Evaluating Strategic Leadership in Org Transformations

7/29/2019 Evaluating Strategic Leadership in Org Transformations

1/27

http://lea.sagepub.com

Leadership

DOI: 10.1177/17427150060660252006; 2; 341Leadership

Kalle PajunenLeadership in Organizational TransformationsThe More Things Change, the More They Remain the Same? Evaluating Strategic

http://lea.sagepub.com/cgi/content/abstract/2/3/341The online version of this article can be found at:

Published by:

http://www.sagepublications.com

can be found at:LeadershipAdditional services and information for

http://lea.sagepub.com/cgi/alertsEmail Alerts:

http://lea.sagepub.com/subscriptionsSubscriptions:

http://www.sagepub.com/journalsReprints.navReprints:

http://www.sagepub.co.uk/journalsPermissions.navPermissions:

http://lea.sagepub.com/cgi/content/refs/2/3/341Citations

by Tomislav Bunjevac on May 4, 2009http://lea.sagepub.comDownloaded from
http://lea.sagepub.com/cgi/alertshttp://lea.sagepub.com/cgi/alertshttp://lea.sagepub.com/subscriptionshttp://lea.sagepub.com/subscriptionshttp://lea.sagepub.com/subscriptionshttp://www.sagepub.com/journalsReprints.navhttp://www.sagepub.com/journalsReprints.navhttp://www.sagepub.com/journalsReprints.navhttp://www.sagepub.co.uk/journalsPermissions.navhttp://www.sagepub.co.uk/journalsPermissions.navhttp://lea.sagepub.com/cgi/content/refs/2/3/341http://lea.sagepub.com/http://lea.sagepub.com/http://lea.sagepub.com/http://lea.sagepub.com/http://lea.sagepub.com/cgi/content/refs/2/3/341http://www.sagepub.co.uk/journalsPermissions.navhttp://www.sagepub.com/journalsReprints.navhttp://lea.sagepub.com/subscriptionshttp://lea.sagepub.com/cgi/alerts


2/27

Leadership

Copyright 2006 SAGE Publications (London, Thousand Oaks, CA and New Delhi)

Vol 2(3): 341366 DOI: 10.1177/1742715006066025 www.sagepublications.com

The More Things Change, the More They

Remain the Same? Evaluating StrategicLeadership in OrganizationalTransformationsKalle Pajunen, University of Tampere, Finland

Abstract This study considers what has changed in strategic leadership during the

last century and if we could learn something from the past. These questions are

addressed through an historical case analysis of a Finnish pulp and paper industry

leader, Gsta Serlachius. The findings show that at the surface level the world of

strategic leadership is likely to be transient and contingent, but at the deeper level it

seems to be based on much more stable elements. A correct combination of absorp-

tive and adaptive capacities merged with managerial wisdom provided the basis for

effective strategic leadership at the beginning of the 20th century in a similar way astoday. Indeed, the more things change, the more crucial is the combination of these

basic elements matching with the organizational environment. It is concluded that

historical studies can add substantially to the future strategic leadership research.

Keywords historical analysis; organizational transformations; qualitative inquiry;

strategic leadership; turnarounds

Introduction

During and especially after radical organizational transformations, the successful

performance of firms is often linked to the personalities of strategic leaders. They are

assumed to possess unique behaviours which are utterly different from and prefer-

able to those of predecessors and crucial for organizational survival (Hegele &

Kieser, 2001). As a result, the academic and managerial literature has examined what

kind of demographic, personal, behavioural, or contextual factors relate to the real-

ization of successful strategic leadership in continuously transforming organizations

(for a review see, e.g. Boal & Hooijberg, 2000; Canella & Monroe, 1997; House &

Aditya, 1997).

Earlier research, however, has not critically considered (a) if strategic leadership

has truly changed during the last century of the modern industrial corporation; and

(b) if we could learn something from the strategic leadership of the past. This study

by Tomislav Bunjevac on May 4, 2009http://lea.sagepub.comDownloaded from
http://lea.sagepub.com/http://lea.sagepub.com/http://lea.sagepub.com/http://lea.sagepub.com/


3/27

seeks to examine these two questions through a historical case analysis of a Finnish

pulp and paper industry leader, Gsta Serlachius (18761942), and his activities

during the successful turnaround processes of the Kangas Paper Mill in 19048 and

the Kymi Corporation in 190812. The rationale for Serlachius being the research

subject is simple: he was a strategic, top-level leader in two big firms in a dominantindustrial sector in Finland at the beginning of the 20th century, and his actions in

both turnaround cases under analysis were successful.

In general, strategic leadership focuses on the people who have overall responsi-

bility for the organization as a whole (Hambrick, 1989). Contrary to supervisory

theories of leadership, that consider task- and person-oriented behaviours of leaders

interacting with their subordinates in organizations, theories of strategic leadership

focus on the leadership of organizations (Boal & Hooijberg, 2000; Storey, 2005).

Visioning, strategic decision making, development of organizational key capabilities

and, more broadly, the creation of meaning and purpose for the organization are the

key activities often associated with strategic leadership (Boal & Hooijberg, 2000;Cyert & March, 1963; Finkelstein & Hambrick, 1996; House & Aditya, 1997).

According to recent research, in order to be successful in these activities, strategic

leaders as their basic elements should have absorptive and adaptive capacities

combined with managerial wisdom (Boal & Hooijberg, 2000) or the right combi-

nation of intelligence, creativity and wisdom (Sternberg, 2003).

This study seeks to approach the strategic leadership of Serlachius in four phases.

First, a three-part explorative research framework is outlined and research method-

ology and data described. Second, the accounts of the main events of the turnaround

processes of Kangas and Kymi are given. Third, the strategic leadership of Serlachius

is analysed from the three perspectives provided by the framework. Finally, thesefindings are discussed in the light of more profound elements of strategic leadership.

Research framework

According to Pettigrew (1985, 1992), theoretically sound and practically useful

research on change should involve simultaneous analyses of the context, content, and

process of change. Building on the idea that an understanding of strategic leadership

also requires a holistic analysis, it is anticipated that Pettigrews three-part frame-

work can be modified for leadership research and especially for the analysis of an

individual strategic leader in organizational transformation. Therefore, an

exploratory research framework is proposed that focuses on the organizational

environment (context), a leaders demographic and personality variables (content),

as well as a leaders actual behaviour during a given period of time (process). These

three elements constitute an integrated whole, but to understand such an inclusive

phenomenon as strategic leadership it must first be divided into manageable parts.

The perspective of organizational environment

The purpose of context analysis is to give a picture of the prevailing organizational

environment in which the leader performs. While contextual influences have often

been neglected in leadership research, they have recently attracted increasing

attention (e.g. Beyer & Browning, 1999; Denis et al., 1996; Osborn et al., 2002;

Leadership 2(3) Articles

342by Tomislav Bunjevac on May 4, 2009http://lea.sagepub.comDownloaded from


4/27

Pawar & Eastman, 1997; Shamir & Howell, 1999; Waldman et al., 2001). Indeed, as

Osborn et al. (2002) state, leadership is always embedded in its context. Neverthe-

less, there is no generally accepted set of contextual factors that should be included

in such an analysis. Not all factors that may have an effect can be included, nor can

the choices always be made by following strictly predefined, objective rules. Thus,a more profound understanding of contextual influences calls for detailed qualitative

case studies and process analyses (Bryman & Stephens, 1996; Hunt & Ropo, 1995).

To structure the analysis of the organizational environment, the context element

can be divided according to Pettigrews (1987) suggestions into outer and inner

components. The outer component outlines the prevailing world view and the wider

business environment. The inner component, in turn, concentrates on clarifying the

immediate environment of a firm by studying the prevailing power- and resource-

dependency relationships using resource-dependency theory (Pfeffer & Salancik,

1978). This internal context usually has a direct influence on managements scope

for action and thus requires careful attention.

