American and Armenian CEOs' perception of the role of strategic leadership in achieving and...

EXECUTIVE SUMMARY

This study investigates the perceptions of American and Armenian CEOs toward the role of a suggested strategic leadership model developed by Ireland and Hitt (1999) in achieving and maintaining global competitiveness. The results of this study indicates that the surveyed CEOs

in both countries agree that the suggested strategic model (determining the firm's vision, exploiting and maintaining core competencies, developing human capital, sustaining an effective organizational culture, emphasizing ethical practice, and establishing balanced organizational controls) plays a substantial role in achieving and maintaining global competitiveness.

INTRODUCTION

The complexity, turbulence, and extraordinary changes during the 1980s and 1990s are contributing to the rapid development of ultra-competitive global environment (Zachary, 1995). A key reality of our time is that the commercial interactions in the global economy are becoming the dominant force shaping relationships among nations (Ruggiero, 1997). The global economy has created a new competitive landscape in which events change constantly and unpredictably (Hitt, Keats, & DeMarie, 1998). For the most part, these changes are revolutionary in nature. Such changes tend to happen swiftly, maintain dynamism, and affect virtually all parts of an organization simultaneously (Greenwood and Hinings, 1996). The uncertainty, ambiguity, and discontinuity resulting from revolutionary changes challenge firms and their strategic leadership to increase the speed of the decision-making process through which strategies are formulated and implemented (Kessler and Chakrabarti, 1996). In the 21st century, the ability to build, share, and leverage knowledge will replace the control of assets as a primary source of competitive advantage (Drucker, et al., 1997).

However, the new competitive landscape includes the expectation that the world's economy will grow substantially during the first 20 years of the 21st century, and create opportunities for companies to improve their financial performance. Organizations in which strategic leaders adopt new competitive global strategies will be able to competitively exploit opportunities that emerge in the new competitive landscape. Through effective strategic leadership, an organization can be mobilized so that it can exploit different opportunities (Ireland and Hitt, 1997).

This study investigates the perceptions of American and Armenian CEOs toward the role of a suggested strategic leadership model (determining the firm's vision, exploiting and maintaining core competencies, developing human capital, sustaining an effective organizational culture, emphasizing ethical practice, and establishing balanced organizational controls) in achieving competitiveness in the twenty-first century. We propose that the majority of CEOs in both countries will agree that the suggested strategic leadership model plays a significant role in achieving and maintaining the firm's global competitiveness. We anticipate differences in the ranking order of the components of the strategic leadership model between CEOs of both countries due to their cultural differences, and between CEOs as practitioners and Ireland and Hitt (1999) as theorists.

STRATEGIC LEADERSHIP

The global economy, more than any other factor, has created the need for the top management team to effectively exercise strategic leadership in organizations (Ireland and Hitt, 1999). Strategic leadership is defined as a person's ability to anticipate, envision, maintain flexibility, think strategically, and work with others to initiate changes that will create a viable future for the organization (Hunger and Wheelen, 2002). Because the creation of sustainable competitive advantage is the universal objective of all companies, being able to exercise strategic leadership in a competitively superior manner facilitates the firm's efforts to earn superior returns on its investments (Campbell and Alexander, 1997). Six strategic leadership practices for the 21st century organization are identified by Ireland and Hitt (1999).

1. Determining the Firm's Purpose or Vision--A strategic vision is a description of what the company is capable of becoming. The CEO envisions the company not as it currently is, but as it can be (Hunger and Wheelen, 2002). The top manager, often working in concert with the top management team, must provide general guidelines as to where the firm intends to go and the key steps to be taken to reach that end. The task of determining the direction of the firm rests squarely on the CEO's shoulders (Miller, 1997). A recent survey of 1,450 executives from 12 global corporations found that the ability to articulate a tangible vision for their firm was the most important of 21 competencies considered to be crucial skills for global leaders to possess in the future. A clear purpose allows a company to focus its learning efforts in order to increase its competitive advantage. Visions that facilitate development of this type of focus make sense to all organizational members, stretch employees' imaginations, and are viewed as being within the bounds of possibilities. They are understood easily and create cultural glue for units to share knowledge sets (Davis, 1995).

