North South University

School of Business and Economics (SBE)

BUS 690 Strategic Management

Summer Semester, 2023
Week 9
 Strategic Management Process
The External
Environment
Strategic inputs

Strategic Intent
Strategic Mission
The Internal
Environment

Strategy Formulation Strategy Implementation

Strategic actions

Organizational
Business-level Competitive Corporate- Corporate
Structure &
Strategy Dynamics level Strategy Governance
Controls
Acquisition &
International Cooperative Strategic Strategic
Restructuring
Strategies Strategies Leadership Entrepreneurship
Strategies
outcomes
Strategic

Strategic Competitiveness
Feed back Above Average Returns
 Lecture outline

Strategy Implementation
❑Corporate Governance
[Strategic Control]
Formulation VS Implementation

Strategy Formulation Strategy Implementation

•Positioning forces before •Matching forces during
action. the action.
•Focuses on effectiveness. •Focuses on efficiency.
•An intellectual process. •An operation process.
•Intuitive and analytical •Special motivation and
skills. leadership skills.
•Coordination among a •Coordination among
few individuals. many people.
 Executing the strategy
❑An action-oriented, make-things-happen task
involving management’s ability to:
o Direct organizational change;
o Achieve continuous improvement in operations
and business processes:
❖Move toward operating excellence;
o Create and nurture a strategy-supportive culture;
o Consistently meet or beat performance targets;
❑ Tougher and more time-consuming than
crafting a strategy.
 Why executing strategy is a
demanding role…
❑Overcoming resistance to change.
❑A wide array of demanding managerial activities to
be performed.
❑Numerous ways to tackle each activity.
❑ Demonstrates good people management skills.
❑Requires launching and managing a variety of
initiatives simultaneously.
❑Hard to integrate the efforts of many different
work groups into a smoothly functioning whole.
 Who are strategy implementer?
❑Implementing and executing strategy involves all
employees NOT the management team:
❑Just as every player of a team plays a role in winning
EVERY WEEK. It takes ALL of an organization working
cohesively for a strategy to be well-executed.
❑Top-level managers must lead the process
and orchestrate major initiatives:
❑But WE must rely on the cooperation of
❑Middle and lower-level managers to see things go well in
various parts of an organization, and
❑Employees to perform their roles competently.
Corporate Governance
•Why is that important?
 Who owns Microsoft?
❑Microsoft: Microsoft’s net worth
is $2109.91B [August 05, 2022].
❑Employees: 221,000 [Jun. 30, 2022].

% of Shares Held by All Insider and 5% Owners 6.22%

% of Shares Held by Institutional & Mutual Fund Owners 69.20%

% of Retail investors 24.58%

Number of Institutions Holding Shares 1902
 Corporate Governance
❑… represents the relationship among
stakeholders that is used to determine and
control the strategic direction and
performance of organizations.
❑… is the system by which businesses are
directed and controlled.
❑…reflects and enforces the company’s values.
 Corporate Governance
❑…the relationship among various
participants in determining the direction and
performance of corporations. The primary
participants are (i) the shareholders, (ii) the
management (led by the chief executive
officer), and (iii) the board of directors.
❑…involves oversight in areas where owners,
managers, and members of boards of
directors may have conflicts of interest.
 The role corporate governance
❑Good corporate governance plays an
important role in the investment decisions of
major institutions, and a premium is often
reflected in the price of securities of
companies that practice it.
❑ Sound governance practices often lead to
superior financial performance. However, this
is not always the case.
 Stakeholders and Corporate Performance
❑Stakeholders: Individuals/groups with an interest
/claim/or stake in the company.
❑Internal (e.g., employees, stockholders)
❑External (e.g., customers, creditors,
governments).
❑ A company must consider stakeholder claims in
developing and implementing strategy.
Stakeholders and the Enterprise
 Corporate Organization
Stockholders

Elect
Board of Directors

Hires

President
(MD/CEO)

Vice President Vice President

Vice President Vice President Vice President
Finance Information
Human Resources Manufacturing Marketing
(CFO) Resources
 Unique Role of Stockholders

A Company’s legal owners and providers of risk capital, a

major source of capital to operate a business.