The perspective of demographic and personality characteristics

The second part of the exploratory framework focuses on the strategic leaders

personality and demographic characteristics and their potential influence on organiz-

ational outcomes. This has been a popular theme in studies on strategic leadership.

Variables underlying the investigations have most often been a managers age, tenure

in a firm or in an industry, education, language skills, reputation, and motivation.

Several scholars have argued that age may indicate a managers flexibility and

risk-taking propensity (Child, 1974; Hambrick & Mason, 1984; Taylor, 1975).Grimm and Smith (1991), for instance, argued that older managers often prioritize

their career safety and the constancy of the organizations modes of operation.

Younger managers, on the contrary, have been found to be more growth and risk

oriented and to pursue novel and innovative strategies to seize perceived oppor-

tunities (Brouthers et al., 2000).

The level of formal education, in turn, has been viewed as an indicator of

managers cognitive orientations. A generally accepted argument has been that

educational level reflects an individuals openness to change and propensity to

identify and evaluate newer alternatives. Wiersema and Bantel (1992), for example,

found a positive relationship between the educational level of managers and the

amount of innovation and strategic change in their organizations. Rajagopalan and

Datta (1996), however, did not find a positive link between levels of education and

managers orientation to pursue product differentiation strategies. Thus, formal

qualifications alone may not tell much of a persons competencies. Instead, studying

abroad and interacting with people from different cultures is seen to be very import-

ant for managers in global business (Kumar & Usunier, 2001) and managers should

see learning as a permanent way of being that is not restricted to mere formal insti-

tutions and courses (Vaill, 1996). In other words, strategic leaders may need a broad

educational background but, more importantly, they need a receptive attitude to life-

long learning.

Extensive research has also focused on executive tenure. The general opinion has

been that long-tenured managers tend to avoid making strategic changes in their

Leadership Evaluating Strategic Leadership Pajunen



5/27

organizations (Finkelstein & Hambrick, 1990; Hambrick & Fukutomi, 1991). In

addition, it has been suggested that managers who have spent their whole career in

the same company or industry may have a limited knowledge base and little desire

to search for new strategies or pursue new ideas (Katz, 1982; Rajagopalan & Datta,

1996).Age, education and tenure are not the only demographic and personal attributes

utilized in strategic leadership research. High motivation, that is, the willingness to

expend effort and persevere at an activity (e.g. OReilly & Chatman, 1994), are likely

be equally crucial characteristics for a successful leader as is the case with trust-

worthiness. Indeed, there is a widespread agreement on the importance of trust in

interpersonal relationships (see, e.g. Hosmer, 1995; Sheppard & Sherman, 1998;

Williams, 2001).

The perspective of strategic behaviour

The third component of the exploratory framework focuses on a strategic leaders

realized behaviour. As Granovetter (1985) argues, most behaviour is closely

embedded in networks of interpersonal relations and that is likely also to be the case

in strategic leadership. Personal information from trusted informants is usually

cheaper, richer, and reliable. Geletkanycz and Hambrick (1997) suggest that

managers extra-industry ties especially contribute information that complements

other forms of managerial information and experience. According to Boal and Hooi-

jberg (2000), a wide social network indicates a leaders social intelligence and mana-

gerial wisdom, thus improving the understanding of the wider context within which

the firm operates.Vision is also seen as an important component of the leadership process (Bass,

1985; Conger & Kanungo, 1989). It refers to some future goal that the leader wants

the organization to achieve. Visions may include boundary-breaking content as well

as the view that it is preferable to maintain an organizations status quo (Berson et

al., 2001). A practicable vision may be very simple: concentrating on the basics and

making these things right. In fact, effective leaders may emphasize both instrumen-

tal and inspirational topics in their visions, since not grounding a vision in some level

of practicality can lead followers to view it as Utopian (Berson et al., 2001).

In addition to the networking and visioning, the core activities of a strategic leader

focus on the strategy process. As Mintzberg (1989) argues, strategy can be under-

stood as a pattern, that is, consistency in behaviour over time. In the strategy process,

there may be intentions that are fully realized as well as fully unrealized strategies.

In addition, the strategy may emerge. Operational measures that are taken one by one

converge over time into some sort of consistency or pattern. However, hardly ever is

the realized strategy solely deliberate or solely one which emerges; rather, it is delib-

erately emerged.

The focus on strategy formation, instead of strategy formulation, leads us to study

the dynamic and contextual processes of leadership (Leavy, 1996). From this

perspective strategic leadership is needed to steer the strategy-formation process.

Strategic leaders should adapt the organization to comply with their intended

strategic direction. In this, as emphasized by Markides (1999: 56), strategic leaders

should answer three basic questions: Whom should the company target as




6/27

customers? What products or services should the company offer the targeted

customers? How can the company do this efficiently?. Leaders inability to make

explicit choices on these three dimensions is a common cause of strategic failure.

Conversely, strategic innovation occurs when leaders identify new ways of answer-

ing these questions and these new intentions are successfully realized (Markides,1997). Thus, a successful strategy-formation process requires that the strategic

leaders are not only capable of consistent and comprehensive behaviour, but are also

innovative and motivated towards continuous adaptation.

Method and data

This study of Gsta Serlachius can be considered as an interpretive historical case

analysis (Miles & Huberman, 1994). Using Stakes (1994) classification, the case is

instrumental: Serlachius is examined to provide insight into strategic leadership. Like

case studies in general, this study is not generalizable to populations, but generaliza-tions may focus on a theory. Such studies are seen to be especially appropriate for

supporting the development of theories in new topic areas and for providing new

insights on topics already researched (George & Bennett, 2005) and may elucidate

in novel ways phenomena as complex as leadership (Conger, 1998).

In the actual research process deductive and inductive logic worked together. The

study was deductive because the exploratory framework provided guidelines for

analysis and it was inductive because it sought to advance the understanding of

existing theory on the basis of empirical findings. In other words, the framework that

is built on theoretical knowledge of previous studies shows what factors it may be

relevant to look for (Ragin, 1994). Without explicit concepts it is impossible to makesense of the complex nature of leadership and the infinite amount of information that

can be collected from a single case.

Data collection and analysis

The basic requirement for historical analysis is the availability of research data.

Sometimes there are no data or the data available may be inadequate. A common

problem is also that researchers access to archives is limited. Fortunately, these

problems did not occur in the present study. The essential endeavour and starting

point in the data collection and analysis was to include all possible material provid-

ing information on the processes and Serlachiuss behaviour. In so doing, it became

possible to collect information of the same issue from different perspectives, to obtain

more detailed knowledge of the processes, and to evaluate the value of the infor-

mation relayed by different sources. More generally, data triangulation involves using

independent pieces of information to obtain a better grasp of something that is only

partially known or understood (Denzin, 1978). If only one source of information

regarding a particular issue was available, the importance of that information was

evaluated using other means such as situating the individual piece of evidence within

a larger context of origin and function (see Bryant, 2000). Of course, such assess-

ments were included in the process of data collection and analysis whether or not

there was abundant information.

The archives provided four main sources of research data (see Appendix). The first




7/27

source was the minutes of the board of directors meetings, which also includes

appendices concerning the issues discussed. This was a particularly valuable source

of data regarding the Kymi Corporation. While it is probable that the records do not

provide information on all the issues and events occurring in the organization, or may

not record all the opinions expressed in the meetings, they provide surprisinglydetailed information on the decisions and reasons why a decision or suggestion was

made. What is more, the minutes always report the person who made the suggestion

or presented the information. Accordingly, the evidence provided by the minutes can

be accepted to be at least approximately correct.

