic controls and financial controls, rather than an overemphasis on either, allows firms to achieve higher levels of performance. Four perspectives are integrated to form the balanced scorecard: ■ financial (concerned with growth, profitability, and risk from the shareholders’ perspective) ■ customer (concerned with the amount of value customers perceive was created by the firm’s products) ■ internal business processes (with a focus on the priorities for various business processes that create customer and shareholder satisfaction) ■ learning and growth (concerned with the firm’s effort to create a climate that supports change, innovation, and growth) The balanced scorecard is a tool firms use to determine if they are achieving an appropriate balance when using strategic and financial controls as a means of positively influencing performance. Thus, using the balanced scorecard finds the firm seeking to understand how it responds to shareholders (financial perspective), how customers view it (customer perspective), what processes to emphasize to successfully use its competitive advantage (internal perspective), and what it can do to improve its performance in order to grow (learning and growth perspective).138 Generally speaking, firms tend to emphasize strategic controls when assessing their performance relative to the learning and growth perspective, whereas the tendency is to emphasize financial controls when assessing performance in terms of the financial perspective. Firms use different criteria to measure their standing relative to the balanced scorecard’s four perspectives. We show sample criteria in Figure 12.5. The firm should select the Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 405 Chapter 12: Strategic Leadership Figure 12.5 Strategic Controls and Financial Controls in a Balanced Scorecard Framework Perspectives Criteria Financial • Cash flow • Return on equity • Return on assets Customer • Assessment of ability to anticipate customers’ needs • Effectiveness of customer service practices • Percentage of repeat business • Quality of communications with customers Internal Business Processes • Asset utilization improvements • Improvements in employee morale • Changes in turnover rates Learning and Growth • Improvements in innovation ability • Number of new products compared to competitors • Increases in employees’ skills number of criteria that will allow it to have both a strategic and financial understanding of its performance without becoming immersed in too many details.139 Strategic leaders play an important role in determining a proper balance between strategic and financial controls, whether they are in single-business firms or large diversified firms. A proper balance between controls is important, in that “wealth creation for organizations where strategic leadership is exercised is possible because these leaders make appropriate investments for future viability (through strategic control), while maintaining an appropriate level of financial stability in the present (through financial control).”140 In fact, most corporate restructuring is designed to refocus the firm on its core businesses, thereby allowing top executives to reestablish strategic control of their separate business units.141 Successfully using strategic control frequently is integrated with appropriate autonomy for the various subunits so that they can gain a competitive advantage in their respective markets.142 Strategic control can be used to promote the sharing of both tangible and intangible resources among interdependent businesses within a firm’s portfolio. In addition, the autonomy provided allows the flexibility necessary to take advantage of specific marketplace opportunities. As a result, strategic leadership promotes simultaneous use of strategic control and autonomy. As we have explained in this chapter, strategic leaders are critical to a firm’s ability to successfully use all parts of the strategic management process, including strategic entrepreneurship, which is the final topic included in the “strategy” part of this text’s Analysis-Strategy-Performance model. We turn our attention to this topic in Chapter 13. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 406 Part 3: Strategic Actions: Strategy Implementation SUMMARY ■ Effective strategic leadership is a prerequisite to successfully using the strategic management process. Strategic leadership entails the ability to anticipate events, envision possibilities, maintain flexibility, and empower others to create strategic change. ■ Top-level managers are an important resource for firms to develop and exploit competitive advantages. In addition, when they and their work are valuable, rare, imperfectly imitable, and nonsubstitutable, strategic leaders are also a source of competitive advantage. ■ The top management team is composed of key managers who play a critical role in selecting and implementing the firm’s strategies. Generally, they are officers of the corporation and/or members of the board of directors. ■ The top management team’s characteristics, a firm’s strategies, and the firm’s performance are all interrelated. For example, a top management team with significant marketing and research and development (R&D) knowledge positively contributes to the firm’s use of a growth strategy. Overall, having diverse skills increases the effectiveness of most top management teams. ■ Typically, performance improves when the board of directors and the CEO are involved in shaping a firm’s strategic direction. However, when the CEO has a great deal of power, the board may be less involved in decisions about strategy formulation and implementation. By appointing people to the board and simultaneously serving as CEO and chair of the board, CEOs have increased power. ■ In managerial succession, strategic leaders are selected from either the internal or the external managerial labor market. Because of their effect on firm performance, the selection of strategic leaders has implications for a firm’s effectiveness. There are a variety of reasons that companies select the firm’s strategic leaders from either internal or external sources. In most instances, the internal market is used to select the CEO, but the number of outsiders chosen is increasing. Outsiders often are selected to initiate major changes in strategy. ■ Effective strategic leadership has five key leadership actions: determining the firm’s strategic direction, effectively managing the firm’s resource portfolio (including exploiting and maintaining core competencies and managing human capital and social capital), sustaining an effective organizational culture, emphasizing ethical practices, and establishing balanced organizational controls. ■ Strategic leaders must develop the firm’s strategic direction, typically working with the board of directors to do so. The strategic direction specifies the image and character the firm wants to develop over time. To form the strategic direction, strategic leaders evaluate the conditions (e.g., opportunities and threats in the external environment) they expect their firm to face over the next three to five years. ■ Strategic leaders must ensure that their firm exploits its core competencies, which are used to produce and deliver products that create value for customers, when implementing its strategies. In related diversified and large firms in particular, core competencies are exploited by sharing them across units and products. ■ The ability to manage the firm’s resource portfolio and the processes used to effectively implement its strategy are critical elements of strategic leadership. Managing the resource portfolio includes integrating resources to create capabilities and leveraging those capabilities through strategies to build competitive advantages. Human capital and social capital are perhaps the most important resources. ■ As a part of managing resources, strategic leaders must develop a firm’s human capital. Effective strategic leaders view human capital as a resource to be maximized—not as a cost to be minimized. Such leaders develop and use programs designed to train current and future strategic leaders to build the skills needed to nurture the rest of the firm’s human capital. ■ Effective strategic leaders build and maintain internal and external social capital. Internal social capital promotes cooperation and coordination within and across units in the firm. External social capital provides access to resources from external parties that the firm needs to compete effectively. ■ Shaping the firm’s culture is a central task of effective strategic leadership. An appropriate organizational culture encourages the development of an entrepreneurial mind-set among employees and an ability to change the culture as necessary. ■ In ethical organizations, employees are...
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Running Head: STERLING CONSTRUCTION COMPANY, INC.’S ORGANIZATIONAL
STRUCTURE OUTLINE

Sterling Construction Company, Inc.'s Organizational Structure OUTLINE
Name
Institutional Affiliation

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STERLING CONSTRUCTION COMPANY, INC.’S ORGANIZATIONAL STRUCTURE
OUTLINE
Sterling Construction Company, Inc.'s Organizational Structure


The organizational structure of Sterling Construction Company, Inc. is a functional
structure.



At the top of the hierarchy is Joseph Cutillo (CEO and Director) and board of directors.



The second in the hierarchy are Vice Presidents.



Below the VP’s are departmental managers, supervisors, and then employees.



In Sterling’s functional structure, the company is divided into small hierarchical groups
based on areas of specialty (such as finance, marketing, and operations).



Wadsworth (Executive VP and COO) who also acts as the President of Texas Sterling
Construction (affiliated company) is responsible for the daily operations or internal
affairs of the company and reports directly to the CEO.



Sterling’s functional structure is desirable and effective because all employees in the
company regardless of their position in the hierarchy can share knowledge and skills.

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STERLING CONSTRUCTION COMPANY, INC.’S ORGANIZATIONAL STRUCTURE
OUTLINE

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References
Ahmady, G. A., Mehrpour, M., & Nikooravesh...

gbgb (21182)
Purdue University

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