GTUMB62SS STRATEGIC MANAGEMENT COVENTRY PROGRAMME Lecture 5. Lecture 5 Stakeholder Analysis: Organizational Purposes: Values, Mission, Vision, Objectives, Culture & Corporate Governance Stakeholders and Strategic Management Learning Outcomes: ➢Perform comprehensive stakeholder identification and analysis for any organization ➢Critically analyse and interpret the importance of stakeholders to strategy formulation and implementation ➢Describe the risks posed by stakeholders to organizational strategy and how that could be managed. ➢Critically examine the stakeholder commitment model and suggest any necessary improvement ➢Why it is critical for company managers to have a clear strategic vision of where a company needs to head and why. ➢Explain Who’s Involved with Strategic Management ➢Discuss the role and responsibility of a company’s board of directors in overseeing the strategic management process ➢Examine the role of Top Management and other employees in Strategic Management Stakeholders and Strategic Management Managers/Strategists Understanding of Stakeholders: ➢Managers/strategists have to be aware that the decisions they have to make about the purpose and strategy of their organisation are influenced by the expectations of stakeholders. ➢This could be a very daunting task since there are likely to be stakeholders, especially for large organizations (see Fig. 2) with different, perhaps conflicting, expectations. ➢The implication of the above is that managers need to take a view on (i) which stakeholders will have the greatest influence, therefore (ii) which expectations they need to pay most attention to and (iii) to what extent the expectations and influence of different stakeholders vary Strategy & Stakeholder Analysis ◼ Who is a stakeholder? ➢ Pretty much easy to miss out identifying a stakeholder, but doing so, whether they have a major or a minor stake in the project, can delay or derail a project ➢ For a project to be successful, it must satisfy the users of its output ➢ Engaging the people or groups who have vested interest throughout the life of a project is a key to, although not a guarantee of, a project’s success (Burdford, 2012, p. 53; Kloppenborg, 2012, p. 116) ❖ Stakeholders are the individuals and groups who are affected by or impact upon the performance of the organization (Jeffs, 2008). Strategy & Stakeholder Analysis ◼ What you need to understand (Kloppenborg, 2012, p.116): ➢ First, there must be multiple users and each may have different wants and needs ➢ Second, often, users do not fully understand what they want because they do not know what alternatives may be available ➢ Third, the customer who pays for the project (the product or the needed change) may not be the actual person or group who uses the result, and the customer may not fully understand the user’s needs ➢ Fourth, when someone else is paying for the project, some users will ask for many project outcomes that are expensive or time-consuming to deliver ➢ Many stakeholders in addition to the users of a project’s outcomes have an interest in the project Strategy & Stakeholder Analysis ◼ Identifying stakeholders: ➢ One way is to ask, “Who will use or be affected by the result of the needed change?” ➢ The answer includes users of project results and others who may have some changes forced upon them by the project ➢ The Project Management Body Of Knowledge (PMBOK) - identify stakeholders analysis as “the process of identifying all people or organizations impacted by the needed change, and documenting relevant information regarding their interests , involvement and impact on project success” (Hugan, 2002) (Kloppenborg, 2012, p. 116) Strategy & Stakeholder Analysis ➢ Stakeholders also encompass those who are affected by the process of executing the needed change ➢ This embraces people who: ✓Work on the project ✓Provide people or resource for the project ✓Have their routines disrupted by the project (Kloppenborg, 2012, p. 116) Stakeholder Aspirations/Expectations ➢Note that the decisions managers have to make about the purpose and strategy of their organisation are influenced by the expectations of stakeholders. ➢This poses a challenge because there are likely to be many stakeholders, especially for a large organisation, with different, perhaps conflicting, expectations. Stakeholders of a Large Organization Fig.1 Can you think of any other stakeholders of any large firm not herein captured by this model? Source: From R.E. Freeman, Strategic Management: A Stakeholder Approach, pub. Pitman 1984 Copyright 1984 by R. Edward Freeman. Strategy & Stakeholder Analysis Identifying stakeholders: ◼ Another approach to identify stakeholders is to ascertain whether they are internal to the organization performing the project or external to it ◼ See Fig. 2 for an example of project stakeholders based on these categories (Kloppenborg, 2012, p. 116) Strategy & Stakeholder Analysis Fig.2 Strategy & Stakeholder Analysis Types of External Stakeholders: They can be usefully divided into three types in terms of the nature of their relationship with the organisation and, therefore, how they might affect the success or failure of a strategy: ➢ Economic stakeholders, including suppliers, competitors, distributors (whose influence can be identified using Porter’s five-forces framework (see Fig. 3) and shareholders (whose influence can be considered in terms of the governance chain - the governance chain illustrates the roles and relationships of different groups involved in the governance of an organization) ➢ Socio/political stakeholders, such as policy makers, regulators and government agencies who will influence the ‘social legitimacy’ of