Rare is the business leader who can articulate and instill a long-term vision and manage the day-to-day operations with the requisite obsession for detail. A leader who combines both styles is what these authors call a “strategic leader,” someone who, more than any other type of leader is best equipped to increase shareholder value. Leaders and potential leaders will find out what it takes when they read this article.
The business world has few leaders who have transformed their companies and the industries in which they operate. Two of the few are Jorgen Vig Knudstorp and Clive Beddoes.
When Jorgen Vig Knudstorp took over as the CEO of LEGO in 2004, things were looking bleak for this well-established, family-owned business. Over the next 5 years, he turned the company around by working on a new vision, building better relationships with employees and customers, empowering employees to make decisions at all levels of the hierarchy, and, at the same time introducing tight fiscal controls.1
Clive Beddoes did the same at Westjet. During his 10-year reign, he transformed a small Calgary start-up into one of the most profitable airlines in North America, with over 55 destinations in Canada, Mexico and the United States. Westjet began with just 3 aircraft, flying mostly between cities in western Canada. Beddoes expanded into eastern Canada in 2000, at a time when the air travel industry was dominated by Air Canada. As a result of Beddoes’ leadership, Westjet now has 36 percent of the Canadian domestic market, compared to Air Canada’s 57 percent. Westjet has maintained healthy growth and profitability during the years and has weathered a number of major economic downturns brought about by events such as the September 11th attacks and a global recession.
Knudstorp and Beddoes exercised a style of leadership called strategic leadership. They enhanced the long-term viability of their companies through the articulation of a clear vision and, at the same time, maintained a satisfactory level of short-term financial stability. And they accomplished this while maintaining relatively smooth day-to-day operations.
Strategic leadership is different than two other popular leadership styles, managerial and visionary. Managerial leaders are primarily immersed in the day-to-day activities of the organization and lack an appropriate long-term vision for growth and change. For reasons we will touch upon later, this is the most common form of leadership, especially in large, diversified organizations. Conversely, visionary leaders are primarily future-oriented, proactive and risk-taking. These leaders base their decisions and actions on their beliefs and values, and try to share their understanding of a desired vision with others in the organization.
In this article, we discuss the shortcomings of these two leadership styles and argue that sustained wealth creation, continuous growth and expansion, and a healthy financial status in the short term are more likely to occur under strategic leadership. We also argue that the demise of companies such as GM and K-Mart and the constant decline in shareholder value at these companies are, in fact, a result of leaders being too focused on day-to-day activities, to the detriment of other facets of good business practice. In other words, demise by managerial leadership.
If we accept the widely held assumption that leadership does matter, and that the function of a business leader is to increase shareholder value, it is our belief that strategic leadership is the best alternative for creating shareholder value.
Strategic leadership defined
While there are many different definitions of strategic leadership, we define it as the ability to influence others in your organization to voluntarily make day-to-day decisions that lead to the organization’s long-term growth and survival, and maintain its short-term financial health.2
The most important aspects of strategic leadership are shared values and a clear vision, both of which will enable and allow employees to make decisions with minimal formal monitoring or control mechanisms. With this accomplished, a leader will have more time and a greater capacity to focus on other, ad hoc issues, such as adapting the vision to a changing business environment. In addition, strategic leadership will incorporate visionary and managerial leadership by simultaneously allowing for risk-taking and rationality.
An examination of the characteristics of managerial and visionary leadership styles (presented in Table 1) will help understand strategic leadership better.
In short, managerial leaders need order and stability, and to be able to control the details of the work being performed. Mostly, these leaders have no personal attachment towards setting and using goals as motivational tools, and they may have difficulty showing empathy when dealing with employees. They will attempt to gain control through systems of rewards, punishment, and other forms of coercion. These leader/managers will be focused on the cost-benefit analysis of everyday actions and will therefore be mostly linked to the short-term financial health of the organization, as reflected in its day-to-day stock price. It is important to note that short-term gains are often a result of a least-cost approach, which might not be good for long-term viability.
Robert Milton, who was the President and CEO of Air Canada and ACE3 for approximately 10 years, is an example of excellent managerial leadership. In 2003 and during his time in charge of Air Canada, he implemented a controversial restructuring program which paved the way for the eventual sale of Air Canada’s loyalty program, its regional carrier, Jazz, and its maintenance division.
As head of ACE, Milton sold what some believe were the most profitable arms of Air Canada, only to return the proceeds to ACE shareholders while the airline itself was in need of investment for future growth.4 All this left Air Canada vulnerable to unexpected changes in a highly competitive industry, during a time that it also lost market share to its national rival, Westjet (see Figure 1).
