• • Academy ol Managemenf Executive. 2001. Vol 15. No

Creating wealth inorganizations: The role of

strategic leadership

W. Glenn Rowe

Executive OverviewWealth creation in entrepreneurial and established orgcrnfzafion.i is a complex,

challenging task in today's global and technologically advancing businessenvironment. Strategic leadership enhances the wealth-creation process inenfrepreneuriai and established organizations, and leads to above-average returns.On the other hand, managerial leadership will likely lead to average returns at best,but is most likely to achieve below-average returns and destroy wealth. Organizationsled by visionaries who are not properly supported by strong managerial leadershipmay destroy wealth even more quickly than organizations led by managerial leaders.This article defines strategic leadership, differentiates among the concepts ofstrategic, visionary, and managerial leadership, and examines the differential linksbetween the three types of leadership and wealth creation. When organizationsrestore strategic control and allow the development of a critical mass of strategicleaders, these leaders will be a source of above-average returns. The result will bewealth creation for the employees, customers, suppliers, and shareholders ofentrepreneurial and established organizations.

Without effective strategic leadership, theprobability that a firm can achieve superior oreven satisfactory performance when confront-ing the challenges of the global economy willbe greatly reduced.

^R. Duane Ireland and Michael A. Hitt'

As the entrepreneurial CEO of Starbucks,Howard Schultz's strategic choices have com-pletely changed the gourmet coffee market inwhich Starbucks operates.^ When he boughtStarbucks from its original owners in 1987. therewere six stores and 100 employees. By 1996, Star-bucks had grown to 1,300 stores and 25,000 em-ployees, and was operating in North Americaand Japan. By the end of fiscal year 1999, Star-bucks had 2,498 stores (363 were licensed storesand the rest company-owned) and 35,620 employ-ees, with operations expanded into Canada andthe United Kingdom. Sales and profits grew bymore than 50 percent per year for six consecutiveyears, and stock price rose tenfold from 1992 to1997. These growth rates have slowed since 1997,

but are still impressive, with sales and profitsincreasing 29 percent and 50 percent, respec-tively, from 1998 to 1999, Schultz's philosophiesexemplify those of a strategic leader. His numberone priority is to take care of his employees,since they are responsible for communicatingpassion to Starbucks' customers. He believesthat if his employees do this well, Starbucks willaccomplish its mission of educating consumerseverywhere about fine coffee and creating anatmosphere that will draw people into theirstores and "give them a sense of wonder andromance in the midst of a harried life."^ In addi-tion, the firm will provide long-term growth inshareholder value. From 1992, the year Starbuckswent public, to 1998, its market value added(MVA) grew from $0.41 billion to $4.26 billion—anincrease in shareholder wealth of $3.85 billion.'*Such growth exemplifies a firm with a strategicleader.

Strategic leadership is the ability to influence oth-ers to voluntarily make day-to-day decisions thatenhance the long-ierm .viability of the organization.

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82 Academy of Managemenl Executive February

while at the same time maintaining its short-termfinancial stability. Visionary leadership is future-oriented, concerned with risk-taking, and visionaryleaders are not dependent on their organizations fortheir sense of who they are. Under visionary leaders,organizational control is maintained through social-ization and the sharing of, and compliance with, acommonly held set of norms, values, and shared be-liefs. Managerial leadership involves stability andorder, and the preservation of the existing order.Managerial leaders are more comfortable handlingday-to-day activities, and are short-term oriented.(See Table 1.)

The stunning MVAs produced by Microsoft ($420billion), GE ($360 billion) and Coca-Cola ($169 billion)from their inception until the end of 1998 suggest that

Bill Gates^ and Jack Welch are strategic leaders, andthat the late Robert Goizueta'^ was a strategic leader.I am not arguing that because they had stunningMVAs they are strategic leaders. I hope to demon-strate that they had stunning MVAs because theywere strategic leaders. The continued destruction ofshareholder wealth by organizations such as Gen-eral Motors (MVA a negative $17.9 billion at the endof 1998) and K-Mart (MVA a negative $1 billion at theend of 1998) suggests a lack of strategic leadershipand, at best, the presence of only managerial lead-ership. The lack of strategic leadership and the prev-alence of managerial leadership is one of the mostimportant issues facing organizations today. Unlessboard members, CEOs, and top management teamsunderstand this issue, and the differences among

Table 1Strategic, Visionary, and Managerial Leadership

Strategic Leaders

V isynergistic combination of managerial and visionary leadershipy lemphasis on ethical behavior and value-based decisions, oversee operating (day-to-day) and strategic (long-term) responsibilitiesV formulate and implement strategies for immediate impact and preservation of long-term goals to enhance organizational

survival, growth, and long-term viabilityy have strong, positive expectations of the performance they expect from their superiors, peers, subordinates, and themselvesy 'use strategic controls and financial controls, with emphasis on strategic controlsy use, and interchange, tacit and explicit knowledge on individual and organizational levelsV use linear and nonlinear thinking patternsy believe in strategic choice, that is, their choices make a difference in their organizations and environment

Visionary Leaders

are proactive, shape ideas, change the way people thinkabout what is desirable, possible, and necessarywork to develop choices, fresh approaches to longstanding problems; work Irom high-risk positionsare concerned wilh ideas, relate to people in intuitiveand empathetic waysieel separate from their environment: work in, but do notbelong to, organizations; sense of who they are does notdepend on workinfluence attitudes and opinions of others within theorganizationconcerned with insuring future ol organization,especially through development and management ofpeoplemore embedded in complexity, ambiguity andiniormation overload; engage in multifunctional,integrative tasksknow less than their functional area expertsmore likely to make decisions based on valuesmore willing to invest in innovation, human capital, andcreating and maintaining an eflective culture to ensurelong-teim viabilityfocus on tacit knowledge and develop strategies ascommunal forms of tacit knowledge that promoteenactment of a visionutilize nonlinear thinkingbelieve in strategic choice, that is, their choices make adifference in their organizations and environment

W* Managerial Leaders

v' are reactive; adopt passive attitudes towards goals; goals ariseout of necessities, not desires and dreams; goals based on past

^ view work as an enabling process involving some combination ofideas and people interacting to establish strategies

J relate to people according to their roles in Ihe decision-makingprocess

, see themselves as conservators and regulators oi existing order;sense of who they are depends on their role in organization

, influence actions and decisions of those with whom they work

, involved in situations and contexts characteristic of day-to dayactivities

> concerned with, and more comfortable in, functional areas ofresponsibilities

, expert in their functional area, less likely to make value-based decisions' engage in, and support, short-term, least-cost behavior to

enhance financial performance figures

' focus on managing the exchange and combination of explicitknowledge and ensuring compliance to standard operatingprocedures

'•' utilize linear thinkingV believe in determinism, that is, the choices they make are

determined by their internal and external environments

2001 Rowe 83

managerial, visionary, and strategic leaders, theproblem will persist.

