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Expectations and Purposes

Presented by: Radhika Bhatia (5) Nikita Porwal (27) Bhawna Pokharna(36) Ranu Maheshwari(41) Shreelekha Kabra(50)

Introduction
Strategy is about what people expect an organization to achieve and therefore what influence people can have over an organization's purposes. y There are mainly four type of expectations each of which will influence an organization's purpose to some degree.
y

Corporate governance
Whom should the

Business ethics
Which porposes should be prioritised? Why?

organisation serve? How should purposes is determined?

Organisational purposes
Corporate values Mission Objectives

Stakeholders
Whom does the organisation serve?

Cultural context
Which purposes are prioritised? Why?

Corporate governance

This is the province of corporate governance and the regulatory frame work within which the organisation be operate. These are the very formal expectations of organisation. This not only relates to the power to influence purposes but also to the processes of supervising executive decisions and the issue of accountability.

Stakeholders
Whom the organization should serve and whom they actually serve is different. y This is because the expectations of powerful individuals and groups are likely to have more influence on organizational purpose than those of weaker players. y This can be addressed through the concept of organisational stakeholders.
y

Business ethics

There are also expectations about which purposes an organisation should fulfil. This is an ethical consideration concerned with the expectations of society at large. The ethical agenda is also concerned with expectations about corporate social responsibilty to various stakeholders. It is also concerned with the behaviour of indivisuals within organisation.

Cultural context
Which purposes are actually prioritised above others is related to a variety of factors in the cultural context in which an organisation is operating. This is because expectations are also influenced by history and experience. The concept of cultural web will be used as a means of understanding how culture at several levels can influence expectations and purposes.

This also includes issues of national cultures, right through to the expectations of the various subcultures within an organisation.

Chain of Corporate Governance

beneficiaries Limited reports Trustees of funds Investment managers Investment performance reports Accounts analyst reports Board Budget qualitative reporting Budget qualitative reporting Budgets/simplified targets operating reports

Executive directors Senior executives

Managers

Corporate Governance
Corporate governance has become an increasingly important issue for organisation for two main reasons:  Separate ownership  Management control of organisations
y

Corporate Governance chain


This chain represents all those groups that have influence on an organization's purposes through their direct involvement in either ownership or management of an organisation. The principle agent model can be useful in explaining how each of these relationships in the corporate governance chain operates. The governance chain challenges directors and managers to be knowledgeable about the expectations of the beneficiaries to actively work on their behalf and to keep them informed.

Corporate governance chain


Principle agent theory assumes that there is an incentive for each of these agents to work diligently in the best interests of the principal at each point in this chain. y The flowchart highlights the information typically available to each player in the chain to judge the performance of others.
y

Important considerations for managers


Conflicts of interest are likely to arise both between different groups in the governance chain and for individual managers as they try to balance these various interest. Directors responsibility to shareholders is an issue. Issue of accountability to stakeholders clearly has a major influence on the processes through which strategies are developed.

Within organisations the principal agent model applies to the way in which targets, budgets and rewards are structured. y This will affect the way in which managers and other people behave and in turn will determine the extent to which the owners best interests are being pursued.
y

Corporate Governance Reforms


Sponsoring committees to advise on specific issues of reforms y Broadening of internal control beyond financial controls and increasing the effectiveness of non-executive directors. E.g U.K & EU
y

Role of the governing bodies


To ensure that the organization fulfills and wishes and purposes of owners. y Private sector-this is the board of directors working on behalf of shareholders y Public sector-governing body is accountable to the political arm of government
y

Different ownership structures


U.K,U.S.A and Australia-more power to intermediaries y Netherland & France-more power to shareholders. y Japan-corporate executives
y

How governing bodies operate


U.K & U.S.A-Single tier board y Germany, Netherland & France-2 tier board y Success of strategy depend on context(e.g country) y Combining of the chairman and ceo role is quite prevalent in U.S.A
y

How governing bodies influence strategy


 Implications

of manager y Operating independently y Competent to scrutinize y Must have time to do job properly y Softer issues will distinguish effective members from ineffective

Rights Of Creditors
y

One of the reasons why corporate governance varies so much from one country to another is differing arrangements for corporate finance. There is a different traditions regarding debt/equity ratios and the extent to which the relationship with bankers is regarded as one of partnership or simply a buyer/supplier contract in a free market. Relationships with bankers is regarded as one of partnership or simply a buyer/supplier contract in a free market.

Relationships with bankers are towards the contractual (customer-supplier) end of the spectrum. It is important that managers understand how these corporate governance arrangements will have an impact on purposes and strategies. For e.g. the contractual relationships of the US/UK system put the burden on Financial Risk onto the company and therefore limit the gearing regarded as prudent. This means that more equity is needed for major strategy development.

Cont
y

It is important that managers understand how these corporate governance arrangements will have an impact on purposes and strategies- since the banks are not seeking a strategic involvement with the company. However, when strategies start to fail the organization becomes increasingly dependent on the bank as its key stakeholders. This happens frequently in family-owned small business.

In most countries the trade creditor is the least protected stakeholder in the trading process organizations need to asses and/or mitigate their risk when contracting with customers. This would, for example, influence who they appoint as distributors It also explains why in most economies there is an important service sector providing assessment and/or mitigation of credit risks- particularly crucial for the promotion of exports to developing economies.

