Prescriptive purpose delivered through mission, objectives and ethics

Expressing Corporate Purpose - Influences on strategic purpose - Governance Structure/ Capability Strategic Purpose Social Responsibility Priorities Stakeholder Expectations Johnson . Whittington and Scholes (2011)

Expressing Corporate Purpose Needs to be constantly reviewed..change is constant: Environment Business Relationships Technology People Environment Shifts in the economy – competitive pressures and legislative changes can prompt strategic change Business Relationships New alliances, acquisitions, partnership and other significant developments Technology Impact on the content of work and even the survival of companies – consider in different industries People New entrants to organisation may have different educational or cultural backgrounds or expectations that require change Very relevant with the leadership of an organisation changes. The implications of the above need to be considers in the context of the organisations dynamic an complex structure. Tichy argues change s not only inevitable in sucy circumstances but can be managed to produce effective strategic results.

Expressing Corporate Purpose Defining and expressing a clear motivating purpose for an organisation is core to a strategists job: Vision Mission Strategic intent Purpose Values “How we do business” Maintaining alignment to the purpose.. Goals, objectives – more quantified, specific, SMART

Expressing Corporate Purpose A mission statement aims to provide employees and stakeholders with clarity about the overriding purpose of the organisation A mission statement should answer the questions: ‘What business are we in?’ ‘How do we make a difference?’ ‘Why do we do this?’

Expressing Corporate Purpose A vision statement is concerned with the desired future state of the organisation; an aspiration that will enthuse, gain commitment and stretch performance. A vision statement should answer the question : ‘What do we want to achieve?’

Expressing Corporate Purpose A statement of corporate values should communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate. Such core values should remain intact whatever the circumstances and constraints faced by the organisation.

Expressing Corporate Purpose Objectives are statements of specific outcomes that are to be achieved. Objectives are frequently expressed in: financial terms (e.g. desired profit levels) market terms (e.g. desired market share) and increase social terms (e.g. corporate social responsibility targets)

Expressing Corporate Purpose Issues in setting objectives: Do objectives need to be specific and to have quantified targets? (SMART?) The need to identify core objectives that are crucial for survival The need for a hierarchy of objectives that cascade down the organisation and define specific objectives at each level Issue in achieving objectives: Do we have/ can we get the ‘right’ data? Can we understand it? Distinguishing between values and objectives Motivating stakeholders...do individuals know how/where they impact corporate objectives?

Owners & Managers Four basic models: Public Companies Entrepreneurial businesses Family businesses State Owned businesses Different ownership models have huge influence on how strategic purpose is shaped and maintained Profit Focus Exclusive Many Public Organisations Many Entrepreneurial Businesses Management Style Professional Personal Many State Owned Businesses Many Family Businesses Many variants of these Public Orgs – Companies sell shares to public (individuals, banks, trusts, etc). Owners delegate running the company to managers to making a return for them State Owned – Wholly or largely owned by national/regional government – important in developing economies - (BRIC countries) – Politicians usually delegate how company is run to ensure alignment to government policy – however – these organisations have to make some sort of profit/surplus to fund investment/maintain reserves Family Owned – ownership usually past on through inheritance – aim is more to maintain status quo and long term stability for next generations. Note Ford, Walmart, Fiat, are still family owned Entrepreneurial – Owned by founders – focus on profit to grow and usually need professional managers as size/complesity increases – e.g. Richard Branson, Lakshmi Mittal, Stelios Haji-Ioannou Mixed

Owners & Managers Key Issues: The separation of ownership and management control - how could the needs of owners and managers differ? Corporate failures and scandals e.g. Enron: focussing attention on governance issues. Increased accountability To wider stakeholder interests and the need for corporate social responsibility (e.g. green issues)

Owners & Managers Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation

Owners & Managers The Governance Chain Principal – Agent Key issues: Principals pay agents to act on their behalf Key issues: Knowledge imbalances (agent know more than principals Monitoring limits – difficult for Principals to monitor performance Misaligned incentives Governance can be seen in terms of the principal agent model Principals pay agents to act on their behalf (e.g. beneficiaries/trustees pay investment managers to manage funds, Boards of Directors pay executives to run a company). Agents may act in their own self interest. Figure 4.2 The chain of corporate governance: typical reporting structures Source: Adapted from David Pitt-Watson, Hermes Fund Management

Owners and Managers - Decision Making - Alignment with Environmental change – slow – so why change The success of the past – comfort – where has profit been coming from – stick to what you know best Incremental change 1. Logical incrementalism – not going to far from what you know best 2. Strategic drift HMV – Kodak Core Rigidities – What has been done in the past taken for granted – based on unique capabilities that are difficult to copy But it then becomes difficult to change – Hard to spot – easy to change – easy to spot – hard to change Relationships become shakles 3. Flux = Strategies may change but no clear direction Management Changes Pressure from stakeholders Internal Rivalry Deterioration in confidence by shareholders 4. Transformational change or death – Things become worse Organisation may die – receivership – OR Be taken over OR - Transformational change – markets – products – merger – new capabilities – new structure P. l-l. Grinyer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success: The Fall and Rise of the Newton Chambers Group, Associated Business Press (1979); A. M. Pettigrew, The Awakening Giant, Basil Blackwell (1985); G. Johnson, Strategic Change and the Management Process, Basil Blackwell (1987). Grinyer & Spender (1979)

Owners & Managers "If the rate of change on the outside exceeds the rate of change on the inside, the end is near." (Jack Welch) Use as a prompt to make a link to change management.