Figure 1 Air Canada versus Westjet: Domestic market share
While managerial leaders are focused on the past, visionary leaders are oriented to the future. Their main tool for achieving goals is their ability to influence followers, influence they use to create a shared vision and an understanding of what is to be achieved. These leaders rely heavily on their own values, and they invest in people and their network of relationships in order to ensure the viability of the organization. They articulate a compelling vision, and then empower and energize followers to move towards it.5 The formal structures of the organization will create few constraints for these leaders, as they make decisions and shape their vision based on their values, beliefs, and sense of identity.
According to some business scholars, the ability to envision an exciting future and create a commitment to achieving that vision is an attribute that differentiates leaders and non-leaders [or managers].6 This may be an accurate assessment of the visionary leadership style compared to the managerial style. However, there is a major problem with most visionary leaders, namely that they tend to ignore the short-term stability and day-to-day functioning of the organization.
This shortcoming makes visionary leadership extremely risky. For this reason, most organizations tend to turn to managerial leaders, a less risky and therefore more attractive – although not more successful – alternative.
It is logical to assume that all organizations desire both short-term financial stability and long-term growth and viability. Achieving this goal calls for a combination of both the managerial and visionary leadership styles. There are two options for doing so: First, an organization could have two leaders, one a visionary and one a managerial leader, with the visionary leader in charge. Having two leaders like this requires that they trust each other implicitly and are willing to listen to each other.
Some successful combinations have been Tom Watson, Jr. and his CFO Al Williams, who subsequently became one of IBM’s executive vice presidents and then president before he retired in 1966. Tom Watson Jr. credited Al Williams with helping him to grow IBM into a multi-billion dollar company – an outstanding performance at the time. At Disney, Michael Eisner and his first president/COO, Frank Wells, were another such combination of leaders. When these leaders took over in 1984, they quickly doubled profits in only two years and then went on to transform Disney into a multi-billion dollar empire. The partnership – and period of creative initiatives associated with it – ended in 1994, with the tragic death of Wells in a helicopter crash.
As these examples indicate, some organizations can have both types of leaders working together. However, we believe that a better solution – and the second option for combining the managerial and visionary styles – is to find a strategic leader, someone from that species of leaders that can accept and manage the paradox inherent in managerial and visionary leadership – that is, one of those rare leaders who can combine managerial and visionary leadership and make that combination work.
Some scholars and practitioners believe that visionary and managerial leadership styles occupy two ends of a single continuum and thus cannot reside in one person. We disagree and suggest that, while these are two different mindsets, there are a few individuals that can well handle the paradoxical nature of managerial and visionary leadership.
The strategic leader defined
We consider managerial and visionary leadership as two separate continuums (see Figure2) and believe that individuals who are strategic leaders are more than the sum of these two styles. Strategic leaders envision a future with the present circumstances in mind and pay attention to short-term financial stability, with an understanding of what is to be achieved in the long term. As the late Steven J. Ross, the former chairman and CEO of Time Warner put it, these kind of leaders come to work, dream for an hour, and then do something about those dreams for the next several hours.7
Figure 2 Leadership styles based on dual continuum thinking8
In terms of performance and wealth creation, it is our belief that one strategic leader can deliver better results than the previously mentioned dual leadership.
Strategic leaders encourage innovation in the face of changing environments and contexts, seeking innovation and change in moving forward. On the other hand, managerial leaders are likely to be fully occupied with the present order and stability. At the same time, strategic leaders are mindful of how the organization is functioning and, therefore, are not likely to fall into the trap of arrogant risk-taking, as might visionary leaders, who can destroy an organization’s wealth even faster than a managerial leader.
The presence of a strategic leader leads to a number of outcomes for an organization that are eventually linked to share values in both the short and long term.
- These leaders tend to pay particular attention to building their organization’s resources, capabilities and competencies in order to gain appropriate, sustained competitive advantages. Strategic leaders know that focusing on the short term and forgetting about core competencies in the face of changing circumstances and a turbulent environment are likely to lead to organizational failure.
- Strategic leaders view human capital as an important factor in innovation and the creation of core competencies, and they expend considerable effort sustaining the health of this resource (human capital). While managerial leaders focus on the exploitation of current resources and capabilities, strategic leaders combine this focus with a search for new resources, capabilities, and core competencies, which will, when needed, be exploited to create wealth. This dual focus on exploitation and exploration, often referred to as ambidexterity, is a prerequisite for long-term organizational success.9 We believe that while managerial and visionary leaders are busy exploiting and exploring, strategic leaders exploit and explore in a way that maintains organizational financial stability in the short term, while building a foundation for long-term viability.
