2019 Jan 9 Lecture 4 Strategic Position Stakeholders-1

Slide 4.
The Strategic Position

4: Strategic Purpose
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 4.2
Learning outcomes
• Assess the strategic purpose of an organisation in terms

of mission, vision, values and objectives.
• Analyse the strategic significance of different ownership
models for an organisation’s purpose.
• Evaluate the implications for strategic purpose of the
shareholder and stakeholder models of corporate
governance.
• Undertake stakeholder analysis as a means of identifying
the influence of different stakeholder groups in terms of
their power and interest.
• Relate corporate responsibility and personal ethics to
purpose and strategy.
Slide 4.3
Influences on strategic purpose
Slide 4.4
Who are the stakeholders?
Stakeholders are those individuals or

groups that depend on an organisation to
fulfil their own goals and on whom, in turn,
the organisation depends.
Slide 4.5
Mission statements
• A mission statement aims to provide

employees and stakeholders with clarity
about what the organisation is fundamentally
there to do.
• It should answer the questions:
‘What business are we in?’
‘What would be lost if we did not
exist?’
‘How do we make a difference?’
‘Why do we do this?’
Slide 4.6
Vision statements
• A vision statement is concerned with the

future the organisation seeks to create.
• It is an aspiration that will enthuse, gain
commitment and stretch performance.
• A vision statement should answer the
questions:
‘What do we want to achieve?’
‘If we were sitting here in 20 years
what do we want to have created or
achieved?’
Slide 4.7
Statement of corporate values
• 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.
Slide 4.8
Objectives
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 increasingly
social terms (e.g. corporate social
responsibility targets)
Slide 4.9
Issues in setting objectives
• Do objectives need to be specific and

quantified targets?
• 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.
Slide 4.10
Key principles
• Focus. Effective statements do not just

define what the organisation does but also
excludes other activities.
• Motivational. Effective statements should
motivate employees. They need to be
distinctive, credible and authentic and
should stretch performance levels.
• Clear. Effective statements are easy to
communicate, understand and remember.
Slide 4.11
Ownership, management and

purpose
Slide 4.12
Ownership models (1)
Public companies
• Shares are sold to the general public or
financial institutions.
• Such companies are usually managed by
professional managers.
• Their objective is to make a financial return
for the owners (profit focus).
• Unsatisfied shareholders will sell their
shares or seek to remove the managers.
Slide 4.13
State-owned enterprises
• Organisations wholly or majority owned by national or
regional governments. They are especially important in
developing economies (e.g. China, Russia,Brazil,
Zambia- ZESCO, NCZ, etc).
• Privatisation has reduced their importance but there are
many quasi-privatised organisations (e.g. Free schools).
• Politicians delegate day-to-day control to professional
managers but may intervene on strategic issues.
• They need a financial surplus to fund investment but also
pursue other objectives in line with government policy.
Slide 4.14
Entrepreneurial businesses
• Such businesses are substantially owned and
controlled by their founders (e.g. Arcelor Mittal
,Virgin Group, Chimsoro Group of Companies,
Dana Holdings ltd).
• With growth, more professional managers and
external investors are required.
• They typically focus on profit to survive and grow
but may also have personal missions favoured
by the founder(s).
Slide 4.15
Family businesses
• Ownership has been passed on from the
founding entrepreneur to descendants.
• Typically small to medium-sized enterprises
(SMEs) but may be very large (e.g. Ford).
• The family may retain the majority of shares
while floating some shares on the stock market.
• Professional managers may be employed but
ultimately the family remain in control.
• The need to retain family control may lead to
rejecting high-risk strategies or those requiring
substantial external finance.
Slide 4.16
There are other types of organisation:

• Not-for-profit organisations (e.g. Mozilla).
Frequently charitable foundations that exist to
pursue a social mission
• Partnerships (e.g. law firms). Organisations
owned and controlled by senior employees
• Employee-owned firms (e.g. John Lewis).
Ownership is spread among all the employees.
They may not be able to raise capital easily and
may be more conservative in terms of strategy.
Slide 4.17
Corporate governance
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.
Slide 4.18
The growing importance of

governance
• The separation of ownership and
management control – defining different roles
in governance
• Corporate failures and scandals (e.g. Enron)
– focusing attention on governance issues
• Increased accountability to wider stakeholder
interests and the need for corporate social
responsibility (e.g. green issues).
Slide 4.19
The governance chain
Figure 4.3 The chain of corporate governance: typical reporting structures

Source: Adapted from David Pitt-Watson, Hermes Fund Management.
Slide 4.20
The principal–agent model (1)
• 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.
Slide 4.21
The principal–agent model (2)
The key challenges are:

• Knowledge imbalances: agents typically know
more about what can and should be done.
• Monitoring limits: it is very difficult for the
principal to closely monitor the agent’s
performance especially if they have diverse
interests.
• Misaligned incentives: without appropriate
incentives agents may pursue their own
objectives.
Slide 4.22
Issues in governance
• 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.
Slide 4.23
Different governance models

Shareholder model Stakeholder model
Advantages  Higher rates of return  Long term horizons
 Reduced risk  Less reckless risk-taking
 Increased innovation and  Better management
entrepreneurship
 Better decision making
Disadvantages  Diluted monitoring  Weaker decision-making
 Vulnerable minority  Uneconomic investments
shareholders  Reduced innovation and
 Short termism entrepreneurship
Slide 4.24
The role of boards (1)
A single tier board (typical of the shareholder model in