the strategy ➢ Technological stakeholders, such as standards agencies and owners of competitive technologies who will influence the diffusion of new technologies and the adoption of industry standards Strategy & Stakeholder Analysis ❖ The different types of stakeholders may have different influences in different situations ❖ For example, the ‘technological group’ will be crucial for strategies of new product introduction whilst the ‘social/political’ group is usually particularly influential in the public sector context. ❖ Although internal stakeholders may have different influences on an organization’s strategy, external stakeholders need to rely on their links with the internal stakeholders in order to exert their influence on any strategy. For example, customers may exert pressure on sales managers to represent their interests within the company. Could you think of any other examples? Strategy & Stakeholder Analysis ❖Since we couldn’t rule out the differences in expectations of different stakeholder groups, it is also normal for conflict to exist regarding the importance or desirability of many aspects of strategy. ❖For these differences and the subsequent conflicts, it calls for compromises to be reached in most cases ❖Global organisations may experience additional complications since they are operating in multiple areas. For example, an overseas division is part of the parent company, with all that implies in terms of expectations about behaviour and performance, but is also part of a local community, which has different expectations. These two ‘worlds’ may not sit comfortably alongside each other. ❖For these reasons, the stakeholder concept is valuable when trying to understand the political context within which strategic developments take place Some Common Conflicts of Expectations Fig.4 What are or what have been the common conflicts of expectations in your organizations? Source: Johnson, Scholes & Whittington, 200…p. 155) Strategy & Stakeholder Analysis Stakeholder Mapping: The power/interest matrix • Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities ➢We can use stakeholder mapping in different ways to gain an understanding of stakeholder influence ➢For this course, our stakeholder mapping is to identify stakeholder expectations and power and help us in understanding political priorities. This mapping underlines the importance of two issues: 1. How interested each stakeholder group is in impressing its expectations on the organisation’s purposes and choice of strategies. 2. Whether stakeholders have the power to do so • Understanding these helps with managing and communicating with each stakeholder • The next slide for the stakeholder-interest grid (E.g., Burdford, 2012, p. 56) Fig.5 Strategy & Stakeholder Analysis 1. Low power/low interest ➢ They are the easiest group to keep informed and least important to the project. Monitor this group for changes in their power or interest 2. High power/low interest ➢ Stakeholders with high power and low interest can be passive. They stay away from the project until something happens to change their interest, making them key stakeholders. Engage and consult with these stakeholders. Strive to keep them satisfied, meet their needs, and keep them informed. 3. Low power/high interest ➢ 4. These are project supporters or project ambassadors. Keep them involved in and informed about the project. Albeit, they have low power, they can influence the key stakeholders High power/high interest These are the people you must make the greatest effort to fully engage Strategy & Stakeholder Analysis Stakeholder mapping might help in understanding better some of the following issues: ➢ In determining purpose and strategy, which stakeholder expectations need to be most considered? ➢ Whether the actual levels of interest and power of stakeholders properly reflect the corporate governance framework within which the organisation is operating, as in the examples above (institutional investors, community groups). ➢ Who the key blockers and facilitators of a strategy are likely to be and how this could be responded to – for example, in terms of education or persuasion. ➢ Whether repositioning of certain stakeholders is desirable and/or feasible. This could be to lessen the influence of a key player or, in certain instances, to ensure that there are more key players who will champion the strategy (this is often critical in the public sector context). ➢ Maintaining the level of interest or power of some key stakeholders may be essential. For example, public ‘endorsement’ by powerful suppliers or customers may be critical to the success of a strategy. Equally, it may be necessary to discourage some stakeholders from repositioning themselves Strategy & Stakeholder Analysis Group Class Exercise (30 minutes) In groups of 5, pick any organization of your choice and decide on a strategy that has become necessary to be implemented. Perform stakeholder mapping in accordance with the implementation of this strategy. You are to present your stakeholder mapping to the whole class Strategy & Stakeholder Analysis Power: ➢ It is an undisputable fact that, in most organisations, power will be unequally shared between the various stakeholders. ➢ Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action ➢ This is the mechanism by which one set of expectations will influence strategic development or seek compromise with others ➢ There are many different sources of power. On the one hand, there is power that people or groups derive from their position within the organisation, the resources or know-how they control, and through the formal corporate governance arrangements. ➢ Stakeholders