Relationship with customers and clients


y

The legal framework of many countries enshrines the principle of caveat emperor, placing the burden of risk on the customer and giving the balance of power to the company. However, there have been some significant moves to change this legislation to protect consumers interests grew substantially from the 1960s onwards. In situation of natural monopolies, many governments created watchdog bodies to represent the customers interests. Their powers of regulation set them up as a surrogate for the market and they exert control over prices and services through a set of performance targets. This has an important implications for how companies in these regulated sectors construct their competitive strategies. Corporate governance enhanced the framework for public services is requiring managers and politicians to pay for more attention to the needs of their customers and communities when deciding their purpose, priorities and strategies.

Forms Of Ownership
1.Private or Public Ownership of equity is an issue for commercial organizations- for e.g. Family business- move from private ownership to public quoted corporation. Such a decisions might be made because the owners decide that increased equity is required to finance the growth of business. 2.Sale of all or part of the company may be recommended by the board of directors of a business who have a responsibility to provide shareholders with a return on investment. It may be that the board arrive at the view that a different corporate parent would better achieve this purpose.

3. Business become the targets for acquisitions and a board might decide that such an offer is more attractive to shareholders than they returns they can promise in the future. 4. Mutual Ownership by their members has been the tradition in some sectors-for e.g. insurance companies and building societies. Customers (For e.g. those with saving accounts and/or mortgages) are members of the organization in place of shareholders and this clearly has an impact on purposes and strategies.

Cont..
5. Privatisation of public sector bodies has occurred in many countries. Historically, most public sector bodies were tightly controlled by their owners, the central or local government department. Government took such decisions in order to require organizations to face up to market forces, to became more aware of customer needs and competitiveness pressures and to provide access to private sector capital. In turn managers found more latitude in terms of strategic choice- what they could provide in terms of product or services, the ability to diversify, raise capital for expansion and so on.

Merges and Acquisition


y y

M&A have such a fundamental impact on an organizations purposes and performances that specific corporate governance measures have been developed. It often results in dramatic changes in the purposes of the organizations involved with the resultant impact on a wide range of stakeholders. Most mergers and expectations fail to deliver the promise benefits to shareholders and, at least in the short/medium term, they are likely to lead to loss of shareholder value. The directors may pursue mergers because it would enlarge their empire, improve their financial rewards or because they feel that investment analyst will expect acquisitive growth. There are sometimes the reverse criticism that directors launch defensive measures against take-over offers even if this is in the long term interest of the shareholders and positively benefit to other stakeholders, such as employers or customers.

Stakeholders Expectations
Stakeholders are those individuals or groups who depend on the organization to fulfill their own goals and on whom, in turn, the organization depends.
External Stakeholders can be divided into three types in terms of the nature of their relationship with the organization:

1. Stakeholders from the market market environment such as suppliers, competitors, distributors, shareholders. These stakeholders have an economic relationship with the organization and influence the valuecreation process.

2. Stakeholders from the Social/Political Social/Political environment such as policy makers, regulators, government agencies who will influence the social legitimacy of the strategy.

3. Stakeholders in the technological technological environment such as the key adopters, standard agencies and owners of competitive technologies who will influence the diffusion of new technologies and the the adoption of industry standards.

Stakeholder Mapping
y

Identifies stakeholder expectations and power and helps in understanding political priorities.

Two main issues:


y

How interested each stakeholder group is to impress its expectations on the organizations purposes and choice of specific strategies? Whether stakeholders have the power to do so?

Power/Interest matrix
Level of Interest
Low Low High

A Minimal effort C Keep satisfied

B Keep informed D Key players

Power

High

Stakeholders mapping might help in understanding:


y

y y y

Whether the actual levels of interest and power of stakeholders properly reflect the corporate governance framework within which the organization is operating. Who the key blockers and facilitators of a strategy likely to be and how this can be responded to. Whether repositioning of certain stakeholders is desirable and/or feasible. Maintaining the level of interest or power of some key stakeholders may be essential.

Power
Power

is a mechanism by which expectations are able to influence purpose and strategies. most organizations, power will be unequally shared between the various stakeholders . the purpose of this discussion, power is the ability of individuals or groups to persuade, induce or coerce others into courses of action.

In

For

There are many different sources of power. On the one hand, there is power that people or groups derive from their positions within the organization and through the formal corporate governance arrangements. But the stakeholders may have power by other means also.

Sources of power
Within organization Hierarchy (formal power), e.g. autocratic decision making Influence (informal power), e.g. charismatic leadership Control of strategic resources, e.g. strategic products Possession of knowledge and skills, e.g. computer specialist Control of the human environment, e.g. negotiating skills Involvement in strategy implementation, e.g. by exercising discretion For external stakeholders Control of strategic resources, e.g. materials, labour, money Involvement in strategy implementation, e.g. distribution outlets, agents Possession of knowledge or skills, e.g. subcontractors, partners Through internal links, e.g. informal influence

Indicators of power
Within organization For external stakeholders

Status Chain on resources Representation symbols

Status Resource dependence Negotiating arrangements Symbols

There are four useful indicators of power: status of individual or group (such as job grade or reputation) claim on resources (such as budget size) in powerful positions

 The

 The

 Representation  And

symbols of power (such as office size or use of titles and names)

The indicators of power held by external stakeholders here are slightly different. status of an external stakeholder can often be inferred by the speed with which the company responds. dependence in terms of the relative size of shareholdings or loans, or the proportion of a companys business tied up with any one customer, or a similar dependence on suppliers.

 The

 Resource

A

key indicator could be the ease with which a supplier, financier or customer could switch or be switched at short notice. are also valuable clues about power. For example, whether the management team wines and dines a customer or supplier, or the level of person in the company who deals with a particular supplier.

 Symbols

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