Chapter 12: Strategic Leadership 399the firm’s core competencies, and developing an organizational culture that supports eth-
ical practices. Thus, building human capital is vital to the effective execution of strategic
leadership.
When investments in human capital (such as providing high-quality training and
development programs) are successful, the outcome is a workforce capable of learning
continuously. This is an important outcome in that continuous learning and leveraging
the firm’s expanding knowledge base are linked with strategic success.^97
Learning also can preclude errors. Strategic leaders may learn more from failure than
success because they sometimes make the wrong attributions for the successes.^98 For
example, the effectiveness of certain approaches and knowledge can be context specific.
Thus, some “best practices” may not work well in all situations. We know that using teams
to make decisions can be effective, but sometimes it is better for leaders to make decisions
alone, especially when the decisions must be made and implemented quickly (e.g., in
crisis situations).^99 As such, effective strategic leaders recognize the importance of learn-
ing from success and from failure when helping their firm use the strategic management
process. To ensure more effective use of the strategic management process, firms have
begun to create more diversity among top management team leaders.^100
When facing challenging conditions, firms may decide to lay off some of their human
capital, a decision that can result in a significant loss of knowledge. Research shows that
moderate-sized layoffs may improve firm performance primarily in the short run, but
large layoffs produce stronger performance downturns in firms because of the loss of
human capital.^101 Although it is also not uncommon for restructuring firms to reduce
their investments in training and development programs, restructuring may actually
be an important time to increase investments in these programs. The reason for this is
that restructuring firms have less slack and cannot absorb as many errors; moreover, the
employees who remain after layoffs may find themselves in positions without all the skills
or knowledge they need to create value through their work.
Viewing employees as a resource to be maximized rather than as a cost to be min-
imized facilitates successful implementation of a firm’s strategies, as does the strategic
leader’s ability to approach layoffs in a manner that employees believe is fair and equitable.
A critical issue for employees is the fairness in the layoffs and how they are treated in their
jobs, especially relative to their peers.^102
Social capital involves relationships inside and outside the firm that help in efforts to
accomplish tasks and create value for stakeholders.^103 Social capital is a critical asset given
that employees must cooperate with one another and others, including suppliers and
customers, in order to complete their work. In multinational organizations, employees
often must cooperate across country boundaries on activities such as R&D to achieve
performance objectives (e.g., developing new products).^104
External social capital is increasingly critical to firm success in that few if any compa-
nies possess all of the resources needed to successfully compete against their rivals. Firms
can use cooperative strategies, such as strategic alliances (see Chapter 9), to develop social
capital. Social capital can be built in strategic alliances as firms share complementary
resources. Resource sharing must be effectively managed to ensure that the partner trusts
the firm and is willing to share its resources.^105 Social capital created this way yields many
benefits. For example, firms with strong social capital are able to be more ambidextrous;
that is, they can develop or have access to multiple capabilities, providing them with the
flexibility to take advantage of opportunities and to respond to threats.^106
Research evidence suggests that the success of many types of firms may partially
depend on social capital. Large multinational firms often must establish alliances in order
to enter new foreign markets; entrepreneurial firms often must establish alliances to gain
access to resources, venture capital, or other types of resources (e.g., special expertise
Social capital involves
relationships inside and
outside the firm that help
in efforts to accomplish
tasks and create value for
stakeholders.