may also have power by other means (see Fig. 4 below). This Figure 4 can be used to understand how powerful each stakeholder is in influencing a particular strategy (as part of stakeholder mapping). Sources & Indicators of Power Fig.7 Source: Johnson, Scholes & Whittington, 2008, p.161 Stakeholder Mapping ➢ The relative importance of these sources will vary over time. Indeed, major changes in the business environment can significantly shift the power balance between organisations and their stakeholders. ▪ For example, consumers’ knowledge of different companies’ offerings through Internet browsing has increased their power considerably as they compare different offerings and reduce their traditional loyalty to a particular supplier. Deregulation and ‘citizen empowerment’ have required public service organisations to adopt more customer focused strategies. Strategy & Stakeholder Analysis ❖It is also useful to understand the power held by external stakeholders. The indicators of power here are slightly different: 1) The status of an external stakeholder can often be inferred by the speed with which the company responds. 2) Resource dependence in terms of the relative size of shareholdings or loans, or the proportion of a company’s business tied up with any one customer, or a similar dependence on suppliers. A key indicator could be the ease with which a supplier, financier or customer could switch or be switched at short notice. 1) Symbols are also valuable clues about power. For example, whether the management team wine and dine with a customer or supplier, or the level of person in the company who deals with a particular supplier. Strategy & Stakeholder Analysis Stakeholder Commitment: As a project manager, or change agent, or strategy developer and implementer, how can you stimulate, develop and sustain stakeholder commitment throughout the project life cycle? Strategy & Stakeholder Analysis Fig.6 ORGANIZATIONAL PURPOSES: VALUES, MISSION, VISION & OBJECTIVES What Does Strategy-Making, StrategyExecuting Process Entail? The process of crafting and executing a company’s strategy is an ongoing, continuous process consisting of five interrelated stages: 1. Developing a strategic vision that charts the company’s long-term direction, a mission statement that describes the company’s purpose, and a set of core values to guide the pursuit of the vision and mission. 2. Setting objectives for measuring the company’s performance and tracking its progress in moving in the intended long-term direction. 3. Crafting a strategy for advancing the company along the path management has charted and achieving its performance objectives. 4. Executing the chosen strategy efficiently and effectively. 5. Monitoring developments, evaluating performance, and initiating corrective adjustments in the company’s vision and mission statement, objectives, strategy, or approach to strategy execution in light of actual experience, changing conditions, new ideas, and new opportunities. The Strategy-Making, Strategy-Execution Process Organizational Purposes: Values, mission, vision & objectives Corporate Values: ➢Core values are the underlying principles that guide an organisation’s strategy. ▪ For example, emergency services such as ambulance and the fire brigades have an overriding commitment to saving life that employees are committed to the extent that they will break strike action or risk their own lives to attend emergencies when life is threatened. What is your company’s corporate value? ▪ Jim Collins and Jerry Porras have argued that the long-run success of many US corporates – such as Disney, General Electric or 3M – can be attributed (at least in part) to strong core values. Could this be said of any company/organization in Ghana? Organizational Purposes: Values, mission, vision & objectives Corporate Values: ➢An organization risks some loses or damages to reputation and even existence if its public statements of corporate values are not strictly adhered to. ➢It is also important to distinguish between the core values expressing the way the organization is, as distinct from those to which the organisation wishes to aspire. ➢Unless this distinction is clear there is room for considerable misunderstanding and cynicism about statements of corporate values. In either case such statements may be concerned with aspects of corporate social responsibility . Organizational Purposes: Values, mission, vision & objectives Mission and Vision Statements: ➢Whilst corporate values could be regarded as the backcloth and set boundaries within which strategies are developed, a mission statement and a vision statement are typically more explicitly concerned with the purpose of an organisation in terms of its strategic direction. ➢A mission statement aims to provide employees and stakeholders with clarity about the overall purpose and raison d’être of the organisation. It therefore has to do with building understanding and confidence about how the strategy of the organisation relates to that purpose. ➢A vision statement is concerned with what the organisation aspires to be. Its purpose is to set out a view of the future so as to enthuse, gain commitment and stretch performance. Quickly google the vision statements of any two Ghanaian companies and compare whether they have any future orientation. Values, Mission, Vision and Corporate Objectives ❑Although both mission and vision statements became widely adopted by the early 2000s, many critics regard them as bland and wide ranging. ❑However, arguably if there is substantial disagreement within the organisation or with stakeholders as to its mission (or vision), it may well give rise to