Leadership is a very broad topic, and has asomewhat tarnished reputation in some constitu-encies.^ However, some experts believe that lead-ers make a difference. Franco Bernabe, the CEO ofEni, Italy's large integrated energy company, stat-ed; "And I realized that leaders could make a dif-ference. They could transform situations thatseemed impossible." And researchers Sayan Chat-terjee, Michael Lubatkin, and William Schulze ar-gue: "Our field's theory, research, and pedagogyare based on the intuition that management mat-ters: firms, through calculated actions, can protecttheir earnings from market forces in ways that arevaluable to investors."^ I believe that the type ofleadership that can do this best is strategic lead-ership. Ireland and Hitt'° define strategic leader-ship as the "ability to anticipate, envision, main-tain flexibility, think strategically, and work withothers to initiate changes that will create a viablefuture for the organization." This article presents adifferent definition of strategic leadership. In ad-dition, it differentiates among the concepts of man-agerial leadership, visionary leadership, and stra-tegic leadership. Further, some constraints onstrategic leadership are discussed. Finally, the im-pact of managerial, visionary, and strategic lead-ership on wealth creation is presented.

Strategic Leadership Defined

The Greek word strategos means a general in com-mand of an army. Strategy^the psychological andbehavioral skills with which a general functions—came to mean the art of the general. By 450 B.C., thedefinition had evolved to include managerialskills, such as administration, leadership, oratory,and power. And by 330 B.C., the word meant theability to employ forces to defeat opposing forcesand to develop a unified system of global gover-nance." In this article, strategic leadership is de-fined as the ability to influence others to voluntar-ily make day-to-day decisions that enhance thelong-term viability of the organization, whilemaintaining its short-term financial stability.

This definition is different from Ireland and Hitt'sin that it explicitly includes the concept of volun-tary decision-making, and focuses on the presentas well as tho future. Managers and employeesmake decisions every day as they interact witheach other and stakeholders, especially customers,suppliers, and the communities in which they op-erate. Are these decisions in accord with the stra-tegic direction of the organization? Will they en-hance the future viability of the organization as

well as short-term financial stability? Relying onmanagers and employees to voluntarily make de-cisions that benefit the organization means thatsenior management will not have to expend asmuch effort on monitoring and controlling employ-ees, and will have more capacity to examine whatthe organization needs to do in both the short andlong terms. On the other hand, if managers andemployees do know the strategic direction of theorganization, they may inadvertently make deci-sions that damage the organization. In addition, ifthey do know the strategic direction and want to dodamage to the organization in some small way,they may voluntarily make decisions that hurt theorganization. This requires a greater effort at mon-itoring and controlling and less effort on whatneeds to be done for short- and long-term viability.Influencing employees to voluntarily make deci-sions that enhance the organization is the mostimportant part of strategic leadership. Tichy writesthat "when you can't control, dictate or monitor, theonly thing you can do is trust. And that meansleaders have to be sure that the people they aretrusting have values that are going to elicit thedecisions and actions that they

fnfluencing employees to voluntarilymake decisions that enhance theorganization is the most important part ofstrategic leadership.

The definition of strategic leadership presentedabove presumes an ability to influence subordi-nates, peers, and superiors. It also presumes thatthe leader understands the emergent strategy pro-cess that some authors consider more importantthan the intended strategic planning process fororganizational performance.'^ The decisions vol-untarily made and the actions voluntarily taken bymanagers and employees on a day-to-day basiseventually determine what strategy emerges. Stra-tegic leaders understand and use this process toensure the future viability of their organizations.Strategic leadership presumes a shared vision ofwhat an organization is to be, GO that the day-to-day decision-making, or emergent strategy pro-cess, is consistent with this vision. It presumesagreement among corporate and divisional seniormanagers on the opportunities that can be takenadvantage of, and the threats that can be neutral-ized, given the resources and capabilities of theorganization.^^ Strategic leadership presumes vi-sionary leadership on the part of those with a will-ingness to take risks. It presupposes managerial

84 of Management Executive February

leadership on the part of those with a rational wayof looking at the world. Strategic leadership pre-sumes that visionary leadership and managerialleadership can coexist, and that strategic leader-ship synergistically combines the two. It pre-sumes a belief in the ability of strategic leaders tochange their organizations so that the environmentin which their organizations operate will alsochange.'^ In the next two sections, the concepts ofmanagerial and visionary leadership are dis-cussed. A major portion of this discussion is basedon a classic article by Zaleznik.'

Managerial Leadership

Most managers exercise managerial leadership.For several reasons, organizations implicitly andexplicitly train their people to be managerialleaders. Diversified business organizations aremore likely to do this. Governments train theirpeople to be managerial leaders even more thando business organizations, the result of publicaccountability for every penny spent, the diver-sification of government, the political context ofreelections, and, for most governments, an enor-mous debt load.'' These factors lead to theimposition of a financial control system thatenhances the use of managerial leadershipand curtails strategic and visionary leadership.There are people who can exercise strategic andvisionary leadership in such organizations, butthe nature of the organizations discourages theexercise of such leadership.

Managerial leaders adopt impersonal, passiveattitudes toward goals. Goals arise out of necessi-ties rather than desires and dreams, are based onwhere the organization has come from, and aredeeply embedded in the history and culture of theorganization.'^ Jack Welch and the late RobertoGoizueta argued that there has to be insensitivityto the past.'^ Managerial leaders are sensitive tothe past.

Managerial leaders are sensitive to thepast.

Managerial leaders view work as a process thatenables some combination of ideas and people tointeract to establish strategies and make deci-sions. In this process, they negotiate, bargain, anduse rewards, punishment, or other forms of coer-cion. Managerial leaders relate to people accord-ing to their roles in the decision-making process.They relate to how things get done. Managerial

leaders may lack empathy. They may seek outinvolvement with others, but will maintain a lowlevel of emotional involvement in these relation-ships. Managerial leaders need order, not thechaos potentially inherent in human relations.They see themselves as regulators and conserva-tors of the current state of their organization's af-fairs, and personally identify with this existingorder. Strengthening and perpetuating their exist-ing institutions enhances the self-worth of thesemanagers. For example, if people feel that they aremembers of an institution and contributing to thatinstitution's well-being, they may consider that amission in life has been fulfilled and may feelrewarded for having measured up to an ideal. Thisreward may far surpass material rewards and ful-fill desires for personal credibility that is achievedby identifying with existing organizations. If this istrue, managerial leaders in institutions in whichthey have devoted their careers may feel as if theyare being ripped apart after the organizations arerestructured.20

Managerial leaders influence only the actionsand decisions of those with whom they work. 'They are involved in situations and contexts char-acteristic of day-to-day activities'^ and are con-cerned with, and more comfortable in, functionalareas of responsibilities. They possess more exper-tise about their functional areas.^^ Managerialleaders may make decisions that are not subject tovalue-based constraints.^'' This does not mean thatthey are not moral, ethical people, but that, asmanagers, they may not include values in theirdecision-making because of such pressures as be-ing financially controlled. These leaders engagein, and support, short-term, least-cost behavior ac-tivities, to enhance financial performance figuresin the short term. ^ They focus on managing theexchange and combination of explicit knowledgeand on ensuring compliance to standard operatingprocedures.^^ They use a linear thought process.Finally, managerial leaders believe in deter-minism—what they do is determined by their or-ganization's internal and external environments.^''Managerial leadership is similar in some ways totransactional leadership.^^

It needs to be emphasized that being a mana-gerial leader is not bad and that organizationsneed managerial leadership. However, it is pos-sible that too many organizations are led bymanagerial leaders and that managerial leadersdo not create wealth. They will at best maintainwealth that has been created, and may even be asource of wealth-destruction in the long term ifthey are the predominant leadership type in theirorganization.