Maximizing long-run profitability and profit

growth is a route to maximizing returns to
shareholders, as well as satisfying the claims
of most other stakeholder groups.
Long-term investment?
 What is a shareholder?

• Short-term investor.
• Focus on short-term profit.
• Consider companies as a commodity.
 Implications

❑The principle of “Shareholder democracy” is

completely gone.
❑Employees pay the bill.
 Agency Theory

Agency relationship: Whenever one party

delegates decision-making authority or
control over resources to another.
 Agency Relationship
Agency Relationship
Shareholders Risk Bearing Specialist
(Principals) (Principal)

Hire Managerial Decision-Making

Firm Owners Specialist
(Agent)

Managers
(Agents)
which creates
Decision
Makers
 Agency Theory
Agency theory is concerned with resolving two
problems that can occur in agency relationships.
The first is the agency problem that arises (i) when
the goals of the principals and agents conflict and (ii)
when it is difficult or expensive for the principal to
verify what the agent is doing. Agents may take
advantage of information asymmetries (irregularities) to
maximize interests at the expense of principals.
The second issue is the problem with risk sharing. This
arises when the principal and the agent have different
attitudes and preferences towards risk.
 Corporate Governance Mechanisms
1. Internal Governance Mechanisms:
i. Ownership Concentration;
ii. Board of Directors;
iii. Executive Compensation;
2. External Governance Mechanisms:
i. The market for corporate control;
ii. Auditors;
iii. Banks and analysts;
iv. Governmental regulatory bodies;
v. Media and public activists;
 Internal Governance Mechanisms
Ownership Concentration
o High relative amounts of shares owned by
individual shareholders and institutional investors.
Board of Directors
o Individuals are responsible for representing the
firm’s owners by monitoring top-level managers’
strategic decisions.
Executive Compensation
o The use of salary, bonuses, and long-term
incentives to align managers ‘interests with
shareholders’ interests.
 Ownership Concentration
Ownership Concentration
❑The governance mechanism is defined by both the
number of large-block shareholders and the total
percentage of shares they own.
o Large Block Shareholders: Shareholders owning
a concentration of at least 5 percent of a
corporation’s issued shares. It is worthwhile
spending time, effort, and expense on
monitoring. They may also obtain board seats
which enhances their ability to monitor
effectively.
Ownership Concentration
❑Institutional Owners: Financial institutions such as
stock mutual funds and pension funds that control
large-block shareholder positions. Financial
institutions are legally forbidden from directly
holding board seats.
oShareholders can convene to discuss the
corporation’s direction.
oIf a consensus exists, shareholders can vote as a
block to elect their candidates to the board.
The Board of Directors (BOD)
As stewards of an organization's resources, an
effective and well-structured Board of Directors
can influence a firm’s performance.
❑Oversee managers to ensure the company is
operated in ways to maximize shareholder wealth.
❑Direct the affairs of the organization.
❑Punish and reward managers.
❑Protect shareholders’ rights and interests.
❑Protect owners from managerial opportunism.
 The Board of Directors (BOD)
Composition of Boards
❑Insiders: The firm’s CEO and other top-level
managers.
❑Related outsiders: Individuals not involved
with the firm’s day-to-day operations, but who
have a relationship with the firm.
❑Outsiders: Individuals who are independent
of the firm’s day-to-day operations and other
relationships.
 Key Roles of a Board of Directors
❑Be well informed about a company’s performance.
❑Guide and judge the CEO and other top executives.
❑Exhibit courage to curb inappropriate or unduly risky
management actions.
❑Certify to shareholders that the CEO is doing what the
board expects.
❑Provide insight and advice to management.
❑Intensely involved in debating the pros and cons of key
actions and decisions.
A Board of Directors has a very important oversight role in the
strategy-making, strategy-executing process!
Executive Compensation (EC)

❑ Executive Compensation (EC)