real problems in resolving the strategic direction of the organisation ❑So, given the political nature of strategic management, they can be a useful means of focusing debate on the fundamentals of the organisation. Distinction Between a Company’s Strategic Vision & Mission To be well worded, a company mission statement must employ language specific enough to distinguish its business makeup and purpose from those of other enterprises and give the company its own identity. Organizational Purposes: Values, mission, vision & objectives Objectives: ➢Objectives are statements of specific outcomes that are to be achieved. ➢They are statements of important measurable outcomes ➢Objectives are set at both the corporate and business unit levels of the firm and are expressed in financial terms ➢They could be the expression of desired sales or profit levels, rates of growth, dividend levels or share valuations. ➢Nevertheless, organisations may also set other objectives such as market-based objectives, many of which are quantified as targets – such as market share, customer service, repeat business and so on. STAGE 2: Setting Objectives LO 2: The importance of setting both strategic & financial objectives ➢Concrete, measurable objectives are managerially valuable for three reasons: (1) They focus organizational attention and align actions throughout the organization, (2) they serve as yardsticks for tracking a company’s performance and progress, and (3) they motivate employees to expend greater effort and perform at a high level. STAGE 2: Setting Objectives LO 2: The importance of setting both strategic & financial objectives ➢The managerial purpose of setting objectives is to convert the vision and mission into specific performance targets ➢Objectives reflect management’s aspirations for company performance in light of the industry’s prevailing economic and competitive conditions and the company’s internal capabilities. ➢Well-stated objectives must be (SMART): specific, quantifiable or measurable, and challenging, attainable or achievable, realistic, and must contain a deadline for achievement (i.e., timebound) As Bill Hewlett, cofounder of Hewlett-Packard, shrewdly observed, “You cannot manage what you cannot measure. . . . And what gets measured gets done. Note: Objectives are an organization’s performance targets—the specific results management wants to achieve. Organizational Purposes: Values, mission, vision & objectives Three Related Issues Managers Need to Consider with Respect to Setting Objectives: 1. Objectives and measurement – Objectives must be quantifiable and measurable. Some argue that objectives might not make any sense unless they are measurable. But some qualitative-like objectives may also be needed ❖Specific quantified objectives are required in certain times, for example when urgent action is needed and it becomes essential for management to focus attention on a limited number of priority requirements – as in a turnaround situation. ❖In other circumstances – for example, in trying to raise the aspirations of people in the organisation – more attention needs to be paid to qualitative statements of purpose such as mission or vision statements. Organizational Purposes: Values, mission, vision & objectives Three Related Issues Managers Need to Consider with Respect to Setting Objectives: 2. Objectives and control.– A problem that may recur is that managers and employees ‘lower down’ in the hierarchy might not be clear as to how their day-today work contributes to the achievement of higher level of objectives. Share your experiences with us on this in relation to where you work. ➢This could be fixed in principle by a ‘cascade’ of objectives - defining a set of detailed objectives at each level in the hierarchy. ➢Doing this requires consideration to be given to a trade-off: how to achieve required levels of clarity on strategy without being over-restrictive in terms of the latitude people have. There is evidence, for example, that innovation is stymied by over-restrictive target setting and measurement. Organizational Purposes: Values, mission, vision & objectives Three Related Issues Managers Need to Consider with Respect to Setting Objectives: 3. Simple rules.– Managers need to come up with simple rules to clarify the few overarching objectives that are required to be met, especially in organizations in which innovation and flexibility are important. But flexibility and latitude should be permitted in how they are accomplished. ➢Research by Kathy Eisenhardt and her colleagues has started to establish the nature of these simple rules. See the summary of these rules in table 1 below they identify as important in organisations facing fast-changing environments; and gives some examples of how they take form and their effects. ➢The suggestion is that the number of rules does not need to be many to result in consistent patterns of behaviour. Simple Rules Stage 3: Crafting a Strategy Stage 3: Crafting a Strategy LO 3: Why the strategic initiatives taken at various organizational levels must be tightly coordinated to achieve companywide performance targets. ➢the task of stitching a strategy together entails addressing a series of “hows”: how to attract and please customers, how to compete against rivals, how to position the company in the marketplace, how to respond to changing market conditions, how to capitalize on attractive opportunities to grow the business, and how to achieve strategic and financial objectives. ➢Astute entrepreneurship is called for in choosing among the various strategic alternatives and in proactively searching for opportunities to do new things or to do existing things in