BUSINESS STRATEGY 51110

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BUSINESS STRATEGY 51110

• LECTURE FIVE
• Stakeholder expectations and organisational
  purposes.

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Module 5Stakeholder expectations and
organisational purposes

• What we will cover
• Define corporate governance and explain how it
  varies with context
• Define and list the stakeholders of an
  organisation
• Explain the concept of ethics and social
  responsibility and relate them to strategic
  management
• Characterise the culture of an organisation
• Define mission, objectives/ goals and
  vision

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Stakeholder expectations and organisational
purposes

• Learning Objectives
• Identify the major influences of organisational
  purposes
• Determine the best strategic options given these
  influences
• Determine whom should the firm be there to serve.
• What should be the organisational purposes and
  how they should be determined
• Who IS the firm actually serving and what are the
  implications of this
• How to ethically manage strategies and the
  importance of social responsibility

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Key words and concepts

• Stakeholders
• Stakeholder mapping
• Power
• Business ethics
• Ethical stance
• Corporate social responsibility
• Cultural web
• Industry recipe
• Mission statement
• Vision
• Goals/objectives
• Strategic intent

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Introduction
Influences on organisational purposes

• Business ethics
• Which purposes should be prioritised?
• Why?

• Corporate governance
• Whom should the organisation serve?
• How should purposes be determined?

• Organisational purpose
• Mission
• objectives

• Cultural context
• Which purposes are prioritised?
• Why?

• Stakeholders
• Whom should the organisation serve?

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Corporate governance

• Describes the distribution of power amongst
  stakeholders a governance framework determines
  whom the organisation is there to serve and how
  the purposes and priorities of the organisation
  should be decided.
• Johnson Scholes 1999, p.203.
• Concepts to understand
• The governance chain
• Shareholders and the role of governing bodies
• Rights of creditors and lenders
• Relationships with customers and critics
• Changes of ownership mergers and takeovers
• Disclosure of information
• Conflicts of expectations

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1. The governance chain

• The complexity of corporate governance has arisen
  for two main reasons
• Separate ownership and management control eg
  Westfields holdings and Westfields Trust. Or
  exhibit 5.2 in your text
• Increasing visible accountability.
• Result is a chain of influencing bodies each with
  varying degrees of power and often providing a
  conflict of interest (stakeholder groups and
  individuals).

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2. Shareholders and the role of governing bodies

• Great influence over the structure and management
  of the firm (eg Empire theatre) and has lead to
  increased privatisation of firms
• Ensure organisation actually fulfils the wishes
  and purposes of the owners.
• Private sector.
• Nationalised industries.
• Public sector.
• Structures and compositions of the board
• Single-tier board (incorporate executives and
  non-executive directors).
• Two-tier board (mandatory or prevalent in some
  European countries).

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3. Rights of creditors and lenders

• Equity/debt ratios (debt capital)
• Relationship with bankers (contractual)

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4. Relationships with customers and clients

• Caveat emptor placing the burden of risk on the
  customer and giving the balance of power to the
  company.
• Governments created watchdogs bodies to
  represent the customers interests.

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5. Changes of ownership Mergers and takeovers

• Threat of takeover is regarded as a primary means
  of ensuring the good performance of
  organisations. Eg. USA, UK.
• Should be constrained in law and codes of
  conduct, to produce a semi-regulated framework
  for takeovers (ACCC may stop a take-over).
• Conflict of interest directors interests vs
  long-term interests of the stakeholders
  (employees and customers).

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6. Disclosure of information

• Information is a key source of power.
• Establish a code of best practice on disclosure
  and audit arrangement.
• Information such as CEO salaries and board member
  bonuses may be important.
• Other information can affect share price
  movements or the decision to publicly float a
  company

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7. Conflicts of expectations

• The expectations of stakeholder groups differ
  from one another.
• Eg.
• Shareholders demanding short term profits vs
  employee demanding pay increases (QANTAS).
• Borrowing to invest in new growth opportunities
  vs maintaining financial stability
• Using professional managers to grow a family
  business vs maintaining managerial control
• Financial and strategic goals of organisation vs
  public interests (TELSTRA)

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Influences on organisational purposes

• Corporate governance
• Whom should the organisation serve?
• How should purposes be determined?

• Organisational purpose
• Mission
• objectives

• Stakeholders
• Whom should the organisation serve?