2001 Rowe 85

Visionary Leadership

Visionary leadership is being touted as the curefor many of the ills that affect organizations intoday's fast-changing environment.^^ Unfortu-nately, visionary leaders are not readily embracedby organizations, and, unless they are supportedby managerial leaders, may not be appropriate formosf organizations. Being visionary and having anorganizational tendency to use visionary leaders isrisky. Ultimately, visionary leadership requirespower to influence people's thoughts and actions.This means putting power in the hands of oneperson, which entails risk on several dimensions.There is the risk of equating power with the abilityto achieve immediate results. There is the risk oflosing self-control in the desire to obtain power.And there is the risk that the presence of visionaryleaders may undermine the development of man-agerial leaders who become anxious in the rela-tive disorder that visionary leaders tend to gener-ate. Visionary leaders have attitudes toward goalsthat are opposite to those of managerial leaders.They are relatively more proactive, shaping ideasas opposed to reacting to them. Visionary leadersexert influence in a way that determines the direc-tion an organization will take by evoking imagesand expectations, altering moods, and establish-ing specific desires and objectives. Their influencechanges the way people think about what is pos-sible, desirable, and necessary. Visionary leadersstrive to develop choices and fresh approaches tolong-standing problems. They create excitement inwork. Visionary leaders work from high-risk posi-tions, and seek out risky ventures, especially whenthe rewards are high. They are concerned withideas and relate to people in intuitive and empa-thetic ways. Their attention is on what events anddecisions mean to people. With visionaries incharge, human relations are more turbulent, in-tense, and sometimes even disorganized. This mayintensify individual motivation and produce posi-tive or negative unanticipated outcomes. Visionaryleaders feel separate from their environment, andsometimes from other people. They work in, but donot belong to, organizations. Their sense of whothey are does not depend on their work, roles, ormemberships, but on their created sense of iden-tity. This identity may result from major events intheir lives.^^

Visionary leaders influence the opinions and at-titudes of others within the organization.^' Theyare concerned with insuring the future of an orga-nization through the development and manage-ment of people.^2 Visionaries embed themselves incomplexity, ambiguity, and information overload.

Their task is multifunctional and they have a muchmore complex integrative task.^^ Because of thisthey come to know less than their functional areaexperts about each of the several areas for whichthey are responsible.^'*

Visionaries are more likely to make decisionsthat are based on valuos^^ and more willing toinvest in innovation, human capital, and creatingand maintaining an effective culture to ensurelong-term viability.-^^ Visionary leaders focus ontacit knowledge and develop strategies as commu-nal forms of tacit knowledge that promote the en-actment of a vision.3' They utilize nonlinear think-ing and believe in strategic choice—that theirchoices make a difference in what their organiza-tions do and these differences affect their organi-zations' environment.^^

Visionary leadership is future-oriented and con-cerned with risk-taking, and visionary leaders arenot dependent on their organizations for theirsense of who they are. Under these leaders, orga-nizational control is maintained through socializa-tion and the sharing of, and compliance with, acommonly held set of norms, values, and sharedbeliefs. In some senses, visionary leadership issimilar to the inspirational component of transfor-mational leadership.39 Organizations need vision-ary leadership to ensure their long-term viability;however, organizations that are led by visionarieswithout the constraining influence of managerialleaders are probably more in danger of failing in

Visionary leadership is future-orientedand concerned with risk-taking, andvisionary leaders are not dependent ontheir organizations for their sense oi whothey are,

the short term than those led by managerial lead-ers. Visionary leaders are willing to risk all and indoing so may create wealth. However, visionariesmay also invest more in their vision than the re-turns warrant, and, without the constraining influ-ence of managerial leaders, could destroy wealth.

One solution for organizations is a combinationof managerial leaders and visionaries to lead or-ganizations, with visionaries having more influ-ence than managerial leaders.''^ A better solutionis to have an individual who can exercise bothvisionary and managerial leaderahip. But Zaleznikargues that leaders and managers are different,and that no one person can exercise both types ofleadership simultaneously.'" He suggests that vi-sionary leaders and managerial leaders are at op-

86 Academy of Management Executive February '

DIAVisionary

<rNeither Managerial

LeadershipLeadership

FIGURE 1Zaleznik's Single Continuum of Visionary and Managerial Leadership

posite ends of a continuum, and that trying to beboth causes the individual to end up in the centerand able to exercise neither style of leadership.(See Figure 1.)

This is not an unreasonable perspective whenwe consider the following. Managerial leaderswant stability and order, and to preserve the exist-ing order, whereas visionary leaders want creativ-ity, innovation, and chaos, and to change the ex-isting order. If an organization is in a transitionphase driven by a vision of what it should be tomaintain and enhance long-term viability, it isvery hard on those who are managerial leaders.The organization they have worked so hard tobuild and which is part of their identity is beingripped apart and put together as something thatthey are very uncomfortable with because they donot know what it is going to be. Under visionaryleaders, this will be more the norm than the sta-bility and order experienced under managerialleadership. In fact, the environment being createdby today's technological and global forces is one ofchange and complexity. Kotter suggests that orga-nizations need leaders to cope with change, andmanagers to cope with complexify.•'^

I believe, contrary to Zaleznik, that visionary andmanagerial leadership are two separate con-structs. Having said this, it is necessary to reiterateand emphasize that both visionary and manage-rial leadership are vital for long-term viability andshort-term financial stability. As I said earlier, vi-sionary leadership without managerial leadershipmay be more detrimental to creating organiza-tional wealth in the short term** than having onlymanagerial leadership. Having visionary andmanagerial leadership can be accomplished byhaving the two different organizational mindsetscoexist, but with visionary being more influentialthan managerial; however, an organization will bemore viable in the long term and better able tomaintain its financial stability in the short term, ifstrategic leadership is prevalent in that organiza-tion. To conceptualize strategic leadership, I con-tend that visionary leadership and managerialleadership must be viewed as separate contin-uums. (See Figure 2.) This depicts strategic leader-ship as a synergistic combination of visionary andmanagerial leadership that is not possible underZaleznik's thinking.'*^

Strategic Leadership

There are three categories of people—the per-son who goes into the office, puts his feet upon his desk, and dreams for twelve hours; theperson who arrives at 5 A.M. and works for IBhours, never once stopping to dream; and theperson who puts his feet up, dreams for onehour, then does something about fhosedreams.

—Steven J. Ross, former chairmanand co-CEO of Time Warner''^

As Steven Ross suggested, strategic leaders aredifferent from managerial and visionary leaders.They dream and do something about their dreams.They are a synergistic combination of managerialleaders who never stop to dream, and visionaryleaders, who only dream. A strategic leader willprobably create more wealth than a combinationof a visionary leader and a managerial leader.^^Managerial leaders emphasize the organization'sshort-term financial stability. Consequently, theymaintain the existing order and do not invest ininnovations that will change the organization andenhance organizational wealth in the long term.Visionary leaders emphasize the long-term viabil-ity of the organization. They want to change and beinnovative to create wealth in the long term. Un-fortunately, if not subject to some constraining in-fluence, they may make an investment that willdestroy organizational wealth in the short term. Assuggested earlier, combining these two leadershiptypes may develop a team of two or more individ-uals who may provide strategic leadership and

A strategic leader will probably createmore wealth than a combination of avisionary leader and a managerialleader.

create wealth for the organizdtion. However, oneindividual who can synergistically combine thequalities of a manager and a visionary will en-hance long-term viability and maintain short-termfinancial stability. These strategic leadership

2001 ' Howe 87'

High "C Visionary leader

Visionaryleadershipcapability

Low

Strategic leader

Neithervisionary normanagerial

Managerial leader

Low High

Managerial leadership capability

FIGURE 2A Dual Continuum of Managerial, Visionary, and Strategic Leadership

types will create the most wealth for their organi-zations. (See Figure 3.)