new or better ways. ➢The faster a company’s business environment is changing, the more critical it becomes for its managers to be good entrepreneurs in diagnosing the direction and force of the changes under way and in responding with timely adjustments in strategy Orchestrated by the CEO and other senior executives. Corporate Strategy (for the set of businesses as a whole) How to gain advantage from managing a set of businesses Two-Way Influence Orchestrated by the senior executives of each line of business, often with advice from the heads of functional areas within the business and other key people. Business Strategy (one for each business the company has diversified into). How to gain and sustain a competitive advantage for a single line of business Two-Way Influence Orchestrated by the heads of major functional activities within a particular business, often in collaboration with other key people. Functional Area Strategies (within each business) How to manage a particular activity within a business in ways that support the business strategy Two-Way Influence Orchestrated by brand managers, plant managers, and the heads of other strategically important activities, such as distribution, purchasing, and Website operations, often with input from other Operating Strategies (within each functional area) How to manage activities of strategic significance within each functional area, adding detail and completeness In the case of a single-business company, these two levels of the strategy-making hierarchy merge into one level— Business Strategy—that is orchestrated by the company’s CEO and other top executives. CORPORATE GOVERNANCE: THE ROLE OF THE BOARD OF DIRECTORS, TOP MANAGEMENT, OTHER MANAGERS & EMPLOYEES IN THE STRATEGY CRAFTING, STRATEGY-EXECUTING PROCESS Who’s Involved with Strategic Management? • Strategic management is more than the responsibility of an organization’s top managers • People at all levels of the organization play a role in strategy • Developing it • Implementing it • Changing it The Board of Directors • Usually an elected group that represents a company’s shareholders • They have a legal obligation to represent and protect the interests of shareholders through corporate governance • In the past, board participation was viewed as approving strategies designed by management • With increasing shareholder activism, boards are more involved in the strategic process Typical Board Responsibilities • Review and approve strategic goals and plans • Review and approve organization’s financial standards and policies • Ensure the integrity of organization’s financial controls and reporting system • Approve an organizational philosophy • Monitor organizational performance and regularly review performance results Typical Board Responsibilities (Cont.) • Select, and compensate top level managers • Develop management succession plans • Review and approve capital allocations and expenditures • Monitor relations with shareholders and other key stakeholders Typical Board Responsibilities (Cont.) In Ghana, the Companies code 1963 (Act 179) makes provision for the appointment of directors, directors’ meeting, directors’ power and their limitations, duties of directors, liabilities of directors and the enforcement of the duties of directors. The Role of Top Management • Responsible for every decision and outcome, top management plays a most significant role in strategic management process • Top management includes C-Suite level officers, including – CEO, Chief Executive Officer – COO, Chief Operating Officer – CFO, Chief Finance Officer – CIO, Chief Information Officer Other Managers and Organizational Employees • Managers and employees at all levels have strategic responsibilities that include: • Strategy implementation, putting strategies into action • Strategy evaluation, determining if the strategies are working • Adjust the strategies to achieve desired ends Although senior managers have the lead responsibility for crafting and executing a company’s strategy, it is the duty of a company’s board of directors to exercise strong oversight and see that management performs the various tasks involved in each of the five stages of the strategy-making, strategy-executing process in a manner that best serves the interests of shareholders and other stakeholders. 1. Oversee the company’s financial accounting and financial reporting practices. 2. Critically appraise the company’s direction, strategy, and business approaches. 3. Evaluate the caliber of senior executives’ strategic leadership skills 4. Institute a compensation plan for top executives that rewards them for actions and results that serve shareholder interests. Key Insight: Effective corporate governance requires the board of directors to oversee the company’s strategic direction, evaluate its senior executives, handle executive compensation, and oversee financial reporting practices. Every corporation should have a strong independent board of directors that (1) is well informed about the company’s performance, (2) guides and judges the CEO and other top executives, (3) has the courage to curb management actions the board believes are inappropriate or unduly risky, (4) certifies to shareholders that the CEO is doing what the board expects, (5) provides insight and advice to management, and (6) is intensely involved in debating the pros and cons of key decisions and actions. Key Insight: Boards of directors that lack the backbone to challenge a strong-willed or “imperial” CEO or that rubber-stamp almost anything the CEO recommends without probing inquiry and debate abdicate their fiduciary duty to represent and protect shareholder interests.