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. …