UK and USA):
– A majority of directors may be non-executives
– Non-executives represent the interests of
shareholders
– BUT choice of non-executives may be influenced by
executives
A two-tier structure (typical of the stakeholder model in
Germany, France and the Netherlands):
– A supervisory board represents a wider range of
stakeholders
– A management board plans strategy and has
operational control
– Major strategic decisions have to be approved by both
boards
Slide 4.25
Two key issues for boards:

• Delegation: strategy can be delegated to
management but it is easier to ensure
other stakeholders are protected with a
supervisory board.
• Engagement: The board can engage in
the strategic management process but
board members may have insufficient
expertise.
Slide 4.26
Accepted good practice for boards includes:

• Operating ‘independently’ of management –
the role of non-executives is crucial
• Being competent to scrutinise the activities of
managers
• Having time to do their job properly.
• Behaving appropriately given society’s
expectations for trust, role fluidity, collective
responsibility and performance.
Slide 4.27
Model of Effective Boards
Slide 4.28
Slide 4.29
Types of stakeholder
• Stakeholders can be divided into internal

stakeholders (e.g. managers and
employees) and external stakeholders.
• External stakeholders are of 4 types:
– Economic (e.g. suppliers; shareholders,
banks)
– Social/political (e.g. government agencies)
– Technological (e.g. standards agencies)
– Community (e.g. local residents)
Slide 4.30
Stakeholders of a large organisation
Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.
Slide 4.31
Conflicts of expectations
Slide 4.32
Stakeholder mapping
Stakeholder mapping identifies

stakeholder interest and power and helps
in understanding political priorities.
The power and interest of stakeholders

depend on the particular issue being
considered – different issues require
different maps.
Slide 4.33
Stakeholder mapping: the

power/interest matrix
Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1986.
Slide 4.34
Stakeholder mapping issues
• Determining purpose and strategy – whose

expectations need to be prioritised?
• Who are the key blockers and facilitators of
strategy?
• Is it desirable to try to reposition certain
stakeholders?
• Can the level of interest or power of key
stakeholders be maintained?
• Will stakeholder positions shift according to the
issue/strategy being considered?
Slide 4.35
Power
Power is the ability of individuals or

groups to persuade, induce or coerce
others into following certain courses of
action.
Slide 4.36
Sources of power
Slide 4.37
Indicators of power
Slide 4.38
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’.1
---------Going beyond the minimum legal requirements
1 World Business Council for Sustainable Development.
Slide 4.39
Social responsibility stances
Slide 4.40
Questions of corporate social

responsibility (1)
Slide 4.41
Questions of corporate social

responsibility (2)
Slide 4.42
The ethics of individuals and

managers
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.
Slide 4.43
Texas instruments’ guidelines
• Is the action legal? . . . If no, stop immediately.

• Does it comply with our values? . . . If it does not,
stop.
• If you do it would you feel bad? . . . Ask your own
conscience if you can live with it.
• How would this look in the newspaper? . . . Ask if
this goes public tomorrow would you do it today?
• If you know it’s wrong . . . don’t do it.
• If you are not sure . . . ask; and keep asking until
you get an answer.
Slide 4.44
Summary (1)
• An important managerial task is to decide how the

organisation should express its strategic purpose
through statements of mission, vision, values and
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.
Slide 4.45
Summary (2)
• There are two generic governance structures systems:

the shareholder model and the stakeholder model,
though there are variations of these internationally.
• 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.
• Organisations adopt different stances on corporate
social responsibility depending on how they
perceive their role in society. Individual managers may
also be faced with ethical dilemmas relating to the
purpose of their organisation or the actions it takes.

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Slide 4.

The Strategic Position

• Assess the strategic purpose of an organisation in terms

Influences on strategic purpose

Who are the stakeholders?

Stakeholders are those individuals or

• A mission statement aims to provide

• A vision statement is concerned with the

Statement of corporate values

• A statement of corporate values should

Objectives are statements of specific

Issues in setting objectives

• Do objectives need to be specific and

• Focus. Effective statements do not just

Ownership, management and

Ownership models (1)

Ownership models (2)

Ownership models (3)

Ownership models (4)

Ownership models (5)

There are other types of organisation:

Corporate governance is concerned with

The growing importance of

The governance chain

Figure 4.3 The chain of corporate governance: typical reporting structures

The principal–agent model (1)

• Governance can be seen in terms of the

The principal–agent model (2)

The key challenges are:

• Who are the shareholders – should boards

Different governance models

The role of boards (1)

A single tier board (typical of the shareholder model in

The role of boards (2)

Two key issues for boards:

The role of boards (3)

Accepted good practice for boards includes:

Model of Effective Boards

• Stakeholders can be divided into internal

Stakeholders of a large organisation

Stakeholder mapping identifies

The power and interest of stakeholders

Stakeholder mapping: the

Stakeholder mapping issues

• Determining purpose and strategy – whose

Power is the ability of individuals or

Corporate social responsibility

Corporate social responsibility (CSR) is the

---------Going beyond the minimum legal requirements

1 World Business Council for Sustainable Development.

Social responsibility stances

Questions of corporate social

Questions of corporate social

The ethics of individuals and

Texas instruments’ guidelines

• Is the action legal? . . . If no, stop immediately.

• An important managerial task is to decide how the

• There are two generic governance structures systems:

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