The second main source of the research data in the company archives was the

minutes of the creditors and owners meetings. While these meetings were only

occasionally arranged, the minutes offer another perspective on the issues discussed

in the board as well as novel information on the main stakeholders. This material also

includes appendices with, among other things, cost estimates, letters and reports as

well as other internal documents. Since the material was only meant for internal usein the organization, there is no predetermined reason to suppose that the facts

described in the documents are not correct. Of course, each piece of evidence again

merits its own appraisal.

The third main source of evidence was the company and managerial correspon-

dence. Company correspondence as research data are somewhat asymmetric in

respect of the amount and information conveyed by the material. As a whole the

correspondence consists of thousands of letters (both dispatched and received). Most

of them, however, are only short documents regarding business transactions with

little detailed information. Accordingly, the amount of correspondence with a stake-

holder, for example, cannot be seen as a direct indicator of the nature of the relation-ship; rather, inferences have to be based on the content of the correspondence.

Managerial correspondence, in turn, was more detailed in respect of the major issues

in and around the organization. Moreover, the managerial correspondence offers

opportunities to compare information relayed between different individuals which

also facilitate the source criticism.

The fourth class of the research data consists of annual reports as well as finan-

cial and production accounts. At the beginning of the 20th century the annual reports

were not intended for public distribution. Of course, the participants of the annual

shareholder meetings obtained copies of the reports and thereby the information

diffused. In all, the annual reports provided the official description of the organiz-

ations performance, which meant that the facts suggested needed to be particularly

critically evaluated by the researcher. The detailed financial and production accounts,

however, were only intended for the internal use of the organization. Therefore, there

is no specific reason to doubt their accuracy.

In addition to the company archives, the primary research data were also collected

from other archives. While the correspondence material in the company archives was

useful in supplementing the information offered by the minutes, even more intimate

information was provided by the personal correspondence of Gsta Serlachius. This

material is located in the archives of the Gsta Serlachius Art Museum. In these

letters the managers openly discuss and share information regarding various issues.

Thus, the correspondence, besides providing unique information, supplements the

evidence obtained from more formal sources.




8/27

The literature on Kangas and Kymi was used to reflect the evidence provided by

the archives (Ahvenainen, 1972a, 1972b, 1975; Hoving, 1947; Norrmn, 1928; Talvi,

1979; Tuuri, 1999). The literature did not offer significant evidence that the archival

material did not show. This is understandable, since the histories of the firms can only

provide relatively short descriptions of the crises. I also consulted the histories ofbanks, other organizations, and bibliographical information on each actor-related

process if that was available. Moreover, I examined how the leading financial

magazine (Mercator) reported on the firms. Finally, I used the official statistics of

Finland and separate research reports (e.g. Hjerppe, 1996) concerning the growth of

the economy and development of foreign trade in order to define the economic and

institutional contexts of the processes.

All documents related to Serlachius were identified and categorized according to

their information. These documents were then further analysed using data triangula-

tion and, finally, the case study on Serlachius was documented. Indeed, the wide

range of primary and secondary sources made it possible to analyse Serlachiusscharacteristics and behaviour from different perspectives and thus to increase the

reliability and validity of the analysis.

Strengths and limitations of the study

The study is subject to the limitations generally connected with historical research

but also has some specific limitations. First, the analysis concerns a single and

successful turnaround leader in the Finnish pulp and paper industry. It would be

useful to study a larger sample including leaders from different businesses, nations,

and eras. Focusing on in-depth analysis of one strategic leader at the beginning ofthe 20th century, however, provided access to sources with precise information about

the details of the leaders behaviour and made it possible to examine holistically how

he dealt with the two separate turnaround processes.

Having access to the leaders correspondence also provided an opportunity to

examine the turnaround processes from the leaders perspective. This point of view

contributed substantially to data triangulation and resolved some of the concerns

regarding retrospective data (Golden, 1992). While this study is not statistically

generalizable to other leaders, a study such as this that moves from surface observa-

tions towards the underlying structures, also moves from description to explanation,

and thus towards better theory (Pentland, 1999). An in-depth interpretative historicalanalysis can thus be seen as a relevant way to explain and comprehensively under-

stand the complexity of strategic leadership.

Turnaround processes

Kangas Paper Mill

The Kangas Paper Mill is one of the oldest paper manufacturers in Finland. It was

established in 1873 and is still operating at the same location. The mill was

originally a specialized producer of high-quality paper. After the retirements of

competent paper engineers, the knowledge needed in the manufacturing of these

grades of paper vanished. Therefore, during the 1890s the mill also turned to the bulk




9/27

production of grades such as newsprint. In the last years of the 19th century the firm

had several unprofitable years. Financial problems were usually solved through loans

and by increasing equity capital.

In 1903 the firm was again in severe difficulties. These problems originated in part

from the bankruptcy of a major customer in 1901 that also caused financial loss forKangas. The creditors were no longer willing to cover the loss by providing extra

finance. Instead, they required that the firm should be declared bankrupt, a new joint

stock company founded, and their claims changed into privileged shares in the new

company. This was done. Kangas underwent a change of ownership, got new

managers and new credit. However, the performance did not improve and the firm

was soon in serious financial difficulties.

This time, the main creditor and the biggest owner, a commercial bank, Nord-

banken (NB), was no longer willing to put off the inevitable by simply providing

extra finance. The main creditors decided to put the firm into liquidation and conduct

a thorough appraisal of the firms future prospects. This investigation was conductedby a group of three experts (Gsta Bjrgenheim, Albert Snellman, and Anton

Fredrikson) and the results were two-fold. They found that Kangas was in an un-

satisfactory condition in several respects, but they still believed that the firm had the

basic elements for successful performance in the future. After the creditors, together

with the main owners, had considered various options, they decided to implement a

turnaround. The investigators had pointed out that one obvious reason behind the

crisis had been incompetent management. Thus, in October 1904 new top managers,

Gsta Serlachius,Albert Snellman and Yrj Pulkkinen were hired to manage the turn-

around.

Serlachius was appointed CEO, and Snellman and Pulkkinen were to assist him.The managers mandate was short and simple: the firm had to become profitable.

Because the creditors and owners understood how difficult the situation was, they

supported the change and gave the managers an almost free hand to manage the firm.

This already shows that the actual operational as well as strategic power in the

organization was devolved on Serlachius.

In 1904 the production results had been poor and the overall situation in the mill

was rather upsetting. For example, only one of the two paper machines was opera-

tional. Conversely, Serlachius had a free hand to act and the stakeholders mindset

made the change possible. In an industrial organization of the early 20th century the

production process had a prominent position. Therefore, Serlachius also focused his

first thoughts on the Kangass production. His conclusion, in December 1904, was

that the mill should focus on the area of manufacturing that would best suit the poten-

tial of the firm. They could not manufacture all grades of paper at a competitive price.

Serlachius decided that they should continue manufacturing those paper grades that

seemed to be most profitable, such as parchment paper, but stop the production of

other bulk products. Most importantly, Serlachius saw that the future of Kangas was

in the production of high-quality paper.

This restructuring could not be implemented instantly. It required technical

improvements, practical experiments and training for the engineers. The change in

the production process started gradually, but in the spring of 1905 one machine was

already successfully manufacturing tobacco paper. Serlachius underlined that they

should be able to fulfil all the requirements and special needs of the customers, which




10/27

called for careful product-development work. Tobacco paper manufacturing started

to show positive financial results in 1906 and 1907. Conversely, this meant that

during 1905 and 1906 they also had to concentrate resources on the production of

silk and parchment paper that had fairly well-established markets. In order to

improve the quality and performance in the manufacturing of these grades, Serlachiusmade several machinery investments in 1905. Concentrating on high-quality paper

seemed to be very successful since by the end of 1906 they systematically declined

orders for cheaper qualities.

