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Leadership
DOI: 10.1177/17427150060660252006; 2; 341Leadership
Kalle PajunenLeadership in Organizational TransformationsThe More Things Change, the More They Remain the Same? Evaluating Strategic
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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
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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;
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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