Strategic leaders emphasize ethical behavior.'*''They are very rare in most organizations.''^ Theyoversee day-to-day operating and long-term stra-tegic responsibilities.-*^ Strategic leaders formulateand implement strategies for immediate impactand the preservation of long-term goals to enhanceorganizational growth, survival, and viability.They use strategic controls and financial controls,with emphasis on the former. o Strategic leadershave strong, positive expectations of the perfor-mance that they expect from their superiors, peers,subordinates, and themselves. They utilize and in-terchange tacit and explicit knowledge on both theindividual and organizational levels,^' and theyuse both linear and nonlinear thinking patterns.Finally, they believe in strategic choice—that theirchoices make a difference in what their organiza-tions do, and that this will affect their organiza-tions' internal and external environments.^^

Strategic leaders have strong, positiveexpectations of the performance that theyexpect from their superiors, peers,subordinates, and themselves.

Strategic leaders manage the paradox createdby mnnngerinl anc\ vip;ionary leadership models.They use metaphors, analogies, and models to al-low the juxtaposition of apparently contradictoryconcepts by defining boundaries of mutual coex-

istence. They guide the organizational knowledge-creation process by encouraging the organization'scapability to combine individual, group, and orga-nizational tacit and explicit knowledge to generatethe organizational and technological innovations^^required for enhanced future performance.

Organizations need to let a critical mass of man-agers develop the skills and abilities required toexercise strategic leadership.^'' This means thatmanagerial leaders need to bear with those whoare visionary leaders and strategic leaders as theycreate chaos, destroy order, take risks, and maybedestroy a part of the organization that is importantto them. This does not mean throwing out mana-gerial leadership; it means including visionaryand managerial leadership to enhance long-termviability and short-term financial stability. In fact,strategic leaders need to understand what mana-gerial and visionary leaders bring to the organiza-tion, and utilize the skills, knowledge, and abilitiesof both.

Constraints on Strategic Leadership

Unfortunately, many organizations constrain stra-tegic leadership. One of them is government,^^ anorganization where the wealth-creation processneeds to be understood. Governments have a man-date to create wealth in terms of social value. Thismeans that governments are responsible for theproductive and allocative efficiency of economiesas a whole, the level of employment achieved intheir jurisdictions, and the achievement of a better

Academy ol Management Executive February

standard of living from year to year. ^ Certainly,we do attribute some credit or some blame to ourgovernment if our state, province, or country's stan-dard of living increases or decreases. This impliesthat we use our standard of living as a measure ofwealth creation.

Looking at governments with knowledge thatcomes from studying business organizations, itseems that some of the principles that affectbusinesses also affect governments. Govern-ments compete for resources just as other orga-nizations do. Governments are sometimesthought of as monopolies with the power to im-pose their will on the people. But governmentscompete for human resources with other organi-zations, with other governments for tax dollarsfrom their constituents, and with other govern-ments for new businesses to locate in their juris-dictions.^'' Unfortunately, some governments alsogrow large and become diversified. This highlevel of diversification, plus the massive debtloads of many state, provincial, and nationalgovernments, along with public accountabilityfor every penny spent and the political context ofan election every four years, forces governmentsto use only financial controls and to curtail theuse of strategic controls.

This leads to managerial control and forcesthose with the potential to be strategic leaders todo one of three things: exercise managerial lead-ership only, leave the organization, or fight withinthe system, which uses the strategic energy theyshould be expending on leading and managingtheir part of the organization. People who work forgovernment do have the capability to be visionaryand strategic leaders, but the nature of govern-ment precludes them from exercising such leader-ship.

People who work for government do havethe capability to be visionary andstrategic leaders, but the nature ofgovernment precludes them fromexercising such leadership,

A sociologist who served in a Canadian provin-cial government has this to say about what strate-gic and visionary leaders are up against in gov-ernment: ^

The organization of the Newfoundland andLabrador public service is very bureaucraticand hierarchical. There is a place for every-one and everyone should know his or her

place. Communications go up the hierarchyfrom officer to manager to director to assis-tant deputy minister to deputy minister, andpossibly to the minister, and down the hierar-chy in a reverse chain. Much gets lost or re-interpreted along the way, and it is often aslow process. Not surprisingly, the public andthe business community who deal with gov-ernment as "clients," often complain about"red tape" and "bureaucracy."

Such a system is not well suited to dealingwith change. To the extent that change has tooccur —and able senior officials recognizethat it does^they prefer that it take place at amodest pace under their control and direc-tion. They are naturally skeptical about andresistant to premiers, ministers, and otheragencies that want to initiate a lot of chanqeon a number of fronts within a short period oftime.

This system also tends to select out or moldcertain personality types for career success.The premium is on reliability, steadfastness,and loyalty to the service rather than on cre-ativity, innovation, and critical thinking. Peo-ple who do not fit the mold either stagnate,leave, or are forced out of service. Creativeindividuals are usually damned with faintpraise in epithets such as "He's a smart guybut he can't manage people" or "She's gotsome good ideas but she's a bit of a loosecannon."

Is strategic leadership possible in this type oforganization? The answer is a qualified yes,given two very hard-to-impose conditions. Theseconditions are autonomy and protection.^^ If acorporate management team can give a divisionmanagement team some autonomy, coupledwith protection from stringent bureaucratic andfinancial controls, strategic leadership may bepossible. Unfortunately, as this smaller part ofan organization becomes more successful andachieves visibility because it is taking risks andbruising the bureaucracy, it is much more diffi-cult to maintain this autonomy and protect itfrom the managerial leadership of the organiza-tion. This is especially true when that manage-rial leadership tends to control financially andbureaucratically because the organization is un-relatedly diversified, has a massive debt load,operates in a political context, and must be pub-licly accountable for every dollar it spends.

2001 Rowe 89

ANP

Wealthcreation NP

BNP

Visionaryleadershipcapability

Low High

Managerial leadership cctpability .•

Notes: The double-headed arrows represent Ihe diiferentml effects of type of leadership on wealth creation. ANP refers to above-normal performance, NP to normal performance, and BNP to below-normal performance.

FIGURE 3Wealth Creation and Managerial, Visionary, and Strategic Leadership

Wealth Creation and Managerial, Visionary, andStrategic Leadership

Wealth creation and managerial leadership

Managerial leaders will at best maintain the levelol wealth that has been created in the past, butover time may cause wealth to be slowly de-stroyed. This means that the stewards (board oidirectors, CEO, top management team) oi produc-tive assets are only creating the wealth that theowners oi those assets expected them to create.^'^In Figure 3, this is illustrated by the top oi thearrow next to the managerial leaders ellipse. Un-iortunately, in managerially led organizations,only iinancial controls are exercised. This leads toa stifling oi creativity and innovation and to be-low-normal periormance in the long term. Thereare creative, innovative people in such organiza-tions, but it is harder ior them to be creative andinnovative. This lower level of performance is il-lustrated by the bottom oi the arrow next to themanagerial leader ellipse in Figure 3.