While the production process had a prominent position, the turnaround may not

have been possible without changes and innovations in other areas of the business.

One such area was sales and marketing. At the end of 1904 Serlachius and

Snellman already started to reconstruct the agency network of the company in

Finland. As a result, the sales in Finland were concentrated in the hands of two

sales agents. In Russia the main sales agent was Anton Lindebergs company in St

Petersburg. All in all, Kangas was dependent on the Lindebergs connections, andtherefore the new management tried to strengthen this relationship. While Russia

was the main market area, Serlachius also tried to find new markets from the UK

and other parts of Western Europe as early as in December 1904. However, they

could not achieve competitive prices from those areas and decided to focus on the

markets of Russia and Eastern Europe. This also entailed personal travel by

managers to these areas.

In February 1905 Serlachius started fairly extensive sales promotion through an

advertising campaign in the Finnish press and at the beginning of 1906 this campaign

was expanded to the new financial journal,Mercator. In 1905 the main message of

the advertisements in order to move the old stocks was the competitive price of thepaper, but in 1906 the advertisements were already fully focused on high quality.

Interestingly, Kangas was the only paper manufacturer to advertise in Finland. In

addition to public promotion, Serlachius sent personal letters to existing and poten-

tial customers with information and samples of their paper.

The third area of change, namely cutting costs, started in the beginning of 1905.

The basis of the cost cutting was in the new cost-accounting and profitability-

calculation systems that were also closely connected to the new production strategy.

These ideas were progressive, since not until the 1920s were these methods presented

in the Finnish accounting textbooks. Most likely, Serlachius had adopted these

methods when travelling around the USA and visiting various industrial corporations

during 19034. In addition, Serlachius actively discussed and exchanged opinions on

these calculations with the managers of Mntt Paper Mill. The profitability calcu-

lations and advertisement campaigns were closely linked to the offloading of the

stockpiled paper at the end of 1904 and the beginning of 1905, and were thereafter

used to control the size of the stocks and to manufacture orders just in time.

The creditors had promised that they would provide additional financial support

in 1905. However, in the autumn of that year, in his letter to Gsta Bjrkenheim,

Serlachius stated that while the situation was far from stable, they had no need for

additional credit. In 1906 the firm already showed profit and this development

continued during the following years. ROI and other financial indicators also showed

improved results.

In the summer of 1907 Serlachius reported to Lindeberg that the order book was




11/27

full for over three months and, in practice, they could get almost any price for the

paper they wished. Serlachius emphasized that they had been able to make their paper

fashionable. Moreover, in 1907 they were ready to make the first substantial repay-

ments of the loan. This trend continued in 1908. Thus, regarding both finance and

production, the organization had managed to complete a successful turnaround.

Kymi Corporation

The Kymi Corporation was formed in 1904 as a result of a merger of three pulp and

paper companies: the Kymi, Voikkaa, and Kuusankoski mills. The firm was the

biggest industrial enterprise in the country. Although each of these three factory

combinations had its own managers, the chairman of the board of directors and the

biggest owner of the firm, Rodolf Elving, had full control over all decisions in the

corporation. One of the main reasons for the merger had been to achieve economies

of scale in production. Elving immediately continued this expansive ideology andstarted a major investment programme including, among other things, three new

paper machines. These investments were mainly financed by bank loans, but also

personally by the main owners.

In 1906 fire destroyed the paper machines of the Kymi mill. The burned mill was

quickly repaired. The insurance compensated some of the damage, but the firm had

to borrow considerable sums of money and arrange a privileged subscription of

shares. In the autumn of 1907, new machines were operational, but at the time the

firm was already facing new problems including declining paper markets. A poor

harvest in Russia caused difficulties throughout the country. This, among other

things, led the Russian government to strengthen the policy of censorship and to closedown several newspapers.

Regardless of the deteriorating situation, the firm did not instantly reduce its

manufacturing volume. The paper stocks in Russia increased day after day. This

would not have caused problems if the business cycle had soon changed, but no quick

recovery came about. Not until December 1907 was the decision made to discontinue

paper production in the Kymi factory and to reduce pulp production. The firm

received a loan from the banks. However, it was used up as early as in the beginning

of 1908. Negotiations continued with the different banks, but did not lead to any

solution. As the crisis deepened, the biggest banks were no longer willing to keep

the Kymi Corporation afloat with extra finance. In January 1908 a question arose if

all the operations of the firm should be closed down.

In the beginning of February 1908, Albert Snellman, as a representative of the

creditors asked if Gsta Serlachius would be willing to be involved in the investi-

gation of the Kymi Corporation situation together with Snellman and Gsta

Bjrkenheim. Serlachiuss response was positive. After the turnaround of Kangas,

Kymi provided a second challenging arena to apply his skills. The results of the

thorough investigation of the firms conditions and future prospects showed that

Kymi was in serious difficulties, but also that it had prospects for profitable produc-

tion and that it deserved the support of the banks. Therefore, on 3 March 1908, the

creditors decided to take charge of the firm and officially declared that all its payment

transactions should be discontinued.

The creditors intervention included an extensive rescheduling programme of the




12/27

old loans and payments as well as new credit to keep the business going. While the

representatives of the Bank of Finland were not totally satisfied with the arrange-

ment, they accepted the contract without further negotiations and clarifications

because such events might endanger the existence of the organization and lead to

severe social and economic conflicts.According to the creditors and shareholders decision, Gsta Bjrkenheim, Gsta

Serlachius, and Gustaf Langenskild were appointed to manage the firm. Bjrken-

heim became chairman of the board of directors and Serlachius vice chairman. The

new management team was given a free hand to manage the firm. The only pre-

defined instructions were that they would not be allowed to construct new mills and

that they should be most frugal in their activities. None had predetermined roles in

the management team. In practice, Langenskild concentrated on legal matters while

Bjrkenheim and Serlachius were responsible for other matters. It soon became clear

that the firm needed a CEO who would bear the responsibility for the management

of all the mills. This assignment was offered to Serlachius, but he was not willing totake on it because of his other responsibilities.

The financial arrangements with the banks were the main issue during March, but

already in April the members of the management team were able to fully concentrate

their efforts on the other questions. The investigation had already shown that the

accounting system of the firm suffered from serious deficiencies. Serlachius decided

that they had to reorganize the entire system. The new system improved the ability

to evaluate what the most economical qualities of paper were for different machines.

These changes promptly improved the efficiency of the manufacturing process.

Moreover, Serlachius had already paid attention to the raw material costs and intro-

duced the heating by coal.The managers explicitly stated that their intention was to reduce the number of

factory workers to a minimum. The job cuts were substantial in 1908 and 1909, when

almost 1000 workers lost their jobs. They were not totally inhuman since the

dismissed workers were allowed to continue living in company housing if they were

already living there. This also served the companys purposes as a form of a labour

force reserve. From 1909 the firm began to systematically improve the services and

living conditions of the workers.

A third series of events also started in April 1908 with the aim of renegotiating

the contracts with sales agents both in Finland and abroad as well as reorganizing the

sales districts in order to make the sales system more controllable. During the nego-

tiations with the agents in the summer of 1908, the managers emphasized that they

could not afford to take excessively big risks and that the agents should work as care-

fully as possible. The basic lines of their future sales policy included, first of all,

offloading of the stockpiled paper, an increase in the sales volume, accurate and fast

payments and, finally, a gradual increase in prices. The last of these is particularly

interesting, since they did not try to beat down the prices. This, of course, did not

mean that they would not sell the paper from stock at a reduced price.

