L17 - Stakeholders and culture

Question 1

What are stakeholders?

Answer 1

Those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends. Recognise that not only the owners have influence over firm strategy, obviously stakeholders vary in “interest” and ability to control” strategy

Question 2

Can competitors be stakeholders?

Answer 2

Sometimes the industry needs to cooperate to make a collective case, in an industry association e.g. to government

Question 3

What are 4 ways an organisation can address how the organisation makes a difference and for whom?

Answer 3

Mission and vision statement

Statements of corporate values – communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate

Objectives – statements of specific outcomes that are to be achieved

Question 4

What are 3 principles that can help make mission, vision and value statements meaningful?

Answer 4

(1) Focus: focus attention and help guide decision
(2) Motivational: motivate employees to do their best. Be distinctive and authentic to the organisation in question, stretch organisational performance to higher levels
(3) Clear: easy to communicate, understand and remember

Question 5

What does management need to consider in relation to the many stakeholders?

Answer 5

Managers need to take a view on (i) which stakeholders will have the greatest influence, (ii) which expectations they need to pay most attention to and (iii) to what extent
the expectations and influence of different stakeholders vary.

Question 6

What are 4 types of external stakeholder groups?

Answer 6

Economic stakeholders – suppliers, competitors, customers, banks, shareholders

Social/political stakeholders – policy makers, regulators and government agencies

Technological stakeholders – key adopters, standards agencies, suppliers of complementary products or services

Community stakeholders – e.g. those living close to a factory. Have no form of relationship with organisation but may take action to influence the organisation

The influence of different types of stakeholders will vary in different situations

Question 7

What is stakeholder mapping and what is it useful for?

Answer 7

Can be used to gain understanding of stakeholder influence.

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

The matrix classifies stakeholders in relation to the power they hold and the extent to which they are
likely to show interest in supporting or opposing a particular strategy.

The positions of different stakeholders on the matrix are likely to vary according to each issue

Stakeholder groups are also likely to vary in their power according to the governance structures under which they operate

Question 8

What are 3 issues stakeholder mapping can help in understanding?

Answer 8

Who the key blockers and facilitators of strategy are likely to be and the appropriate response

Whether repositioning of certain stakeholders is desirable and/or feasible

Maintaining the level of interest or power of some key stakeholders. It may also be necessary to discourage some stakeholders from repositioning themselves. This is what is meant by keep satisfied in relation to stakeholders in segment C, and to a lesser extent keep informed for those in segment B

Question 9

What are the four basic ownership models?

Answer 9

Public companies: sell shares to the public, ownership typically in the hands of individual investors or institutions. Owners delegate management who work to make financial returns for owners – focus on profit

State-owned enterprises: wholly or majority owned by governments. Politicians typically delegate day-to-day control to professional managers, may intervene on major strategic issues. State-owned enterprises usually have to earn a profit or surplus in order to fund investment and build financial reserves, but they are also likely to pursue a range of other objectives in keeping with government policy

Entrepreneurial businesses: substantially owned and controlled by founders. As they grow, more likely to rely on professional managers. Typically
entrepreneurial companies need to focus on profit in order to survive and grow, though the personal missions of the founder may well influence purpose.

Family businesses: ownership by founding entrepreneur has passed to family. Often the family retains a majority of voting shares, while releasing the remainder to the public on the stock market. Management may be partly professionalised, whilst top management remains ultimately under family control. For family businesses, retaining control over the company, passing on management to the next generation and ensuring the company’s long-term survival are often very important objectives, and these might rule out profit-maximising strategies that involve high risk or require external finance.

Question 10

What are 4 other ownership models?

Answer 10

Not-for-profit organisations – typically owned by charitable foundation

Partnership model – organisation is owned and controlled by senior employees, “individually and severally liable”

Employee-owned firms

Mutual firms – owned by customers or members

Typically, not-for-profits, partnerships and employee-owned firms are restricted in their ability to raise external finance, making them more conservative in their strategies.

Question 11

What is corporate governance?

Answer 11

Concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation

Question 12

What is a governance chain?

Answer 12

Managers and stakeholders are linked together in a governance chain which shows the roles and relationships of different groups involved in the governance of an organisation

Question 13

What is the principal-agent problem?

Answer 13

The owners’ interest may not be served by management

Arises from 3 problems:

(1) Knowledge imbalances – agents typically know more than principals about what can and should be done
(2) Monitoring limits – difficult for principals to monitor closely performance of agents
(3) Misaligned incentives

Question 14

What is the shareholder governance model?

Answer 14

Prioritises shareholder interest and is dominant in public companies

Shareholders have priority in regard to the wealth generated by the company

Separation of ownership and management – arguably means strategic decisions can be made more objectively

Assume shareholder interest are largely financial

Shareholders can vote for the board of directors according to number of shares

In the pure model no single shareholder dominates

Shareholders can indirectly exert control through share trading

Single-tier board structure with a majority of ‘non-executive’ directors (outsiders that provide oversight on behalf of shareholders, less concerned with operational issue). Supposed to bring greater independence, however, the choice of outsiders is often made by the executive directors

Question 15

What is the stakeholder model of corporate governance?