2. Exploiting and Maintaining Core Competencies--Core competencies are the resources and capabilities that give a firm a competitive advantage over its rivals. Core competencies are also called core capabilities. When these competencies or capabilities are superior to those of competitors, they are called distinctive competencies (Hunger and Wheelen, 2002; Ireland, et al., 2001). The competitive value of core competencies increases through their use and continuing development. The most effective strategic leadership practices in the 21st century will be the ones through which strategic leaders find ways for knowledge to breed still more knowledge. While physical assets such as land, machinery, and capital may be relatively scarce on a global basis, ideas and knowledge are abundant. They build on each other and can be reproduced cheaply or at no cost at all (Wysocki, 1997). However, accessibility of knowledge and ideas may vary across the globe.

3. Developing Human Capital--Human capital is the knowledge and skills of a firm's entire workforce. Strategic leaders are those who view organizational employees as a critical resource on which many core competencies are built and through which competitive advantages are exploited successfully (Becker, 1996). In the global economy, significant investments will be required for the firm to derive full competitive benefit from its human capital. The global economy allows firms to earn a financial premium by using competitively superior practices in the location, selection, and subsequent development of human capital. One key reason is that skilled labor is expected to be in short supply during the first part of the 21st century. For example, Katkin (1997) predicted that one million new jobs in high technology would be created over the next decade in the United States.

4. Sustaining an Effective Organizational Culture--Organizational culture refers to the complex set of ideologies, symbols, and core values shared throughout the firm. Major challenges to firms in the 21st century will be cultural rather than technical or rational (Drucker, et al., 1997). Organizational culture is concerned with decisions, actions, communication patterns, and communication networks. Because it influences how the firm conducts its business, and helps the process of regulating and controlling the behavior of organizational citizens, culture can be used as one of the means to gain a competitive advantage. In the global economy, strategic leaders capable of learning how to shape a firm's culture in competitively relevant ways will become a valued source of competitive advantage (Vlasic, 1996).

5. Emphasizing Ethical Practices--Ethical practices serve as a moral filter through which potential courses of action are evaluated. Business practitioners, academics, and society accept the influence of top managers on the firm's ethical practices and outcomes. In the 21st century, effective strategic leaders will use honesty, trust, and integrity as the foundations for their decisions (Kraar, 1997). The challenge for strategic leaders is how to instill normative values that guide corporate action and individual behavior (Sethi, 1995). Establishing ethical practices will be difficult for strategic leaders in the 21st century's global economy because of the significant diversity of cultures and economic structures within which firms will compete. An understanding of the interests of all legitimate stakeholders will come only through analysis of and sensitivity to cultural diversity (Ireland and Hitt, 1999).

6. Establishing Balanced Organizational Controls--Organizational controls are the formal, information-based procedures that strategic leaders and managers use to frame, maintain, and alter patterns of organizational activities (Simons, 1994). Top managers are responsible for the development and use of strategic and financial controls (Hitt, et al, 1996). To exercise effective strategic control, top managers must acquire a deep understanding of the competitive conditions and dynamics of each of the units or divisions for which they are responsible. Financial controls entail objective criteria that strategic leaders use to evaluate returns earned by company units.

Nonetheless, the diversity of the global economy, coupled with the dynamic challenges embedded within the new competitive landscape, highlights the increasing importance of strategic controls. For the firm to compete in multiple countries and cultures it must exercise strategic leadership that is oriented largely towards the integration of disparate competitive information and use of broad-based strategic controls (Ireland and Hitt, 1999).

RESEARCH METHODS

Research methods used in this study included survey questionnaire, sample and data collection, and statistical techniques. Each method was carried out according to the following procedures.