The fourth broad issue that Serlachius and Bjrkenheim started to consider in

April 1908 was possible cooperation or the formation of a common price agreement

with other Finnish paper mills selling paper to Russia. First, however, a contract with

other newsprint producers about the sales quotas on the Finnish markets was

renewed. The agreement concerning the Russian markets was more complicated and




13/27

did not lead to such a straightforward solution. In any case, this was a start for forth-

coming negotiations.

In addition, technical improvements were started in the mills during the summer

of 1908. However, the biggest open issue was what they should to do with the closed

Kymi mill. The managers were convinced that they should try to restart the wholemill as soon as possible. This, of course, necessitated an increase in order volume.

According to Bjrkenheim, they should monitor the development of the paper

markets in Russia very closely and gradually restart the machines. Most importantly,

they could no longer produce paper to be held in stock. The agents were likewise

ordered to accept only direct orders so that the managers could control the manufac-

turing processes more carefully. After the negotiations with the agents and the

creditors, the first of Kymis paper machines was finally started in September.

The issue of a competent CEO was resolved in November 1908, when Serlachius

started in this position. He negotiated an agreement that allowed him to continue in

his other leading positions in the paper mills of Mntt, Kangas, and Leppkoski.These connections were not considered to be obstacles because Serlachius asserted

that the firms were not direct competitors of the Kymi Corporation despite the

obvious fact that some of them actually produced similar grades of paper. Even

supposing that this was not a problem in 1908, it became one of the main reasons

why Serlachius left Kymi in 1912.

As the CEO Serlachius focused not only on the production processes, but also on

sales and marketing. In February 1909, he made a personal visit to St Petersburg,

Moscow, and Rostow to meet the important customers and inspect the paper stocks

of the agents. In his report, Serlachius describes the customers wishes and

complaints in detail. The development and future prospects of the Russian economyand the political situation influencing the prevailing state of affairs on the paper

markets were also closely addressed.

Russia continued to be the main market area for paper, but Serlachius had a clear

aim to extend the firms clientele to more stable areas, namely Britain. The idea was

to find new customers for newsprint. The price of newsprint in Britain was lower than

in Russia, but focusing on a restricted sales area is risky for a bulk products manu-

facturer. Therefore, the extension can be seen as a farsighted strategic decision.

The demand for paper began to increase early in 1909 and the second of the Kymi

factorys paper machines was started up. In July a decision was taken to restart the

third machine. An interesting point is also that Serlachius tried to make the firm more

coherent so that Kymi, Voikkaa and Kuusankoski would be in equal positions. In

January 1910, for example, a common engineering office was founded that would

serve the needs of all mills. Significant changes in production processes were also

introduced. Moreover, in the summer of 1909, Serlachius presented an idea of a

collective logging company to be founded together with the other four forest industry

firms operating in the Kymi River area. The main purposes of the logging company

were to acquire the timber needed for its members, reduce the cost of acquisitions,

and at the same time avoid internecine competition.

The year 1910 also saw some changes. Concrete results were achieved by

installing innovative fibre recovery units in the paper machines, introduced by

Serlachius. The firms financial situation and order volume improved during the

spring of 1910 and finally in April a reimbursement plan was introduced.




14/27

Bjrkenheim stated that, if the creditors accepted the plan the firm could be

considered saved. Of course, there were many risks. Radical changes in the Russian

customs or unfavourable decisions by the banks could change the situation. However,

the creditors were satisfied with the plan and it was approved in May 1910.

The year 1911 followed the same lines: improvements were made in all areas andstatistics. A collusive contract with the other Finnish newsprint producers for Russian

markets was also finally concluded and the reorganization of the agencies in Russia

continued. Altogether, the state of Kymi, both regarding finance and production, was

secure in 1912. The organization had managed to achieve a successful turnaround,

though the formal decision to end the creditors administration was not made until

June 1914, just before the outbreak of the First World War.

The three perspectives on the strategic leadership of Serlachius

Organizational environments

At the beginning of the 20th century Finland was an autonomous grand duchy under

the rule of the Russian Tsar. Finland had, among other things, its own parliament,

laws, and a strong national identity, even though the country was under the pressure

of Russification. Finlands trade focused on both Russia and Western Europe. Russia

was the main market area, primarily because the export duties for Finnish products

were lower than those for the products of other countries. This was a notable advan-

tage especially for paper manufacturers like Kangas and Kymi. Russias domestic

policy, however, was rather unstable. Thus, relying entirely on the Russian markets

was not an ideal situation in the long run (Kuisma, 1993).At a national level, Finlands economic development was mainly positive. During

the years 190212, gross domestic production (GDP) increased at an average annual

rate of 2.3 per cent, but the range of fluctuation was wide, between 0.65 and 5.6 per

cent, with GDP only declining by 0.33 per cent in 1908. This was also the most diffi-

cult year for the Kymi Corporation. The gross production of the pulp and paper

industry paralleled GDP, with 1908 the only negative year (Hjerppe, 1996).

The business environment of the pulp and paper industry as a whole was clearly

competitive, though there were already some preliminary signs of forthcoming

cooperation. As in Germany (cf. Chandler, 1990), commercial banks played a key

role in providing funds for capital-intensive industries. As in Kangas and Kymi,

representatives of banks sat on the boards of several enterprises and had a notable

influence on their decision making as well as the formation of possible cooperative

relationships.

Kangas concentrated more on fine paper manufacturing, whereas Kymi was

clearly a mass-producer of newsprint. Thus, they were not direct competitors. On the

domestic market, they had some Finnish competitors. Since both Kangas and Kymi

exported a major part of their production, their main competitors were in most cases

paper manufacturers from Sweden, Russia, the UK, and Central Europe. The govern-

ment did not circumscribe competition, but as a legislative force, it had the full

potential to raise customs tariffs, which would have had a critical influence on export

earnings.

As a whole, business activity at the beginning of the 20th century was not as




15/27

chaotic, hectic, and extensive as today. In managerial work, the doctrines of scien-

tific management and its predecessors were starting to exert an effect even in Finland.

Salaried full-time managers were already common and managerial hierarchies were

developing (cf. Chandler, 1990). These trends were also evident at Kangas and Kymi.

Regarding the implementation of leadership activities in the industrializingsociety, the outer context may also have had an influence as a form of fluctuating

political situation that culminated eventually in 1917 with Finland gaining its

independence. First of all, as a result of Russification actions by imperial Russia

around the turn of the century, the parliament of Finland lost to some extent its appeal

as a forum for the development of Finnish society. Industrial corporations and

business life in general, which were not controlled as tightly by the Russian Tsar as

the political organs, were seen to be more promising arenas in which to exert influ-

ence in societal questions, too. Thus, several competent political leaders tried to find

positions in Finnish business life (Polvinen, 1989). In other words, the importance

of firms and their managers generally increased in society.Second, the defeat of Russia in the Russo-Japanese War (19045) and the subse-

quent general strike opened the general political discussion and enabled the organiz-

ation of the labour movement, but at the same time the unrest increased among the

workers. In fact, it has been claimed that the mental attitude among the working

population was occasionally almost anarchistic (Kuisma, 1993). As a result of all

these matters, including the fact that the top manager had a patriarchal position in

most of the industrial organizations, the need and potential for the implementation

of leadership activities was favourable.

An explicit way to approach the prevailing inner organizational environment

during the turnaround processes is to analyse the ownership and debt relationships.The ownership of Kangas was divided among several groups and individuals. There

were no majority stockholders. On the other hand, NB (40 per cent) and the Bank of

Finland (20 per cent) together constituted such a coalition. The main issue, however,

was that the main owners were also the main creditors. In that respect, NBs position

as the biggest creditor and owner was especially important. Furthermore, two forest

industry companies as well as two individuals (Anton Lindeberg and Gsta Bjrken-

heim) were important stockholders and creditors. Other minority stockholders and

creditors claims relative to the previous groups were so low that Kangas was not, de

facto, dependent on them.