This article has already suggested that unrelat-edly diversified organizations will be manageri-ally led and will achieve, at best, average returnsand only normal periormance. Uniortunately, otherbusiness organizations, such as rate-regulatedmonopolies and relatedly diversified organiza-tions, may achieve only normal or below-normalperiormance. Rate-regulated monopolies tend todevelop managerial leadership because they are

financially controlled by their publicly appointedregulators, whose sole purpose is to ensure a pre-scribed rate of return to keep revenues at an ap-propriate level to satisiy consumers. Some relat-edly diversified organizations develop onlymanagerial leadership or even bad leadership{low on both the managerial and visionary contin-uums). Examples oi such companies are Kmart;Apple Computer during Stephen Job's absence;USX - U.S. Steel Group; and Digital EquipmentCorp. From 1988 to 1997, Kmart's market valueadded (MVA) dropped from $0,837 billion to ($ .257)billion—a destruction oi $3,094 billion of share-holder wealth. Over the same period, Apple de-stroyed $4.85 billion oi shareholder wealth, goingirom an MVA oi $3,261 billion to minus $1,594billion.^'

Wealth creation and visionary leadership

Visionary leaders may or may not create value. Iithey do, their style of leadership is rare and diifi-cult for other organizations to duplicate. Uniortu-nately, some visionaries who are capable oi creat-ing value are not supported by their organizationswith appropriate structures, controls, and re-wards.^^ These visionaries probably do not havestrong managerial support, either because the or-ganization cannot supply it or because the vision-ary will not allow it. These organizations are morelikely to achieve below-normal periormance.

90 Academy oi Management Executive February

Visionary leadership is the hardest style oi lead-ership to assess regarding periormance. As illus-trated in Figure 3, visionaries have the potentialfor a range oi periormance implications—from be-low normal to above normal. The bigger danger isthat visionaries may achieve below-normal perfor-mance much more quickly than managerial lead-ers. Stephen Jobs, the visionary founder of Apple,had to leave because oi poor periormance. AnitaRoddick, the long-time CEO oi The Body Shop, ii-nally had to step down because her husband, Gor-don, the managerial leader, stepped back irom theorganization; her visionary leadership alone couldno longer sustain the level of performance thatinvestors had come to expect. Michael Cowpland,the CEO of Corel in Canada, has been describedas a visionary, and Corel has been experiencingwealth creation problems for several years. Be-cause of these problems, Cowpland stepped downin August 2000. On the other hand, visionaries cou-pled with managerial leaders may achieve above-normal periormance. Two examples are ThomasWatson, Jr. (the visionary) and Al Williams (themanagerial leader), his chief financial oiiicer atIBM from 1956 to

Wealth creation and strategic leadership

Because strategic leaders are concerned with thefuture viability and present financial stability oitheir organizations, they make decisions thatachieve above-average returns, and therefore cre-ate wealth ior their organizations. (See Figure 3.)

Throughout the decade of the 1990s, no twoappointed CEOs have exemplified wealth cre-ation on a consistent basis as well as Jack Welchand Robert Goizueta. Either GE or Coca-Colawas ranked number one and two in MVA from1992 to 1998. '' Coke's return on capital was con-sistently 24 percent higher than its cost of capi-tal. What characteristics did these two CEOs dis-play during that period? Both reiocused theircompanies to regain strategic control. Both be-lieved that their actions affected their companiesand determined what happened in the respectiveindustries in which their companies operated.This beliei in strategic choice is exemplified bythe following paraphrased comments irom Goi-zueta: If you are number one or two in your in-dustry, you can have a lot oi say in what thefuture is going to be like by what you do; if youcan take actions that create the future, or at leastshape it, you can benefit from it; and belief instrategic choice is about creating what can be,as opposed to what is. Welch and Goizueta re-lentlessly strove to reduce the stifling effect of

bureaucracy on creativity and innovation. Bothwere internally focused and exhibited an insen-sitivity to the past in order to demonstrate properrespect ior the future. They believed in revolu-tionary change and not evolutionary change.Most observers were surprised at how fast JackWelch changed GE. Welch expressed surprise athow long it took to change GE. His deep, abiding,philosophical values are summed up in the iol-lowing: get into the right businesses, those withgrowth potential, those which respond quickly tochange, and get as much as possible out oi thecapital you employ. These values exemplify stra-tegic leadership.s^

Mosf observers were surprised at howfast Jack Welch changed GE. Welchexpressed surprise at how long it took tochange GE.

Strategic leadership is not just for professionalmanagers appointed to the CEO position who didnot start or revitalize their companies in an entre-preneurial manner. Consider two entrepreneurswho made a diiierence to their iirms and theirindustries. The first is Konosuke Matsushita,founder and iormer CEO of Matsushita Electric. Hisrevenue growth was the highest of any 20'^ centuryentrepreneur, at $49.5 billion. The next closest wereSoichiro Honda, at $35.5 billion, and Wal-Mart'sSam Walton, at $35 billion. Matsushita was a vi-sionary who demanded revenue growth, but witheven more dramatic profit growth. He told his se-nior managers that within five years he wantedrevenue growth to quadruple and profit to morethan quadruple. These goals were achieved in iouryears.^^ He concentrated on creating products forhis customers that created value in their mindsthat was greater than they expected. However, healways wanted value created at a profit for hiscompany. His long-term vision was for the prod-ucts his companies sold to create worldwide pros-perity to such a degree that in several hundredyears there would be world peace.

The second entrepreneur is Bob Kierlin,^' theCEO oi Fastenal, a company that sells nuts andbolts. His leadership style is characterized byemployee empowerment, participation, symbolicegalitarianism, wage compression {he pays him-seli $120,000 a year), and promotion from within.^^However, he strongly encourages profitable reve-nue growth. This has been very beneficial ior em-ployees, customers, and shareholders. In 1988, Fas-tenal's MVA was £0.077 billion—it was $1,609

2001 Rowe 91

billion in 1996—an increase of $1.53 billion. Kierlinstarted Fastenal in 1967 because he was not happywith the bureaucracy at IBM.

Two other interccting companies from a strate-gic leadership perspective are Wal-Mart and Coke.From 1988 to 1992, Wal-Mart created $50 billion ofwealth for shareholders under Sam Walton's lead-ership. From 1992 to 1996, Wal-Mart destroyed $30billion of wealth for shareholders under DavidGlass's leadership. Wal-Mart did rebound from1996 to 1997, and finished 1997 at an MVA of $69.7billion. Thus irom 1992 to 1997, Wal-Mart createdwealth oi $5.7 billion, approximately one-tenth ofwhat Sam Walton created over a similar iive-yearperiod. However, Wal-Mart's MVA at the end oi1998 was $213 billion. Wal-Mart had jumped tothird place in the MVA rankings, and irom 1992 to1998 had created $143 billion in MVA for its share-holders.