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Stakeholder expectations

• Important to identify all stakeholders
  Stakeholders are those individuals or groups who
  depend on the organisation to fulfil their own
  goals and on whom, the organisation depends.
• Johnson Scholes 1999, p.213.
• Need to include informal groups
• Some stakeholders belong to more than one group
• Stakeholder mapping (analysis) is needed
• seeks to identify stakeholder expectations and
  power and helps in establishing political
  priorities.
• Power/interest matrix

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Stakeholder expectations (Cont)

• Assessing power
• power is the extent to which individuals or
  groups are able to persuade, induce or coerce
  others into following certain courses of action.
• Status
• Claim on resources
• Representation in powerful positions
• Symbols of power

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Influences on organisational purposes

• Business ethics
• Which purposes should be prioritised?
• Why?

• Corporate governance
• Whom should the organisation serve?
• How should purposes be determined?

• Organisational purpose
• Mission
• objectives

• Stakeholders
• Whom should the organisation serve?

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Business ethics

• Business ethics are concern with three levels
• Macro level (concerns the role of business in
  the national and international organisation of
  society)
• Macro framework (concerns with the ethical
  issues facing corporate entities when formulating
  and implementing strategies)
• Individual level (concerns the behaviour and
  actions of individuals within organisations)

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Ethical stance

• Ethical stance The ethical stance is the extent
  to which an organisation will exceed its minimum
  obligations to stakeholders.
• Johnson Scholes 1999, p.225.

Four possible ethical stances
Short-term shareholder interests
Longer-term shareholder interests
Multiple shareholder obligations
Shaper of society
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Influences on organisational purposes

• Business ethics
• Which purposes should be prioritised?
• Why?

• Corporate governance
• Whom should the organisation serve?
• How should purposes be determined?

• Organisational purpose
• Mission
• objectives

• Cultural context
• Which purposes are prioritised?
• Why?

• Stakeholders
• Whom should the organisation serve?

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Corporate social responsibility

• Corporate social responsibility is the detailed
  issues on which an organisation exceeds its
  minimum required obligations to stakeholders.
• Johnson Scholes 1999, p.230.

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The cultural context

• The cultural web is a representation of the
  taken-for-granted assumptions, or paradigms of an
  organisation and the physical manifestations of
  the organisation culture.
• Johnson Scholes 1999, p.230.
• Very difficult to change or to overcome quickly
  note sub-cultures.
• Key issues for the purpose of strategic analysis
• No best or worst culture.
• Self-perpetuating.
• Cohesiveness.

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Cultural frames of reference
Functional/ divisional
Organisational
Professional (or institutional)
The individual
Industrial/sector (recipe)
National (or regional)
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Organisational purposes

• The mission statement
• is a generalised statement of the overriding
  purpose of the organisation.
• Johnson Scholes 1999, p.241.
• Strategic intent
• is the desired future state or aspiration of the
  organisation.
• Johnson Scholes 1999, p.243.

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Mission statement

• Nine components of a mission statement.
• Customers (who are the firms customers?)
• Products or services (what are the firms major
  products or services?)
• Markets (geographically, where does the firm
  compete?)
• Technology (is the firm technologically current?)
• Concern for survival, growth, and profitability
  (is the firm committed to growth and financial
  soundness?)
• Philosophy (what are the basic beliefs, values,
  aspirations, and ethical priorities of the firm?)
• Self-concept (what is the firms distinctive
  competence or major competitive advantages?)
• Concern for public image (is the firm responsive
  to social, community, and environmental
  concerns?)
• Concern for employees (are employees a valuable
  asset of the firm?)
• David 2001, p. 65.

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Goals / Objectives

• Corporate objectives
• Financial terms (eg. Sales or profit levels, rate
  of growth, dividends levels)
• Non-financial terms (employee welfare,
  technological advance)
• Unit objectives
• Related to individual SBUs
• Multiple objectives

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Lecture 5 review

• Corporate governance
• Stakeholder expectations
• Business ethics
• The cultural context
• Organisational purposes

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Next week

• Module 6 Strategic choice Bases of strategic
  choice
• (Study book Module 6 - Text Chapter 6)

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Next weeks tutorial

• Assignment 1. (preparation)
• Look at the Woolworths article again.
• Who are the stakeholders?
• What do you think is the mission of the firm?
• Can Woolworths fulfil its mission AND satisfy all
  stakeholders at once?