Using the terms of resource dependence theory (Pfeffer & Salancik, 1978), it can

be seen that the firm was heavily dependent on liquid assets as its central resources.

Thus, NB, as the main holder of this resource, possessed significant power over the

firm. Without NBs contributions, the survival of Kangas would have been unlikely.

However, as the biggest owner, NB was also at substantial risk of suffering signifi-

cant losses in case of bankruptcy, even though its liabilities were preferential.

The Kymi Corporation had a fragmented ownership structure. In contrast to

Kangas, the banks held almost no company shares and no major owners existed. The

biggest creditors were NB, the Bank of Finland, and Privatbanken. NBs share of

the total sum of the demands was about 30 per cent. The Bank of Finlands share

comprised about 25 per cent and Privatbanken held nearly 20 per cent. Consequently,

this group of three banks was responsible for a major part of the Kymi Corporations

financing and possessed significant power over the firm. The claims of other




16/27

creditors relative to these banks were marginal. The situation of the banks was thus

similar to NBs situation with Kangas. They were at risk of suffering significant

losses in case of bankruptcy, and therefore opted to save the firm.

Overall, in addition to the fact that the outer context of both turnaround processes

was rather favourable, or at least did not hamper the successful strategic leadershipof Serlachius, the internal organizational environments can be seen to be fairly advan-

tageous for the successful strategic leadership, too. The governing organizational

groups had understood that the changes were necessary and their financial support

also enabled the implementation of needed actions. Moreover, they gave the

managers sufficient freedom of action.

Demographic and personality characteristics

Gsta Serlachius was 28 years old when he accepted the position of CEO at Kangas,

and he was still young when he was appointed to the Kymi Corporation four yearslater. The average age for the appointment of industrial managers in Finland was 42

years at beginning of the 20th century and the recruitment age was lower in the first

half of the 20th century than in the second half (Fellman, 2001). Consequently,

managers ages at the beginning of the 20th century contrast with those of managers

today. However, even in his own day, Serlachius was clearly younger than the average

CEO. With respect to age, Serlachius was thus a good example of a potential turn-

around leader.

At the beginning of the 20th century, the levels and degrees of formal education

were rather different from those of today and the general standard of education was

relatively low in Finland. There was no formal management education at all and onlyone institute for engineering studies, one university, and a cadet school (Fellman,

2000). Thus, practical experience was often the most important teacher, even though

the sons of wealthy families were able to obtain higher scientific education in conti-

nental Europe or the United States. Pure one-to-one comparison between the begin-

ning and the end of the 20th century, however, is not feasible.

Gsta Serlachius matriculated from high school in 1895. He subsequently studied

two years of law at the university, but did not graduate. Nor did he have a formal

engineering education. However, Serlachius travelled to the UK in 1897 for a long

period of study and training. In 19023, he studied paper technology and machine

industry at the Technologisches Gewerbe-Museum of Vienna in Austria. Serlachius

also travelled around the United States in 19034, where he gained further new

ideas and worthwhile skills from the paper industry and business management

(Ahvenainen, 1975).

During these periods, he had also acquired excellent language skills. He com-

municated fluently in English, German, and Swedish. These were the languages also

needed in Kangass and Kymis businesses. In addition, Serlachius had familiarized

himself with different industrial organizations, the most modern ideas, and a vast

number of important people. Personal relations were, indeed, crucially important

when competing in international markets. All in all, because formal education for

managers was not available in Finland, Serlachius obtained the diverse skills and

knowledge needed by a leader through practical experience and study both in Finland

and abroad. This international, modern, and wide educational background, albeit




17/27

mostly informal, provided him with a good basis for work as a CEO and especially

as a turnaround leader. It also provides an excellent example for modern manage-

ment training of how important working and studying in other cultures can be in the

global business environment.

Because of his youth, Serlachiuss working experience in industry was relativelyshort. In 1898, he began to practise paper mill management in his uncles firm in

Mntt, Finland. He worked there for a period of four years. His assignment in

Kangas was, thus, only his second full-time position and his first position as a CEO

(Ahvenainen, 1975). By the time of his assignment to the Kymi Corporation,

Serlachius had already acquired much experience in the industry as well as recent

merits as a turnaround leader. In Finland, managersaverage employment before their

first CEO assignments was typically 19 years at the beginning of the 20th century

(Fellman, 2000). Thus, Serlachiuss tenure was noticeably shorter than that of the

average CEO. Comparison between the results of modern leadership research and

Serlachius indicates that in the case of employment, too, Serlachius is a goodexample of a successful strategic leader in a turnaround situation.

Serlachiuss motivation to lead was evident. First of all, extensive studies abroad

and familiarity with modern ideas are usually the qualities that are connected with a

motivated person. Second, when Serlachius heard about the problems at Kangas, he

immediately offered to manage the crisis company (Norrmn, 1928). He had a clear

desire to apply his skills and knowledge in practice, and Kangas offered an excellent

opportunity to demonstrate his abilities.

All in all, Serlachius was an ambitious young leader. After the turnaround at

Kangas, he had the option to either continue his work or to return to the Mntt

Paper Mill. Instead, he chose a much more challenging assignment at Kymi. Thisclearly indicates that Serlachiuss ambition and motivation were still high.

Serlachiuss personal correspondence with other managers, and especially with

Gsta Bjrkenheim in 1912, reflects the importance of trust and honesty in the

relationships between the managers as well as in general business life. As shown in

the following analysis of Serlachiuss social and professional networks, he

considered trust and openness to be important in dealings with stakeholders.

Strategic behaviour

Since constructing a wide social and professional network is a time-consuming

process, younger managers are often at a disadvantage. However, Serlachiuss

position was in this respect already relatively good when he started at Kangas.

Because of his family background, Serlachius had a name that was well-known and

respected among the small industrial elite of Finland. This was clearly an advantage.

During his assignment at the Mntt Paper Mill, he became acquainted with the

firms management and stakeholders. In Mntt, Serlachius also befriended Albert

Snellman, a bank manager, who subsequently became his fellow manager and first

direct link to the world of finance. In addition, during his studies and tours abroad,

he had established business relationships with many paper traders and various

machine manufacturers. The correspondence between them indicates that Serlachius

also maintained these relationships. He was, for example, the Northern European




18/27

representative of an American firm that manufactured water meters and hydraulic

controllers for paper factories.

Serlachiuss appointment in Kangas offered him a unique opportunity to build and

expand his social network. He became, of course, acquainted with all the important

stakeholders of Kangas. In addition, he made contacts with the financial institutionsand representatives of the forestry industry in Finland and abroad. Serlachius was

particularly active in his professional correspondence with the Mntt Paper Mill and

the Kaukas Corporation. Inside the organization, he enjoyed excellent relations with

the other managers. In fact, the working relationship between Serlachius and

Snellman developed into a deep friendship that lasted until the unexpected death of

Snellman in 1912.

At the beginning of his assignment at Kangas, Serlachius had a good reputation

and certain merits, but within only a few years he was able to convince wider

industrial spheres and to acquire concrete experience in turnaround management. The

governing groups of the Kymi Corporation were almost the same as those at Kangas.Thus, the respect and trust of these groups elevated Serlachius to the top manage-

ment of the biggest industrial corporation in Finland. During his assignment with the

Kymi Corporation, his social network expanded further. Already at Kangas

Serlachius had targeted the potential market areas and at Kymi he continued the same

policy to establish further personal connections.