Survey Questionnaire

The survey questionnaire was developed by the researchers of this study to include the six strategic leadership components developed by Ireland and Hitt (1999). The questionnaire consisted of 32 statements selected from an initial pool of statements. These statements were categorized under six strategic leadership dimensions. The six practices included: determining the firm's vision (5 items), exploiting and maintaining core competencies (6 items), developing human capital (5 items), sustaining effective organizational culture (5 items), establishing ethical practices (6 items), and establishing balanced organizational controls (5 items). Each statement had a five-point Likert response format ranging from "strongly disagree (1)" to" strongly agree (5)." The two scale points of "strongly disagree and disagree" were combined as the lower points. The two scale points of "strongly agree and agree" were combined as the higher points. The scale points of "neither disagree nor agree" were excluded from data analysis. An alpha coefficient of 0.89 was obtained for the overall scale scores measuring the ranking order of the most critical components of the corporate strategic leadership.

A pilot study was conducted to test the questionnaire's construct validity. The split-half procedure was also used for the internal consistency measure of test reliability, which is obtained by dividing the items into halves and computing the correlation of the scores on these halves. The most common procedure is to obtain odd-even reliability by computing the correlation of the scores on odd-numbered and even-numbered test items. It was found that the utilized questionnaire was valid and reliable.

This survey elicited opinions from the participating American and Armenian CEOs of American and Armenian firms (in the U.S. and Armenia respectively) who had actually practiced some or all of the suggested six critical strategic leadership practices in their organizational settings. Respondents were asked to assign the degree or the extent of their agreement or disagreement with each of the 32 statements categorized under the six strategic leadership practices. The final version was modified by a confirmatory factor analysis (CFA) to drop statements of factor loading less than forty percent.

Two faculty members at the Department of Economy of the Engineering University in Yervan, Armenia translated the questionnaire from English to the Armenian language. Subsequently, a panel of experts in both languages has revised and approved the final version. To ensure that the translation process did not distort the meaning of the questionnaire concepts, 30 individuals proficient in English and the Armenian language were asked to fill the questionnaire in both languages. The correlation between the answers to both questionnaires in both languages was ninety-nine percent. Such high correlation asserts that the translation did not distort the meaning of concepts in the survey questionnaire.

Sample and Data Collection

The American sample consisted of 500 American CEOs who were randomly selected from S&P list throughout the United States. Participating CEOs were mailed a cover letter requesting their participation, the survey questionnaire, a stamped return envelope, and a brief definition and summary of the six most frequent strategic leadership practices and the recommended strategies used in this study. Of the 500 mailed questionnaires, 124 (24.8%) were completed and returned.

The Armenian sample consisted of 68 Armenian CEOs of Armenian firms in Armenia who were randomly selected by the Armenian researchers involved in this study. Two Armenian graduate students, at the Economics Department, conducted the distribution and collection of thirty-six questionnaires. The Business Office at the Hotel of Armenia in Yerivan, Armenia was hired to supervise the distribution and collection of the last thirty-two questionnaires. These 68 questionnaires were delivered and collected by graduate students and hotel employees. All these questionnaires were completed and returned.

Statistical Analysis

Statistical analysis in this study utilized the Statistical Package for Social Science (SPSS-X) to compute frequencies, means, percentages, and the Chi-square. Because of the nominal grouping of the responses, contingency tables and the Chi-square were used to test for the independence of the distributions. Confirmatory factor analysis was conducted to see if participants were able to differentiate these items from each other.

RESULTS OF THE STUDY

Data analysis in this study included the responses of the participating American and Armenian CEOs to the thirty-two statements included in the final revised version of the questionnaire as mentioned above. One of the goals of this study was to investigate the factor structure of the scales by incorporating all scales of the six strategic leadership practices into a single confirmatory factor analysis (CFA). The CFA conducted on data obtained from the two samples of CEOs in both countries revealed that the measures of the six strategic leadership practices were distinguishable from one another.

The matrix correlation presented in Table 1 shows moderate correlations among included items for the responses of American participating CEOs. The matrix correlation presented in Table 2 also shows moderate correlations among included items for the responses of Armenian participating CEOs. Both correlations in Table 1 and Table 2 indicate that the items measuring the components of the strategic leadership model are not completely independent. However, such correlations were to be expected because the items measuring these components were related, and such moderate correlations were not considered a serious problem (Hagen, Udeh, and Hassan, 2001).

