Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Exploring Corporate Strategy 7 th Edition Part II The Strategic Position

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Chapter 4 Expectations and Purposes Exploring Corporate Strategy 7 th Edition

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Expectations and Purposes - Outline Corporate governance Organisational stakeholders Stakeholder mapping Ethical issues Culture Cultural web Communication of organisational purposes

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Complex role that people play in strategy development Strategy is about –what people expect an organisation to achieve –what influence people can have over an organisation’s purposes Role of People

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Expectations and Purposes Exhibit 4.1

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Corporate Governance The governance framework –whom the organisation serves –how the purposes and priorities should be decided –how an organisation should function –how power is distributed among stakeholders

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 The Chain of Corporate Governance Exhibit 4.2 Source: Adapted from David Pitt-Watson, Hermes.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 The Chain of Corporate Governance Chain or hierarchy of control –Separation of ownership and management control –Beneficiaries, trustees of funds, investment managers, board, executive directors, senior executives, managers Accountability and responsiveness –Wider range of stakeholders Principal-agent relationships

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Governance Chain - Issues Conflicts of interest Directors’ responsibilities to shareholders Accountability to stakeholders Structure of targets, budgets and rewards

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Corporate Governance Reforms Imperfections in governance chain –Unequal division of power –Differing access to information High profile cases of fraud or poor governance Committees established for reform –Risk management –EU Real requirements: –Changes in board behaviour –Strategic approach

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Role of Governing Bodies Different ownership structures –Anglo-Saxon, Rhine, Latin, Japanese models Important for international strategy –Does governance help or hinder investment? –Does governance affect speed of investment? –Which relationships are critical? –How quickly will pay-offs be expected?

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Strengths and Weaknesses of Governance Systems (1) Exhibit 4.3a Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p st

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Strengths and Weaknesses of Governance Systems (2) Exhibit 4.3b Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p. 324.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Governing Bodies’ Influence on Strategy (1) Two choices –Strategic management delegated to management –Board engages with management in strategic management High profile company failures focused attention on role of board

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Governing Bodies’ Influence on Strategy (2) Implications of board involvement –Need to operate independently of management –Must be competent to scrutinise managers’ activities –Need time to do job properly –Importance of softer issues, e.g. trust, respect

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Forms of Ownership (1) Ownership has fundamental effect on organisational purpose and strategies –Private/public ownership of equity Public equity often required for growth –Sale of all or part of the company To a more suitable corporate parent –Target for acquisitions Compare offer with expected future returns

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Forms of Ownership (2) Ownership has fundamental effect on organisational purpose and strategies –Mutual ownership Customers are owners rather than shareholders –Privatisation Market forces, customer needs, access to capital

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Stakeholder Expectations Corporate governance chain –Formal requirements and boundaries within which strategy is developed Organisational stakeholders –Other groups (internal and external) which have expectations and potential influence Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals and on whom the organisation depends Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals and on whom the organisation depends

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 External Stakeholders Stake- holders ExamplesInfluence MarketSuppliers, competitors, distributors, shareholders Economic/value creation Social/ political Policy makers, regulators, government agencies Social legitimacy Techno- logical Key adopters, standards agencies, owners of competitive technologies Diffusion of new technology/ adoption of industry standards

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Some common conflicts of expectations Exhibit 4.4

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Conflict of Expectations Short-term profitability versus growth Family control versus professional managers Financial independence versus share/loan funding Public share ownership demands openness and accountability Cost efficiency may mean job losses Mass markets may compromise quality Mass public service provision versus specialist services Multinational division loyalty versus host country loyalty

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Stakeholder Mapping: the Power/Interest Matrix Exhibit 4.5 Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1991.

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Use of Stakeholder Mapping Do actual levels of interest and power reflect corporate governance framework? Who are key blockers and facilitators of a strategy? Is repositioning of stakeholders desirable/feasible? Which are the key stakeholders whose interest and power must be maintained to support the strategy?

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Sources and indicators of power Exhibit 4.6

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Sources of Power Within organisationsExternal stakeholders Hierarchy (formal power)Control of strategic resources Influence (informal power)Involvement in strategy implementation Control of strategic resourcesPossession of knowledge (skills) Possession of knowledge and skills Through internal links Control of the environment Involvement in strategy implementation

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Indicators of Power Within organisationsExternal stakeholders Status Claim on resourcesResource dependence RepresentationNegotiating arrangements Symbols

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Business ethics – the societal expectations of organisations Macro level –Range from laissez faire to shapers of society –Ethical stance of organisation in society –Extent an organisation exceeds its minimum obligations to stakeholders and society Corporate social responsibility –Specific ways to exceed minimum obligations imposed by legislation/corporate governance –Reconcile conflicting demands of stakeholders Individual level –Behaviour and actions of individuals within organisations

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Four Possible Ethical Stances Exhibit 4.7

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Some questions of corporate social responsibility Exhibit 4.8a

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Some questions of corporate social responsibility Exhibit 4.8b

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Corporate Social Responsibility Internal AspectsExternal Aspects Employee welfareEnvironmental issues Working conditionsProducts Job designMarkets and marketing Intellectual propertySuppliers Employment Community activity Human rights

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Organisational Culture “The basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view of itself and its environment” Schein 1997 “The basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view of itself and its environment” Schein 1997

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Cultural Frames of Reference Exhibit 4.9

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Organisational Field Organisations within a field have: –Common business environment –Common norms and values –Shared set of assumptions A recipe of organisational purpose & shared wisdom Dangers: –Institutionalised managers may be blinkered –Transition between sectors difficult Legitimacy: –Need to meet expectations in terms of assumptions, behaviours and strategies

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Organisational Culture Exhibit 4.10

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 The Cultural Web Exhibit 4.11

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 The Cultural Web: some useful questions Exhibit 4.12

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 The Cultural Web of the NHS

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Communicating Organisational Purposes Corporate Values –Core values, the principles guiding actions Vision/Mission –Statement of overriding direction and purpose of organisation Objectives –Statement of specific outcomes to be achieved Financial, market-based Sometimes measurable Relevant

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Key Points (1) Expectations and purposes influenced by: –Corporate governance, stakeholder expectations, business ethics and culture Corporate governance –Whom organisation serves, how purposes/priorities decided Stakeholders’ power and influence –Stakeholder mapping

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Key Points (2) Ethical stance –Corporate social responsibility Culture –Levels of cultural frames of reference –Layers of values, beliefs, behaviours and taken- for-granted assumptions –Cultural web Communication of organisational purposes –Values, mission, objectives