- Organizations led by strategic leaders are more successful in learning, both at the individual and group levels. Studies have shown that both the managerial and visionary aspects of leadership are essential for organization-wide learning initiatives to succeed. While a strategic leader’s articulation of a vision helps alter the institutionalized learning of an organization, his or her managerial approach helps spread and reinforce current learning initiatives.10 This combination is necessary, since the organization always needs to learn new things and at the same time, to institutionalize newly discovered avenues of learning. Organizational learning and the creation and sharing of knowledge within an organization are important prerequisites for long-term viability and are better practiced by an organization led by a strategic leader.
The ultimate goal of a business is to create, capture and distribute wealth in a manner that is sustainable. We believe that each form of leadership will lead to a different outcome in terms of wealth creation. As illustrated in Figure 3,11 managerial leadership will maintain the current level of wealth in the near future, or in the best-case scenario, create short-term gains.
However, based on managerial leaders’ approach to innovation and change, it is highly unlikely that this trend can be maintained for long periods. . As seen in Figure 3, wealth is slowly lost in the long-term. The slow decline of companies such as Air Canada and General Motors can be blamed on their lack of a long-term vision, and their lack of attention to innovation and the development of core competencies.
Figure 3 The Impact of Different Leader Style on Wealth Creation
Visionary leaders, on the other hand, are focused mainly on the future and the direction that organization should take in that future. Such a focus is very risky, and since there is likely to be much less adherence to any type of financial control or structures, the odds of failure are extremely high. In most cases, visionary leadership results in below-normal performance faster than managerial leadership. This is because some visionary leaders lack or even reject the support of managerial leaders, making it difficult for them to keep the company in good financial health. Although these leaders do have successful stints, there is always the high probability of eventual failure. A good example is the decline of Apple during Steve Jobs’ first term as CEO, where, we believe, he exercised only visionary leadership.
Although a combination of visionary and managerial leaders can yield positive results in the short and long run, there are numerous practical obstacles that can prevent such an outcome.
As illustrated in Figure 3, a strategic leader is more likely to create synergy by envisioning a desired future and growth strategy, while influencing employees to voluntarily make day-to-day decisions that will help maintain the financial stability of the organization, as well as its future viability. This was evident at GE during the years of Jack Welch, who totally transformed the company into a consistent wealth-creating, capturing and distributing entity.
Strategic leadership constrained
It is unfortunate that, in spite of all the benefits discussed above, many organizations still implement structures or routines that constrain and discourage strategic leadership. If strategic leadership are to emerge, an organization must offer them autonomy and protection. They need to be free to envision a future as they see it and implement growth strategies without interference. They need to be protected from the managerial leaders in the organization, who might try to impose rigid financial controls at the expense of strategic controls.
This interference is more evident in large, diversified organizations with many divisions, and which often fall into the trap of imposing highly bureaucratic controls as a result of financial restrictions, the political context and the short-term demands of the markets. Government-owned or funded organizations, for example, would constrain strategic leaders. The very fact that leadership in most democratic regimes is changed after limited terms is an incentive to use tight financial controls in order to deliver short-term results. High levels of diversification, budget deficits, political issues, and accountability for even the smallest amount of money are other factors that constrain strategic leadership in most diversified organizations.
While we acknowledge that there are many difficulties associated with finding and developing strategic leaders, we nevertheless believe that they are worth the effort. There is no safer alternative for an organization that is pursuing sustained wealth creation for its stakeholders. Creativity, innovation, competency development and continuous learning are all vital elements for growth, and a strategic leader can initiate and facilitate the development of these elements without compromising the financial health of the organization.
The fact that they are hard to find and even harder to train makes these individuals valuable and rare for their organizations.12 An organization must try and remove as many obstacles as possible in order for these leaders to emerge in leader-development and succession programs.
Much of what we do in organizations today is, consciously or not, directed at curtailing or even eliminating ambitious thinking and innovation for some short-term gains. Managerial leaders need to be reminded that without a long-term vision, the most they’ll achieve is probably a normal return for a limited time. They must be reminded that the long-term prosperity of their organizations depends on having strategic leaders at the helm.
Finally, while we acknowledge that organizations need managerial and visionary leaders, we submit that the person in charge should be a strategic leader.
Table 1: Strategic, Visionary, and Managerial Leadership