Table 3 presents the ranking order and the percentages of American CEOs' responses for those who disagreed and strongly disagreed, who did not decide, and who agreed and strongly agreed regarding each of the 32 items categorized under the six strategic leadership dimensions included in the survey questionnaire.

Table 4 also depicts a similar data analysis for the responses for Armenian CEOs to the same questionnaire items. It appears that the majority of the participating CEOs in both countries realized the importance of the suggested strategic leadership model. It can be seen that the majority of American and Armenian responding CEOs agreed that determining the firm's purpose and vision, exploiting and maintaining core competencies, developing human capital, sustaining effective organizational culture, establishing ethical practices, and establishing balanced organizational controls are the most critical strategic leadership practices for achieving and maintaining global competitiveness in the 21st century.

On the other hand, very small percentages of these CEOs (2%, 4%, 5%, 7%, 8%, and 10%) did not concur with their counterparts on the ranking order. However, very small groups of the participating CEOs (1%, 2%, 2%, 3%, 3%, and 4%,) were undecided; they neither disagreed nor agreed with the ranking order suggested in this study.

Data analysis in Table 4 indicates that a less and similar majority (93%, 91%, 90%, 88%, 85%, and 82%) of the responding Armenian CEOs shared the same ranking order with American CEOs and that of Ireland and Hitt (1999). There were also very small percentages of these Armenian CEOs (4%, 4%, 6%, 7%, 7%, and 7%) who did not concur with their counterparts on the ranking order. Moreover, very limited percentages of these CEOs (3%, 5%, 4%, 5%, 8%, and 11%) were undecided in regards to the ranking order suggested in this study.

Data analysis in Table 5 reveals the ranking order of the strategic leadership dimensions assigned by the American and Armenian CEOs in comparison to those of Ireland and Hitt (1999). Out of the six practices included in the strategic leadership model, four practices gained general agreement on the ranking order among the three groups. These four practices included determining the firm's purpose and vision, sustaining effective organizational culture, emphasizing ethical practices, and establishing balanced organizational controls. However, there are differences in the ranking order of two practices (exploiting and maintaining core competencies and developing human capital) between Ireland and Hitt (1999) and the two groups of CEOs.

While Ireland and Hitt (1999) gave the second and the third ranking orders to "exploiting and maintaining core competencies" and "developing human capital" respectively, CEOs in both countries reversed this ranking order. It is possible that they have experienced the operational benefits of skilled human capital before "exploiting core competencies."

Tables 3 and 4 reveal marginal differences in the responses of American and Armenian CEOs. This can be attested by the differences in the percentages resulting from the responses assigned by CEOs in both countries. This finding supports the proposition of this research that anticipated such differences in the participating CEOs' perceptions of the thirty-two items of the survey questionnaire. Data analysis in these tables also indicates that both groups of CEOs share the same ranking order despite their cultural differences. Therefore, this finding does not support the proposition of this research that had anticipated such differences in the ranking order of the strategic leadership practices between the CEOs in the two countries. Table 5 confirms minor differences in the ranking order of the strategic leadership practices between the participating CEOs and Ireland and Hitt model. This result supports the proposition of this research.

DISCUSSION

It is not surprising that the largest majority of the responding CEOs (97%; 93% of American and Armenian CEOs, respectively) assigned the highest rank to "determining the firm's purpose and vision of the organization" because this practice requires the ability of the CEOs to infuse their vision throughout their organizations. The vision of a leader is his or her ability to create organizational directions and determine how organizations should utilize their energies and resources in the future. CEOs create a clear vision by exploiting the existing strengths of their organizations. This finding suggests that it is important not to lose continuity with the strengths of organizations when strategic leaders prepare their organizations to successfully deal with the needed strategic changes. Achieving this objective requires CEOs to balance the short-term needs of the organization with its long-term growth and survival. Finally, a clear purpose of the firm helps all employers understand the direction taken by the organization.