Owners & Managers - Stakeholders and Shareholders - What is a shareholder? Shareholders have priority in regard to the wealth created by the company, as opposed to employees Shareholder interests are largely financial Shareholders can vote for the board of directors, according to the number of shares they have Usually many shareholders..so no one shareholder dominates If dissatisfied, they can sell their shares..which may push the share price down..leading to a threat to the directors of a takeover Use as a prompt to make a link to change management.

Owners & Managers - Stakeholders and Shareholders - Who are the shareholders – should boards respond to the demands of institutional investment managers or the needs of the ultimate beneficiaries? The role of institutional investors – should they actively intervene in strategy? Establishing the specific role of the board – in particular the role of non-executive directors. Scrutiny and control – statutory requirements and voluntary codes to regulate boards Use as a prompt to make a link to change management.

Owners & Managers - Stakeholders and Shareholders - What is a stakeholder? Stakeholders share in future of the business Stakeholders may include employees, local communities, local governments, major suppliers, customers, banks..etc Shareholders are also stakeholders, but tend to take a larger stake in the company..and hold onto these for a longer term.. Governance structures need to consider multiple stakeholder needs..in some cases..stakeholder groups need to be represented on the board Use as a prompt to make a link to change management.

Owners & Managers - Stakeholders and Shareholders - A stakeholder in an organisation is (by definition) any group or individual who can affect or is affected by the achievement of the organisation's objectives. Freeman, (1984: 46) Strategic Management: A Stakeholder Approach

Owners & Managers - Stakeholders and Shareholders -

Owners & Managers - Stakeholders and Shareholders - Internal Stakeholders External Stakeholders Departments Locations Senior / middle / junior management Office / factory workers Financial institutions Banks Shareholders Analysts, brokers Customers Suppliers Unions Regulatory bodies Policy makers Standards bodies Pressure groups

Owners & Managers - Stakeholders and Shareholders - Use as a prompt to make a link to change management.

Owners & Managers - Stakeholders and Shareholders - The role of boards Operate ‘independently’ of the management – the role of non-executives is crucial. Be competent to scrutinise the activities of managers. Have time to do their job properly. Behave appropriately given expectations for trust, role fluidity, collective responsibility, and performance.

Stakeholders Influence on Strategic Purpose Environment Company Stakeholders

Stakeholders Influence on Strategic Purpose ..common conflicts of expectations...

Stakeholders Influence on Strategic Purpose Stakeholder Mapping Identifies: Interests and power Who are the key blockers and facilitators Who to re-position..e.g. To support new ideas or tackling issues Who can endorse/support new initiatives (Adapted from Mendelow, 1986)

The role of management on Corporate Social Responsibility Corporate social responsibility (CSR) is the commitment by organisations to ‘behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large’ World Business Council for Sustainable Development

Carroll’s (1979) CSR Pyramid Philanthropic Ethical Legal Economic P = Be a good corporate citizen E = Be ethical L = Obey the law E = Be profitable

The role of management on Corporate Social Responsibility

The role of management on Corporate Responsibility

The role of management on Corporate Social Responsibility

The role of management on Corporate Responsibility Ethical issues have to be faced at the individual level : The responsibility of an individual who believes that the strategy of the organisation is unethical – resign, ignore it or take action. ‘Whistle-blowing’ - divulging information to the authorities or media about an organisation if wrong doing is suspected.

The role of management on Corporate Responsibility Where do you sit? http://www.youtube.com/watch?v=VCC1H7MSIs Milton Friedman – profit maximisation? (See: http://www.colorado.edu/studentgroups/libertarians/issues/friedman- soc-resp-business.html ) Charles Handy – ‘..do something more than just make a profit..that ‘something’ becomes the real justification of the business’

Strategic Purpose, Stakeholders, Governance and Ethics - Summary - An important managerial task is to decide how the organisation should express its strategic purpose through statements of mission, vision, values or objectives. The purpose of an organisation will be influenced by the expectations of its stakeholders. The influence of some key stakeholders is represented formally within the governance structure of an organisation. This can be represented in terms of a governance chain, showing the links between ultimate beneficiaries and the managers of an organisation There are two generic governance structures systems: the shareholder model and the stakeholder model though there are variations of these internationally. Organisations adopt different stances on corporate social responsibility depending on how they perceive their role in society. Individual managers may face ethical dilemmas relating to the purpose of their organisation or actions it takes. Different stakeholders exercise different influence on organisational purpose and strategy, dependent on the extent of their power and interest. Managers can assess the influence of different stakeholder groups through stakeholder analysis