Part II - Strategic Management Process Chapter Four – Setting Strategic Direction Freeman, E.R.1984. Strategic Management: A Stakeholder Approach

Too often we take too narrow a view of strategy…. Strategic Management is a continuous process, and even though discrete points in time must be chosen for the purpose of making a decision, it must be done year-round, not just the yearly “planning meetings”. How direction can be set using the stakeholder concept, and in particular make clear that the concept is useful in looking at the role of an organization in society. Major contributions of the implementation of strategic management has been that executives can examine where the firm is headed, what the nature of its business will be and how changes in directions can be made. Strategic decisions are intentional actions which are designed to exert some measure of control over the future (and the present) state of the corporation.

Traditional Directions Setting Questions Corporate Level What is our Business? What Business are we in? What Business do we want to be in? Division Level What are the synergies among the division’s businesses? What is our division’s Portfolio? How do we succeed in this family of businesses? Business Level How do we succeed in this business (or with these products?) Where are we going with this business? Should we be a “low cost producer”or should we “find a niche”)

Enterprise Strategy Stakeholder Analysis Value Analysis Social Issues Who are our stakeholders? What effects do we have on each in political, economic and social terms? How theses stakeholders perceive these effects? What are the dominant organizational values? What are the values of the key executives and board members? What are the values of the key stakeholders What are the major issues facing our society over the next 10 years? How to these issues affect our organizations and our stakeholders?

Enterprise Strategy: What Do We Stand For? Every Managers knows that value judgements are a primarly ingredient of a successful strategy The strategy of those affected by it must also be factored into the equation. Corporation is “value-laden” Understanding the impact of changes in business strategy on the underlying values of the firm, and to understand the new relationships which will be charted. The task of setting direction involves understanding the role of a particular firm as a whole, and its relationships to other social institutions.

Stakes of Important Stakeholders: Economic effects: actions may affect the profitability, the cash flow or the stock price of the firm Technological effects: by enabling or preventing the firm from using or producing core technologies Social effects: altering the position of the firm in society Political effects: to achieve some social purpose Managerial effects: by forcing it to change its management system and processes, and even its managerial style and values.

Value Analysis: Are we to understand the dominant values that are present in organizations? We need to be more precise about the nature of values We need to understand how personal values and organizational values fit together We need to know how organizational values fit among several different organizations Intrinsic values are basic Instrumental values are means to intrinsic values Organizational values will reflect history, will be slow to change over time and may be the amalgamation of the values of many individuals.

Social Issues Analysis: What are the major issues facing society today? The analysis of social issues can be combined with stakeholder analysis to look at the impact of current and future social issues on the stakeholders of the firm. By combining an understanding of the stakeholders in an organization, the values of the organization and an account of the social issues which affect the firm now and in the future, We can articulate a statement of either where the organization currently is, with respect to its enterprise strategy, or we can formulate a new direction for the enterprise.