❑ Governance mechanism that seeks to align
the interests of top managers and owners
through salaries, bonuses, and long-term
incentive compensation, such as stock
awards and stock options.
❑ Thought to be excessive and out of line
with performance.
 Executive Compensation (EC)
❑Alignment of pay and performance:
Complicated Board responsibility.
❑The effectiveness of payment plans as a
governance mechanism is suspect.
❑Incentive systems do not guarantee that
managers make the “right” decisions, but
they do increase the likelihood that managers
will do the things for which they are
rewarded.
External Governance Control Mechanisms

External Governance Control Mechanisms:

Methods that ensure that managerial actions
lead to shareholder value maximization and
do not harm other stakeholder groups that
are outside the control of the corporate
governance system.
 External Governance Control Mechanisms
❑The market for corporate control: An external
control mechanism in which shareholders are
dissatisfied with a firm’s management selling their
shares.
❑Auditors: All accounting statements are required to be
audited and certified to be accurate by external
auditors. However, these audit firms often fail to catch
accounting irregularities.
❑Banks & analysts: Commercial and investment banks
have lent money to corporations and therefore have to
ensure that the borrowing firm’s finances are in order
and that the loan covenants are being followed. Stock
analysts conduct ongoing in-depth studies of the firms
that they follow and make recommendations to their
clients to buy, hold, or sell.
External Governance Control Mechanisms
❑Governmental regulatory bodies: The extent of
government regulations is often a function of the type
of industry.
Banks, utilities, and pharmaceuticals are subject to more
regulatory oversight because of their importance to
society.
Public corporations are subject to more regulatory
requirements than private corporations.
❑Media and public activists: Public perceptions about a
company’s financial prospects and the quality of its
management are greatly influenced by the media.
Similarly, consumer groups and activist individuals often
take a crusading role in exposing corporate malfeasance.
External Governance Control Mechanisms

❑External mechanisms are less precise than

internal governance mechanisms.
 Most experts-managers, the SEC, and
academic researchers- agree that the most
important factor in good corporate
governance is an ethical climate, which top
management sets.
 Overseeing Governance in Bangladesh
❑ Bangladesh Securities and Exchange Commission (SEC).
❑The Securities and Exchange Commission Act of 1993.
o সিসিউসিটিজ ও এক্সচেঞ্জ িসিশন (িম্পদ সিসিিসিসিউসিটি ইিযু) সিসিিালা, ২০০৪
(আগস্ট ২৪, ২০২১ পর্যন্ত হালনাগাদিৃ ত)|
❑ The Bangladesh Securities and Exchange (Capital Market Stabilization
Fund) Rules, 2021.
❑ Bangladesh Securities and Exchange Commission (Debt Securities)
Rules, 2021.
❑ িাাংলাচদশ সিসিউসিটিজ অ্ুান্ড এক্সচেঞ্জ িসিশন (ট্রেস াং িাইট এনটাইচটলচিন্ট
িাটিযসিচিট) সিসিিালা, ২০২০|
❑Corporate Governance Code 2018.
❑Prices Surveillance Authority of SEC.
❑DSE & CSE Listing Rules.
❑The Companies Act of 1994.
❑The Capital Issues Act of 1947.
❑The Labour Act of 2006 [amended in 2013 and 2018].
 Overseeing Governance in Bangladesh
❑The Consumer Rights Protection Act of 2009.
❑Bangladesh Bank Directives on CG.
❑The Securities and Exchange Ordinance, 1969.
o িাাংলাচদশ সিসিউসিটিজ অ্ুান্ড এক্সচেঞ্জ িসিশন(িাজাি িৃসিিািী)
সিসিিালা, ২০১৭ (আগস্ট ২৪, ২০২১ পর্যন্ত হালনাগাদিৃ ত)|
❑Securities and Exchange Rules, 2020.
❑International Accounting Standards (IAS).
❑International Financial Reporting Standards (IFRS).
❑The Financial Reporting Act of 2015.
❑স পসজটসি প্রসিিানিালা, ২০০০ (২২ আগস্ট ২০২১ পর্যন্ত
হালনাগাদিৃ ত)|