Is David Glass the strategic leader that SamWalton was? It may be too soon to tell. CertainlyWalton's perspective was similar to Matsushi-ta's. He wanted to improve the quality of liie oicustomers and employees through iree enter-prise practiced correctly and morally. He stated:"We've improved the standard of living of cus-tomers, whom we've saved billions of dollars,and oi our associates, who have been able toshare proiits."^^ He wanted to market the highestquality goods at the lowest prices possible. Un-der Goizueta, Coke's rank in the MVA rankingsrose from seventh in 1988 to first in 1994, andstayed at number one until 1996. In 1997, the yearGoizueta died, it dropped to second, and in 1998to ninth. Coke's absolute MVA was still improv-ing under Doug Ivester, and was still much betterthan Pepsico, Coke's closest competitor. ButIvester was not able to create MVA ior Coke'sshareholders at the same rate as Goizueta, Con-sequently, he stepped down as CEO in April

These strategic leaders all believed that theirdecisions would affect their companies and theirenvironments. They put great emphasis onachieving their visions by influencing employ-ees and associates. They also ensured that theirvisions were achieved in a way that was best fortheir employees, customers, and shareholders."However, their vision had to be achieved withoutdestroying their organizations financially in the^bort-term. Goizueta relentlessly pursued a re-turn on capital that exceeded Coke's cost of cap-ital. These leaders managed the paradox of in-vesting strategically in their employees, inpromotion through advertising, R&D, and capital

equipment, while ensuring that their organiza-tions were financially stable in the short term.

These leaders managed the paradox ofinvesting strategically in theiremployees, in promotion throughadvertising, R&D, and capital equipment,while ensuring that their organizationswere financially stable in the short term.

The Paradox oi Leading and Managing

Wealth creation for organizations where strategicleadership is exercised is possible because theseleaders make appropriate investments for future vi-ability, while maintaining an appropriate level offinancial stability in the present.'''^ They influence acritical mass of managers and employees to volun-tarily make decisions on a day-to-day basis that en-hance future viability and current financial stability.Under pure visionary leadership, there is a muchwider range oi wealth creation possible as there mayor may not be the constraining iniluence of amanagerial leader. Such leadership is riskierthan allowing the exercise of strategic leadership topermeate the organization. Under managerial lead-ership, there is a wider range than under strategicleadership, but a narrower range than under vision-ary leadership, as wealth creation may range fromnormal performance to below-normal performance.

Uniortunately, large, unrelatedly diversiiied or-ganizations implicitly and explicitly train theirpeople to be managerial leaders. This is not bad inand of itself, but when such leadership does notallow visionary and strategic leadership to flour-ish, it is damaging for the organization in the longterm. The nature of some organizations precludesvisionary and strategic leadership from even oc-curring. Hoskisson and Hitt'^ refer to this phenom-enon as the loss of strategic control. This occurs ingovernments, universities {whether state-spon-sored or not), and businesses that allow too muchinappropriate diversification.

A Canadian government study' '' found that the twomost important reasons ior the bankruptcies oismall-to-medium-sized firms are poor overall man-agement skills, such as lack oi knowledge, lack oivision, and poor use oi outside advisers; and imper-fect capital structures resulting from either institu-tional constraints or managerial inexperience. Thestudy's authors argue that managers in small firmsneed to be trained in general management ancifinancial management skills, and that visionary an tmanagerial leadership is needed in small-to-

92 Academy o/ Management Executive February

medium-sized iirms just as it is in such large iirms asGeneral Motors and IBM. DoUinger ^ argues that en-trepreneurs are the architects oi organizational pur-pose and that business ventures are created toachieve the visions of entrepreneurs. He says themajor problem ior entrepreneurs is to be managerialand to write a business plan that details all thebusiness risks in the new venture. Based on his work,it could be argued that small firms suffer more iroma lack of managerial ability, while larger firms sufferfrom a lack of visionary leadership, especially if theyhave lost strategic control because they have be-come too diversiiied. What is clear is that small,medium, and large organizations need strategicleadership and need to pursue corporate strategiesthat allow strategic leadership among a criticalmass of the senior management team and middleand junior managers.''^

A strategic leader creates chaos, makes mis-takes, occasionally gets rapped on the knuckles bybosses and subordinates, and even occasionallyhas to apologize to staff ior creating too muchdisorder before they were ready ior it. But the re-wards are worth it as those with whom the leaderworks become energized and more productive, ac-complishing more in less time. They come to enjoywork more, as they become more creative and in-novative, and more prone to taking risks becausethey know this is what it takes to enhance long-term viability.''^

A strategic leader creates chaos, makesmistakes, occasionally gets rapped onthe knuckles by bosses and subordinates,and even occasionally has to apologizeto staff for creating too much disorderbefore they were ready for it.

Working through the paradox oi leading andmanaging is demanding and diiiicult, but isachievable ior a critical mass in organizations thathave not lost strategic control. Executives in suchorganizations should start thinking of themselvesas strategic leaders who have to accept and mergethe visionaries and managerial leaders in theirorganizations. They should fight against the con-straining iniluence of financial controls and fightior the exercise of strategic and financial controls,with the emphasis on strategic controls. They needto understand the concepts oi explicit and tacitknowledge and linear and nonlinear thinking andhow to integrate them for the benefit of your orga-nization. The rewards will often be wealth creation

and above-normal performance whether an orga-nization is entrepreneurial or established.

Acknowledgments

The author wishes to acknowledge the many students in hisstrategic leadership classes at Royal Roads University. Victo-ria, BC. and Memorial University of Newfoundland. Canada.They helped forge the ideas presented in this article. In addi-tion, he acknowledges the many positive comments from prac-titioners at the 1998 conference of the Newfoundland and La-brador Employers' Council, the 1997 conference of the AtlanticProvinces Economic Council, and the Senior ManagementGroup in 1999 of Xwave Solutions. Newfoundland Business Unit.Finally, he would like to thank Fay Rowe, James O'Brien, andthe three anonymous reviewers and guest co-editors who pro-vided many thoughtful comments on this article.

Endnotes

^ ^ , R, D. & Hitt, M. A. 1999, Achieving and maintainingstrategic competitiveness in the 21st century: The role of strategicleadership. The Academy of Management Executive, 13(1), 43-57,

^ Mintzberg. H,, Ahlstrand, B. & Lampel. J. 1998, Strategy sa-faii. New York: The Free Press. Schultz is being included on thebasis of Mintzberg et al.'s definition of an entrepreneur (page129): the founder of an organization, the manager of a self-owned business, or an innovative leader of an organizationowned by others, Schultz bought Starbucks from its originalowners in 1987 and grew it before he took it public in 1992.

^Schultz, H, & Yang, D, J. 1997, Pour your heait into it: HowStarbucks built a company one cup at a time. New York: Hype-rion, 181: and Starbucks: Making values pay. Fortune, 29 Sep-tember 1997, 261-272.

^^ •" ^^lbert, L, 1995. The 1994 Stem Stewart Periormance 1000,Journal of Applied Corpoiate Finance. 7(4), Winter. 104-118;Ross, I. 1996, The 1995 Stern Stewart Performance 1000, excerptsirom the Jouinal of Applied Coipoiate FinancG. 8(4), Winter,1-18; Ross, I, 1997, The 1996 Stem Stewart Performance WOO. NewYork: Stern Stewart & Co,, t~19; Ross, I, 1998, The 1997 SternStewart Performance 1000. journal of Appiied Corporate Fi-nance. 10(4), Winter, 116-128; Ross, I, 1999. The 1998 Stern Stew-art Performance WOO. New York: Stem Stewart & Co,, 1-15.