At Kangas, Serlachius orientated himself by tracing the firms history, establish-

ing when the firm had been profitable and when it had been making losses. There is

no official statement of Serlachiuss vision, but he explicitly emphasized that the firm

had to concentrate on the area of business that would be the most advantageous for

its existing potential. Thus, Serlachiuss vision for Kangas was clear and groundedin reality. Although it is difficult to find an explicit vision in the case of the Kymi

Corporation, Serlachius clearly had a similar idea as at Kangas to maximize the

potential of Kymi. In both cases the predefined basic vision was that the firms had

to be saved. Altogether, Serlachius believed that the managers and all important

stakeholders should have a consensual view of the firms future.

The main events of the strategy processes were described in the detailed accounts

of the turnaround processes. Briefly, at Kangas the vision of Serlachius was realized

as a strategic decision to completely discontinue the production of newsprint,

concentrate more on fine paper, and invest in the quality of the paper. Successful

implementation of these changes called not only for alterations to the paper machines

but also required great perseverance and continuous development work. Slowly but

surely, these changes were finally realized. Moreover, Serlachius introduced and

applied new accounting cost-management methods that also improved the implemen-

tation of cost reductions. Such actions are usually urgent if expenses exceed income,

as was the case at Kangas. However, it was not enough for Serlachius to merely

introduce new ideas; they had to be constantly developed and consistently imple-

mented. The third series of actions in the strategy formation of Kangass turnaround

process was the development of sales and marketing, both in Finland and abroad.

Taken together, these findings show that Serlachius responded to basic strategic

questions regarding customers, products, and the overall efficiency of the organiz-

ations and consistently implemented innovative operational moves.

The umbrella strategy of the Kymi Corporation, conversely, had already been in




19/27

use for some time before the difficulties began to appear in increasing the overall

production capacity and finding economies of scale. Even the paper machines were

geared to bulk production. A rapid change into a completely new line of production

would have been very time consuming or even impossible to implement. Conse-

quently, Serlachius, together with his co-managers, decided to purposefully continueto develop the existing production system, even though they also left the door open

for the possible production of new grades. Nevertheless, the basic goal or vision was

to make the production more effective, more economical, and better quality.

As had occurred earlier at Kangas, cost-minimization measures were the first steps

taken in the realization of Kymis turnaround process. Serlachius also introduced

comprehensive cost- and profitability-accounting systems similar to those used at

Kangas. The strategy formation of Kymi also included considerable changes in sales

and marketing. Overall, Serlachius had again successfully responded to the basic

strategic questions. Despite the rather all-inclusive nature of Kymis turnaround

process, however, the strategic position of the firm did not change fundamentally.Kymi was mainly competing in newsprint markets where economies of scale and cost

efficiency were still crucial requirements for success.

To sum up, in both cases, as a result of consistent and analytical operational

behaviour leading to the realization of comprehensive strategies, the turnaround

processes were successful. Such strategies have been found to be typical in uncertain

environments (Miller & Toulouse, 1998), which characterize turnaround situations

(e.g. Barker & Duhaime, 1997; Robbins & Pearce, 1992). It has to be emphasized

that in both cases Serlachius explicitly responded to the basic strategic questions

(Markides, 1999) and analytically guided the strategy-formation processes. Of

course, Serlachius could not manage these turnarounds without the unreservedcooperation of other managers. At Kangas, he was obviously the driving force in the

process, but the assistance of Albert Snellman was important. Similarly, in the case

of Kymi, other members of the top management team, especially Gsta Bjrkenheim,

had significant roles. Thus, the management of the turnarounds and the formation of

the strategies were not purely playgrounds for Serlachius, but rather interactive

processes involving several individuals and groups.

Discussion: the deeper level of Serlachiuss strategic leadership

After the case descriptions and the exploration of Serlachiuss strategic leadership

from the three perspectives, we now consider what these findings reveal about the

more fundamental determinants or essence of strategic leadership and in so doing

provide answers to the research questions: (a) has strategic leadership changed

radically during the last century; and (b) can we learn something from the strategic

leadership of the past?

According to recent research, the essence of strategic leadership lies in the ability

to learn, the ability to change, and managerial wisdom (Boal & Hooijberg, 2000) or

the right combination of intelligence, creativity and wisdom (Sternberg, 2003). These

elements are often highlighted in organizational transformations when the managers,

trying to create meaning and purpose for the organizations, may need to revitalize or

even significantly change the business model on which the whole organizational

effort is based, to take advantage of emerging strategic opportunities and threats, and




20/27

to monitor and balance the needs of different stakeholders (Storey, 2005). Altogether,

the examination of these deeper elements of strategic leadership necessitates a longi-

tudinal perspective similar to that provided by the analysis of Serlachius, enabling us

to consider and compare his activities during the periods of pre-Kangas, Kangas, and

Kymi.

Absorptive capacity

The findings presented in the previous sections reveal Serlachiuss ability to learn in

many respects. First of all, through his broad, international educational background

he acquired knowledge of the state of the art of paper-making technology and

machinery as well as new production and cost-accounting methods. Moreover, he

acquired a knowledge of different cultures and strong language skills, and built up

personal connections with foreign organizations, which were (and still are) extremely

important capabilities for the top manager of a pulp and paper industry company.Serlachiuss ability to acquire this knowledge already tells something about his

ability to absorb important knowledge, but his capacity becomes more evident given

that he was also able to utilize and apply that knowledge.

Both at Kangas and Kymi the management of turnaround processes and the

refocusing of the firm strategies were greatly enhanced by Serlachiuss innovative

mind and technical knowledge. He was able to manage the technical development of

the production processes and utilize the most modern ideas and machines with which

he had become acquainted on his travels. During the turnarounds he also actively

searched for information and new ideas outside the direct environments of the

organizations through discussions with the managers of other firms and by meetingexisting and potential customers.

If we more closely compare Serlachiuss activities at Kangas and Kymi, we see

that he applied similar ideas, though in a slightly modified form, in both firms.

However, he was also able to see that something that did not work at Kangas provided

better changes for Kymi, as was the case, for example, in the expansion of the market

areas. As already suggested by Cohen and Levinthal (1990: 136) regarding absorp-

tive capacity, prior knowledge permits the exploitation of new knowledge [and]

some portion of that prior knowledge should be very closely related to the new

knowledge to facilitate assimilation, and some fraction of that knowledge must be

fairly diverse, although still related, to permit effective, creative utilization of the new

knowledge. This quotation describes Serlachiuss situation in both organizations

fairly accurately, although at Kymi his closely related prior knowledge had increased

considerably. Altogether, Serlachiuss absorptive capabilities were obvious.

Adaptive capacity

The findings of the analysis also enable us to consider Serlachiuss ability to change.

In general, the adaptive capacity may closely relate to a persons ability to learn, since

learning always entails that something will, or is allowed to, change. Thus, the basis

for successful absorption and adaptation is largely in openness to new things.

Serlachiuss openness, or almost eagerness, to change was evident in his personal

life already before he started at Kangas. One reflection of this was his genuine




21/27

enthusiasm for a CEO assignment in an organization that was in the depths of a crisis.

Most obviously, however, despite the fact that Serlachius was ready to make changes,

the implementation of these changes necessitated that the inner environments of the

organizations, that is, the main stakeholders, allowed the rapid changes to happen.

If we consider Serlachiuss activities during the turnarounds of Kangas and Kymiseparately, we may conclude that many or even most of his decisions and actions

seemed to be fairly operational. However, as the above findings show, not only did

these actions successfully respond to the urgent need to create cash flow for the

organizations, they also in combination substantially redirected the firm strategies.