Ninety-four percent of American CEOs and ninety-one percent of their Armenian counterparts assigned the second rank to "developing human capital" because they view employees as capital resources. They claim that while organizations have often emphasized investments in capital equipment, the primary opportunity to improve productivity comes from investments in human capital. That is why many organizations are now de-emphasizing automation and robotics and emphasizing employee skills and problem solving instead. In fact, core competencies cannot be effectively developed or exploited without an appropriate human capital. This could be the reason why "developing human capital" comes after the "strategic direction of the organization," but before "exploitation and maintenance of core competencies."

Ninety-three percent of American CEOs and ninety percent of their Armenian counterparts assigned the third rank to "exploiting and maintaining core competencies." This could be because the development, exploitation, and maintenance of core competencies allow leaders to achieve more resource sharing, economies of scale and scope in resource use, and thereby to establish sustainable competitive advantages. Core competencies allow organizations to produce and deliver products that have unique benefits and values for customers and organizations.

Ninety percent of American CEOs and eighty-eight percent of their Armenian counterparts assigned the fourth rank to "sustaining an effective corporate culture" due to several reasons. First, corporate culture is important for developing desirable human behavior in an organization. Second, top-level managers can infuse the organization with their vision and thereby influence core values emphasized throughout their organization. Third, an appropriate corporate culture can embody entrepreneurial spirit in the organization. Fourth, corporate culture affects the way a firm does its business. Finally, corporate culture fosters and facilitates long-term visions, and creates an emphasis on strategic actions linked with the high quality of products and services.

Eighty-nine percent of American CEOs and eighty-five percent of their Armenian counterparts gave the fifth rank to the "ethical element for strategic leadership" in their organizations. They agreed that ethical practices help build a positive reputation in the organization. This is why top-level managers should serve as rote models, hire employees who share the organizational ethical values, reward ethical behavior, and promote a corporate culture that emphasizes ethical values. Organizational culture can be used as a vehicle for ethical practices. However, the recent surge in ethical violations in corporate America is indicative of the fact that corporate leaders and mentors have not been able to create the appropriate culture in their organizations.

Although the process of establishing a firm's "balanced controls" is extremely important, eighty-six percent of American CEOs and eighty-two percent of their Armenian counterparts assigned the sixth rank to this strategic practice. It is possible that the issue of strategic diversity had not become significant in the responding firms. This perspective was not considered in the design of this research. We also believe that this rank was selected by these CEOs because balanced control comes at the end of strategic leadership models presented in the strategic management literature. However, the responding CEOs asserted that both strategic and financial controls are two mechanisms that balance the evaluation of the firm's actions (e.g., quality, creativity, finance, etc.). For example, autonomy, flexibility, and innovation provided by strategic control help managers take advantage of particular markets.

CONCLUSIONS

Competition in the 21st century's global economy will be complex, challenging, and brimming with competitive opportunities and threats. Despite the prospected cultural differences between the responding American and Armenian CEOs, both groups agreed that the suggested strategic leadership practices help firms enhance their performance while competing in unstable and unpredictable environments. The development of the global economy, more than any other factor, has created the need for the top management team to effectively exercise strategic leadership in organizations. What will be different in the 21st century is how top managers discharge their strategic leadership responsibilities. They will no longer view their leadership position as one with rank and title, but rather as a position of significant responsibility to stakeholders. Instead of seeking to provide the right answers, they will strive to ask the right questions of community citizens they have empowered to work as partners with them.

Assigning the same ranking order to the strategic leadership practices by both groups of CEOs suggests that there is a common dominator for the business mind of CEOs despite the differences in their cultural background. The general agreement of CEOs on the importance of the strategic leadership model in achieving competitiveness in organizations supports this notion. As was evident in the results of this study, the participating CEOs ranked "developing human capital" and "exploiting and maintaining core competencies" differently than Ireland and Hitt (1999). This validates the notion that CEOs (practitioners) do not view some of the business practices in the same way as educators (theorists) do.