^MVA means market value added and is the equivalent ofthe difference in the firm's current total market value (stocksand bonds) and the tola] capital (debt and equity offerings,bank loans, and retained earnings) invested in the firm since itsinception. It is the cash investors could get out oi the firm at apoint in time minus all of the cash that has been invested in thefirm since its beginning.

^ This analysis predates the current antitrust environmentand legal action brought against Microsoft by the U,S. AttorneyGeneral's office.

' A conversation with Roberto Goizueta and Jack Welch: Thewealth builders. Forfune, 11 December 1995, 96-102; Sellers, P.How Coke is kicking Pepsi's can. Fortune, 28 October 1996.70-84; and Morris. B, Robert Goizueta and Jack Welch: Thewealth builders. Fortune, 11 December 1995, 80-94.

^ Gardner, W, L. & Avolio. B, J, 1998. The charismatic relation-ship: A dramaturgical perspective. Academy of ManagementBeview. 23(1), 32-58: Chen, C, C. & Meindl, J. R. 1991. The con-struction of leadership images in the popular press: The case ofDonald Burr and People Express, Administrative Science Quar-(eriy, 36, 521-551. Kerr, S, & Jermier. J, M. 1978, Substitutes iorleadership: Their meaning and measurement. OrganizafionaiBehavioi and Human Performance, 22, 735-403; Meindl, I. R.,

2001 Rowe 93

Ehrlich, S. B., 8E Dukerich. J. M, 1985. The romance of leadership.Administrative Science Quarterly, 30, 78-102; Meindl, J, R, 1990,On leadership: An alternative to the conventional wisdom. InB, M, Staw & L, L. Cummings, (Eds.), Research in OrganizafionaiBehavior, 12, 159-203. Greenwich, CT: JAI Press.

^ Hill. L, & Wetlaufer, S, 1998. Leadership when there is no oneto ask; An interview with ENI's Franco Bernabe, Harvard Busi-ness Beview. July-August. 80-96; Chatterjee, S,. Lubatkin, M. H.& Schulze, W. S. 1999. Toward a strategic theory of risk premium:Moving beyond CAPM. Academy oi Management Beview, 24(3),556-567.

'° Ireland 8E Hitt, op, cit." Evered. R, 1980. So what is strategy? Working paper. Naval

Postgraduate School, Monterey; Quinn, J, B, f980. Strategies forchange: Logical incrementalism. Homewood, IL: Richard D. Irwin;and. Mintzberg. H, & Quinn. J, B, 1996. The strategy process: Con-cepts, contexts, cases. 3'' ed. Upp>er Saddle River, NJ: Prentice Halt.

' Tichy, N. M, & Cohen, E, 1997, The leadership engine: Howwinning companies build leaders at every level. New York:HarperCollins, 106.

' Mintzberg, H. 1987. Five Ps for strategy, California Manage-ment Beview. Fall; and, Mintzberg. H, 1987, Crafting strategy.Harvard Business Review. July-August.

^ Barney. J. B. 1997, Gaining and sustaining competitive ad-vantage. New York: Addison-Wesley Publishing Company.

' Hitt, M. A.. Ireland, R, D. & Hoskisson, R, E, 2001. Strategicmanagement," Competitiveness and globalization, 4th ed. Cin-cinnati: South-Western College Publishing Company, SeeChapter 1, For a different view, see Child, J. 1972. Organiza-tional structure, environment and performance: The role of stra-tegic choice. SocioJogy, 6, 1-22.

'^Zaleznik. A, 1977. Managers and leaders: Are they differ-ent? Harvard Business Review. May-June,

" I will discuss these issues in more depth in the section.Constraints on Strategic Leadership.

' Zaleznik, op, cit,' Morris, op, cit,^° Zaleznik, op, cit.^' Hosmer, L. T. 1982. The importance of strategic leadership.

Journal ol Business Strategy. 3(2), Fall, 47-57.^ Schendel, D, 1989. Introduction to the special issue on stra-

tegic leadership, Sdafegic Management Journal, Special Issue.10, 1-3,

" Hambrick, D, 1989. Guest's editor's introduction: Putting topmanagers back in the strategy picture. Strategic Managementlournal. Special Issue. 10, 5-15.

^ Hosmer, op. cit.. See also Evans, R. 1997. Hollow the leader,flepor( on Business. November. 56-63; Sooklal. L. 1991. Theleader as a broker of dreams. Human Relations. 44(8). 833-856;Zaieznik. A, 1990, The leadership gap. The Academy of Manage-ment Executive. 4(1). 7-22.

^ Hill, C. W, L. 8t Hoskisson, R, E. 1987. Strategy and structurein the multiproduct firm. Academy of Management Beview.12(2), 331-341; and, Hoskisson, R, E. & Hitt. M. A. 1994. Downscop-ing: Taming the diversified firm. New York: Oxford UniversityPress; Zaleznik 1990, op, cit.

^ Explicit knowledge is highly codifiable. It can be verballyexpressed, and includes computer programs, patents, and draw-ings. It is separable from the person who encoded the knowledgeand is highly mobile. See Hedlund, G. 1994, A model of knowledgemanagement and the n-form corporation. Strategic ManagementJournal. Special Issue 15, Summer, 73-90; Kogut. B. & Zander, U.1992. Knowledge of the firm, combinative abilities, and the repli-cation of technology. Organization Science, 3, 383-97,

^'See Trigg. R. 1996. Ideas of human nature: An historicalintroduction. Cambridge, MA: Blackwell Publishers; Child, op.

cit; and Minlzberg, H,, Ahlstrand, B, & Lampel, J,, op. cit,, chap-ter 10.

^^Bass, B, M. 1985, Leadership and periormance beyond ex-pectations. New York: The Free Press; Yukl, G. 1994. Leadershipin organizations, 3'' ed. Toronto: Prentice Hall.

^ Conger, J. 1991, Inspiring others: The language of leader-ship. The Academy of Management Executive. 5(1), 31-45;Nathan, M. 1996. What is organizational vision? Ask chief exec-utives. The Academy of Management Executive, 10(1), 82-83.

^° Zaleznik, op. cit.^' Hosmer. op. cit.^ Schendel. op. cit.^ Hambrick. op. cit,; also, Mintzberg, H. 1973. The nature oi

managerial work. New York: Harper and Row. chapters 15-17.' Hambrick. op, cit,

^ Evans, op, cit,; Hosmer, op. cit.; Sooklal. op, cit,; Zaleznik,op. cit.