Indeed, one of the most interesting findings was that Serlachius clearly responded to

the basic questions of strategic management concerning customers, products, and the

overall efficiency of the organizations. He refocused the production strategies in

terms of the products and their attributes, he charted the needs of existing and

potential customers, and he searched for new market opportunities and areas. The

simultaneous implementation of the strategic changes in all these areas, so that thesechanges also supported each other, serves as convincing proof of Serlachiuss

adaptive capabilities.

Managerial wisdom

Managerial wisdom or wisdom in general results from a combination of several

components. In the context of strategic leadership, according to Boal and Hooijberg

(2000), the critical and interrelated components of managerial wisdom include the

ability to understand social actors and their relationships (also known as social intel-

ligence), the ability to perceive variation in the environment, and the ability to takethe right action at the right time.

Serlachiuss ability to construct and maintain social and professional networks is

one example of his social intelligence. Both at Kangas and Kymi, his understanding

of the various claims of stakeholders and close communication with these actors

enhanced the support of the stakeholders and increased his own managerial freedom.

Of course, Serlachius had his own interests too, but he understood that these inter-

ests were tied to the long-term success of the organizations and their main stake-

holders. Thus, maintaining the consensus of long-term goals with the co-managers

and important stakeholders was a critical task for him. In addition, Serlachius had an

understanding of the wider context in which the firms were embedded. His travel

reports from Russia and the UK show that he followed and tried to predict how the

political environments developed. The customs policies of these countries had a

direct influence on profit margins. In addition, in Russia the unstable political situ-

ation raised other concerns. For example, the level of censorship had a direct effect

on the number of newspapers published, which in turn had a direct effect on the future

newsprint orders from the customers.

In retrospect, it would be easy to say that Serlachius did the right things at the

right time. Nevertheless, he also made mistakes. At Kymi, for example, he decided

to start tobacco paper manufacturing. It had been a success at Kangas and Serlachius

probably expected that it would be a success at Kymi, too. Unfortunately, this

experiment flopped. However, Serlachius was wise enough to stop production at the

right time, before it began to show loss an important facet of managerial wisdom.




22/27

Altogether, the components of managerial wisdom were manifest in Serlachiuss

leadership.

Strategic leadership

Managerial wisdom, the ability to learn, and the ability to change may be the basic

elements of strategic leadership. However, they are only elements. In order for

strategic leadership to be realized successfully, these elements need to be correctly

combined. In other words, in addition to having many of these capabilities and

managerial wisdom, their combination should also match the organization and the

broader environment.

The three steps of this analysis, from the main events of the two turnaround

processes through the three perspectives to Serlachiuss leadership and, finally, to the

discussion of these findings in terms of the deeper level of strategic leadership have

shown that, indeed, the basic elements of strategic leadership may not have changedmuch during the last century. Serlachius possessed personal attributes and clearly

implemented courses of action that were similar to those claimed in the literature to

be typical for todays successful strategic leadership in organizational transition.

Most importantly, at the deeper level where the essence of leadership is suggested

to lie, Serlachius can be seen as an example of the ideal compatibility of the

combination of capabilities and managerial wisdom with the organizational contexts.

He had new and creative ideas that were feasible in the prevailing organizational

situation. He had strategic flexibility to implement these ideas, and he had wisdom

to keep the crucial stakeholders convinced of these ideas and the future performance

of the firms. Such successful strategic leadership, however, is not the rule today, whichis partly why strategic leaders of organizations are equally surrounded by myths,

though at the deeper level they may not be so different from the leaders of the past.

While these results suggest that the deeper elements of strategic leadership have

remained much the same during the last century, we may not conclude that the actions

and decisions arising from these basic elements are similar in all situations. On the

contrary, strategic leadership may assume a very different form in different contexts.

A correct combination of absorptive and adaptive capabilities together with mana-

gerial wisdom only provides the bases enhancing the likelihood of the realization of

effective leadership.

In the light of these results, we may conclude that historical studies can add to the

strategic leadership research at least in two critical ways. First, as this study has

shown, they may help us to uncover the deeper levels of strategic leadership and

thereby to better understand the essence of the phenomenon. Second, historical

studies allow us to consider how strategic leadership develops in one context and

what changes in the leadership activities when the context changes. In particular,

historical studies provide a perspective extending across several years that is often

necessary in order to observe processual and structural aspects of leadership. As

Lawrence (1984: 311) states, a historical perspective pushes thinking about alterna-

tive explanations for phenomena, helps identify more and less stable concepts, and

expands research horizons by suggesting new ways of studying old questions and

controlling for longitudinal, cohort, and period effects. Accordingly, the answer to

the second research question is positive.




23/27

Conclusion

Strategic leadership research is clearly an ongoing process. This study has tried to

provide further perspectives on this endeavour by considering what has truly changed

in the phenomenon known as strategic leadership. The answer to this question turned

out to be two-fold. If we consider the level of leadership activities, that is, what strate-gic leaders should do in a particular context in order to be effective, the world is likely

to be transient and contingent. The behaviour of a strategic leader that has been

connected to the successful performance of an organization in the past may lead to

the opposite results if followed in other circumstances. However, if we move to the

deeper level, to the essence of the phenomenon, strategic leadership seems to be

based on much more stable elements. The right combination of absorptive and

adaptive capacities, combined with managerial wisdom, provided the basis for effec-

tive strategic leadership at the beginning of the 20th century similarly as it is

suggested to do today. Indeed, the more things change, the more crucial is the combi-

nation of these basic elements matching the organizational context.Findings from a single case study are not, of course, statistically generalizable. A

rich case analysis, however, is especially appropriate for challenging conventional

thinking as well as building deep structural explanations and theories (Langley, 1999;

Pentland, 1999; Ragin, 1994; Tsoukas, 1989). Thus, this study seeks essentially to

expand the research horizons and encourage further studies to focus on the issues of

change and relative stability as well as surface and deep structures that surround and

underlie the strategic leadership phenomenon. Different businesses, nations, and eras

provide fruitful viewpoints to consider these issues. The extensive use of archival

material can also contribute to leadership research and especially to research that

seeks to examine the deep structures. In addition, the history of strategic leadershipoffers excellent examples of success stories, but it is also full of failures from which

we can learn.

To conclude, this article should also motivate researchers with interests other than

strategic leadership to look beyond the rapidly changing surface of visible phenom-

ena to look more extensively for deep-level structures and mentalities that may not

change with every year or decade. For example, a management fad of the 1980s may

not have been useful for a firm in the 1990s, but in the new millennium the same firm

may find it more than relevant. It may not be fashion, but it works for the firm. The

time has changed, but the deeper structures have remained the same.

Acknowledgements

An earlier version of this article received the Paul Hersey Award for Best Paper on

Leadership in the Academy of Management 2005 meeting. I gratefully acknowledge

financial support received from the Academy of Finland and TEKES.

References

Ahvenainen, J. (1972a) Kankaan paperitehtaan historia I. Jyvskyl: Sis-Suomen

Kirjapaino.

Ahvenainen, J. (1972b) Kymin osakeyhti vuosina 19181939. Helsinki: Oy Tilmann Ab.

Ahvenainen, J. (1975) Kankaan paperitehtaan historia II. Jyvskyl: Sis-Suomen

Kirjapaino.




24/27

Barker III, V. L., & Duhaime, I. M. (1997) Strategic Change in the Turnaround Process:

Theory and Empirical Evidence, Strategic Management Journal 18: 1338.

Bass, B. M. (1985)Leadership and Performance Beyond Expectations. New York: Free Press.

Berson, Y., Shamir, B., Avolio, B. J., & Popper, M. (2001) The Relationship Between Vision

Strength, Leadership Style, and Context,L

Documents

Evaluating Strategic Leadership in Org Transformations