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Abdalla Hagen, Gambling State University

Ahmad Tootoonehi, Frostburg State University in Frostburg, Maryland

Shahid Siddiqi, Long Island University

TABLE 1

Correlations Among Responses of American CEOs for Strategic

Leadership Practices

Strategic leadership practices      1          2          3

1. Determining the firm's
   purpose or vision                1.00
2. Exploiting and maintaining
   core competencies                 .19 **    1.00
3. Developing human capital          .21 **     .15 *     1.00
4. Sustaining an effective
   organizational culture            .22 **     .17 **     .14 *
5. Emphasizing ethical practices     .10        .20 **     .13 *
6. Establishing balanced
   organizational controls           .18 **     .16 **     .09

Strategic leadership practices      4          5          6

1. Determining the firm's
   purpose or vision
2. Exploiting and maintaining
   core competencies
3. Developing human capital
4. Sustaining an effective
   organizational culture           1.00
5. Emphasizing ethical practices     .26 **    1.00
6. Establishing balanced
   organizational controls           .16 *      .21 **    1.00

* P < .05
** P < .001

TABLE 2

Correlations Among Responses of Armenian CEOs for Strategic
Leadership Practices

Strategic leadership practices      1          2          3

1. Determining the firm's
   purpose or vision                1.00
2. Exploiting and maintaining
   core competencies                 .24 **    1.00
3. Developing human capital          .28 **     .18 *     1.00
4. Sustaining an effective
   organizational culture            .31 **     .28 **     .18 *
5. Emphasizing ethical practices     .13 *      .21 **     .15 *
6. Establishing balanced
   organizational controls           .21 **     .26 **     .12 *

Strategic leadership practices      4          5          6

1. Determining the firm's
   purpose or vision
2. Exploiting and maintaining
   core competencies
3. Developing human capital
4. Sustaining an effective
   organizational culture
5. Emphasizing ethical practices     .32 **    1.00
6. Establishing balanced
   organizational controls           .18 *      .32 **    1.00

* P < .05
** P < .001

TABLE 3

The Ranking Order of the Strategic Leadership Dimensions
and the Percentages of the American CEOs' Responses, and
the Chi-Square Tests

Strategic                          Strongry      Niether      Stronly
Leadership                         Disagree      Agree nor    Agree &
Components                         & Disagree    Disagree     Agree

* Determining the firm's vision    2%            1%           97% **
* Developing human capital         4%            2%           94% **
* Exploiting and maintaining
  core competencies                5%            2%           93% **
* Sustaining an effective
  organizational culture           7%            3%           90% **
* Emphasizing ethical practices    8%            3%           89% **
* Establishing balanced
  organizational controls          10%           4%           86% *

Chi-square significant level is: * P<.05, ** P <.001

TABLE 4

The Ranking Order of the Strategic Leadership Dimensions,
the Percentages of the American CEOs' Responses, and the
Chi-Square Tests

Strategic                          Strongry      Niether      Stronly
Leadership                         Disagree      Agree nor    Agree &
Components                         & Disagree    Disagree     Agree

* Determining the firm's vision    4%            3%           93% **
* Developing human capital         4%            5%           91% **
* Exploiting and maintaining
  core competencies                6%            4%           90% **
* Sustaining an effective
  organizational culture           7%            5%           88% **
* Emphasizing ethical practices    7%            8%           85% **
* Establishing balanced
  organizational controls          7%            11%          82% *

Chi-square significant level: * P<.05; ** P <.001

TABLE 5

The Comparison of the Ranking Order of the Strategic Leadership
Dimensions: among American CEOs, Armenian CEOs, and Ireland and
Hitt (1999)

Strategic
Leadership                         Ireland &    American    Armenian
Components                         Hitt 1999    CEOs        CEOs

* Determining the firm's
  purpose and vision               1            1           1
* Exploiting and maintaining
  core competencies                2            3           3 *
* Developing human capital         3            2           2 *
* Sustaining an effective
  firm's culture                   4            4           4
* Emphasizing ethical practices    5            5           5
* Establishing balanced
  organizational controls          6            6           6

Chi-square significant level: * P<.05