^ Hoskisson & Hitt. op, cit.^•'Tacit knowledge is so internalized we may not even know

we know it. It gives us the ability to know more than we canexpress. See Polanyi, M, 1966. The tacit dinif^nsion. Garden City.NY: Anchor; Reed. R. & deFillippi, R. J. 1990. Causal ambiguity,barriers to imitation, and sustainable competitive advantage.Academy of Management Beview. 15. 88-102; Nelson, R, & Win-ter, S, 1982. An evoJutionaiy theory o( economic change. Cam-bridge. MA: Belknap Press; Itami. H, 1987. Mobiiizing invisibleassets. Cambridge. MA: Harvard University Press, See Kotter, J.& Heskett, ], 1992, Corporate cuiture and performance. New York:The Free Press; Ouchi, W, G, & Maguire. M. 1975. Organizationalcontrol: Two functions. Administrative Science Quarterly. 20,559-569; and Schein. E. H, 1993. On dialogue, culture, and orga-nizational learning. Organizational Dynamics. 22(2). 40-51, iordiscussions on the use oi tacit knowledge by leaders.

^ Trigg, op. cit,, gives a basic introduction to the philosoph-ical concept of free will. Child, op, cit.. discusses strategicchoice from the perspective of leaders of iirms. See Mintzberg.Ahlstrand, & Lampel. op, cit.. Chapter 5, for a very good descrip-tion of visionary leadership.

^ Bass, op, cit,, and, Yukl, op. cit."" Kotter, J. P. 1990, What leaders really do. Harvard Business

Beview. May-June," Zaleznik 1977, op. cit,. and Zale2nik 1990, op. cit.''^Kotter, op. cit." Ibid.• Zaleznik, 1977, op. cit.^ Loeb, M. Steven J, Ross, 1927-1992, Fortune, 24 January 1993,

4. quoted in Hitt. et, al,. op, cit,•" Many writers (e.g., Mintzberg 1975) argue for a balance

between visionary and managerial skills, I argue for a syner-gistic combination. The reason is clear from Figure 2. II onedraws a diagonal from the lower left quadrant to the upper rightquadrant, everywhere on that diagonal is a balance betweenvisionary and managerial. What is important is to use a highlevel oi managerial leadership and a high level of visionaryleadership and to be more than the sum of these two.

''•' Ireland & Hitt, op. cit.*^ The most common iorm of leadership is managerial. Given

the call for visionary leadership in recent years (See Conger, J.1991. Inspiring others: The language oi leadership. The Acad-emy oi Management Executive, 5(1), 31-45; and. Nathan, op. cit.),it is logical to assume that visionary and strategic leadershipare rare,

"^Hambrick, op, cit. and Schendel, op. cit.° Hoskisson & Hitt, op. cit.' Nonaka, I. 1994. A dynamic theory oi organizational knowl-

edge creation. Qiganization Science, 5(1), 14-37; and. Nonaka, L

94 Academy of Management Executive February

& Takeuchi. H. 1995. The knowledge creating company. NewYork: Oxford University Press.

^ Trigg. op, cit,; Child, op. cit.; Mintzberg, et, al,, op. cit.,chapters 5 and 10.

^ Nonaka & Takeuchi, op, cit.; Kogut & Zander, op, cit. Alsosee Sherman, S, & Rowe, W, G,, 1996. Leadership and strategicvalue: A resource-based typology. Proceedings af the TexasConierence on Organizations, March 1,

" Mintzberg, H. 1975. The manager's job: Folklore and fact.Harvard Business Review, July-August. Mintzberg arguesthat managers need two faces, one insightful and the othercerebral.

^ House, J, D, 1999, Against the tide: Battling for economicrenewal in Newfoundland and Labrador. Toronto: University ofToronto Press,

^ Barney, J. B, 1997, Gaining and sustaining competitive ad-vantage. New York: Addison-Wesley,

" A 1999 TV news report stated that almost 50,000 peoplehave moved lo Calgary, Alberta, Canada, irom other parts ofCanada because of lower taxes and better job opportunities.

^ House, op. cit,^ I am indebted to Mike Hitt, who helped to clarify this very

thorny issue.^Barney, op. cit. See chapter 2 for an excellent explanation

of above-normal performance (ANP), normal periormance (NP),and below-normal performance (BNP). ANP means that morewealth was created than owners of assets expected Ihe orga-nization to create; NP means (hat the wealth created was whatowners of assets expected the organization to create; and BNPmeans that less wealth was created than expected. Under ANP,organizations will retain their current assets, attract new andbetter assets, and prosper. Under NP, organizations will retaintheir current assets, but not attract new assets, and will survive.Under BNP, organizations will lose their assets as they migrateto other organizations, and these organizations will cease toexist economically.

^' See endnote number 4.^ Barney, op, cit. See chapter 5.^ Watson. Jr., T. J. & Petre, P. 1990, Father son & Co.: My hie at

IBM and beyond. New York: Bantam Books.^ See endnote number 4.^ Fortune, 11 December 1995, op. cit,; Sellers, op. cit,; Morris,

op, cit,^ Kotter, J. P, 1997, Matstishita leadership. New York: Free

Press. This was growth while the entrepreneur was associatedwith the iirm and expresses growth through mid-1994,

^ Teitelbaum, R. Who is Bob Kierlin—and why is he so suc-cessful? For(une, 8 December 1997, 245-248,

Conger, J. 1989. Leadership: The art of empowering others.The Academy of Management Executive. 3(1), 17-24; Piefier, J,

1995. Producing sustainable competitive advantage through theeifective management of people. The Academy of ManagementExecutive. 9(1), 55-72.

^ Walton, S, & Huey. J, 1992. Sam Walton: Made in Ameri-ca—my story. New York: Doubleday.

™Greenwald, J. 1999. Spring a leak: Five lessons from aCorporate king's downfall. Time. 20 December 1999, 46-48,

' ' Walton & Huey. op. cit.Some strategic leaders are able to downscope unrelatedly

diversified organizations so that strategic control is restored.When this happens, strategic and visionary leadership are pos-sible.

'^Hoskisson & Hitt, op. cit.. chapters 4 and li.'^ Baldwin, J., Gray, T.. Johnson, J., Proctor, J,, Rafiquzzaman,

M. & Sabourin, D. 1997, Failing concerns: Business bankruptcyin Canada. Ottawa: Statistics Canada, November, CatalogueNo, 61*525-XPE.

'^ Dollinger, M, J. 1999, Entrepreneurship: Strategies and re-sources. 2nd ed. Upper Saddle River, NJ: Prentice Hall.

Tichy & Cohen, op, cit., provide an excellent description ofhow Ihis has been done. It is amazing that GE is so successful andranked second in MVA at $360 billion, given the complexity of itscorporate-level strategy. It is even more amazing when one con-siders thai Jack Welch spends 30 percent oi his time on leadershipdevelopment. Or maybe it is not so amazing, given that Welchspends 30 percent of his time developing strategic leaders.

The author applied the principles of strategic leadership andwatched as organizational revenues quadrupled and profits roseeven more dramatically over a three-year period. Unfortunately,the principle of higher visibility kicked in, and the autonomy andprotection required to exercise strategic leadership was slowlyeroded. The organization was a small division of a large unrelat-edly diversiiied organization that was managerially led and fi-nancially controlled.

W, Glenn Rowe is an associateprofessor of strategic manage-ment and associate dean. Grad-uate Programs and Research, inthe Faculty of Business Adminis-tration at Memorial University oiNewfoundland. Canada. He re-ceived his Ph,D, in managementfrom Texas A&M University, Hisresearch interests include strate-gic leadership, CEO succession,organizational control systems,and organizational performance.Contact: growe@mLin,ca.