Answer 15

Recognises the wider set of interest that have a stake in an organisation’s success e.g. employees, local communities, local governments, major suppliers, customers and banks

Shareholders are also stakeholders, of course, but in the stakeholder model they are likely to take larger stakes in companies than in the pure shareholder model and to hold these stakes longer term, helping them take a strategic point of view

Two-tier board structure: supervisory board is a forum where the interest of various stakeholder groups are represented – major decisions. Management board: strategic planning and operational control

Question 16

What are two issues that are especially significant for boards’ involvement in strategy?

Answer 16

Delegation: two-tier system seeks to prevent management to capture the strategy at the expense of other stakeholders. More difficult under single-board structure.

Engagement: Non-executive directors may wish to engage in strategic management but face practical problems: time and knowledge

Question 17

What is corporate social responsibility?

Answer 17

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’. Concerned with how an organisation does or “should” (or “be forced to”?) exceed its minimum obligations to stakeholders specified through regulation

Question 18

What are 4 stereotypical stances on CSR?

Answer 18

The laissez-faire view: the only responsibility of business is to make a profit and provide for the interest of shareholders. Government should protect society, expecting companies to go beyond minimum obligations confuse decision makes and undermines accountability of managers to their shareholders

Enlightened self-interest: guided by the recognition of the long-term financial benefit to the shareholder of well-managed relationships with other stakeholders. It is argued that this makes good business sense and is important for long-term financial success. Working constructively with suppliers or local communities can increase the ‘value’ available for all stakeholders to share

Forum for stakeholder interaction – explicitly incorporates multiple stakeholder interest and expectations rather than just shareholders as influences. Argues performance should be measured by other than financial terms. Rather, social responsibility can be measured in terms of the triple bottom line – social and environmental benefits as well as profits

Shapers of society: financial considerations of secondary importance or constraint. Visionary organisations seeking to change society.

Question 19

What is organisational culture?

Answer 19

The taken-for-granted assumptions and behaviours that make sense of people’s organisational context and therefore contributes to how groups of people respond to and behave in relation to issues they face

Question 20

How might cultures be geographically based?

Answer 20

Hofstede has shown how attitudes to work, authority, equality and other factors differ from one country to another

Question 21

What are 4 layers of organisational culture?

Answer 21

Values - as formally stated by an organisation may be easy to identify since they are explicit. The values driving strategy may differ from the formal ones. Therefore important to delve beneath espoused values to uncover underlying, perhaps taken-for-granted, values that can help explain the strategy actually being pursued by an organisation.

Beliefs – more specific. Can typically be discerned in how people talk about issues the organisation faces

Behaviours – the day-to-day ways in which an organisation operates. These behaviours may become the taken-for-granted ‘ways we do things around here’ that are potentially the bases for inimitable strategic capabilities but also significant barriers to achieving strategic change if that becomes necessary

Taken-for-granted assumptions - are the core of an organisation’s culture which in this book we refer to as the ‘organisational paradigm’. The paradigm is the set of assumptions held in common and taken for granted in an organisation which guide people about how to view and respond to different circumstances that organisation faces. The paradigm can underpin successful strategies by providing a basis of common understanding in
an organisation, but can also be a problem, for example when major strategic change is
needed, or when organisations try to merge and find that the paradigms of the merged organisations are incompatible.

Question 22

What are organisational subcultures?

Answer 22

Could relate to the structure of the organisation e.g. geographical divisions or between functional groups.

Question 23

The taken-for-granted nature of culture is what makes it centrally important in relation to strategy and the management of strategy. There are at least two potential benefits:

Answer 23

(1) Cultural ‘glue’ – if there is coherence around what is taken for granted and what is in line with strategy it can make the organisation easier to manage
(2) A basis of competitive advantage – difficult to imitate what is taken for granted

Question 24

What are 3 potential problems of the taken-for-granted nature of culture?

Answer 24

(1) Captured by culture - Managers, faced with a changing business environment, are more likely to attempt to deal with the situation by searching for what they can understand and cope with, in terms of the existing culture
(2) Cultural barriers to change
(3) Managing culture

Question 25

What is the cultural web?

Answer 25

A means of analysing culture. Shows the behavioural, physical and symbolic manifestations of a culture that inform and are informed by the taken-for-granted assumptions or paradigm. The cultural web can be used to understand culture in any of the frames of reference discussed above but is most often used at the organisational and/or functional levels.

Question 26

What are the 8 elements of the cultural web?

Answer 26

Paradigm, routines, rituals, stories, symbols, power, organisational structures and control systems.

Question 27

What is the paradigm (cultural web)?

Answer 27

Core of the web

The collective experience applied to a situation to make sense of it and inform a likely course of action.

The problem is that, since it is unlikely to be talked about, or even be something that people are conscious of, trying to identify it can be difficult. One way of gaining insight into a paradigm is to focus initially on other aspects of the cultural web

These other aspects are likely to act to reinforce the assumptions within the paradigm

Question 28

What are routines (cultural web)?

Answer 28

The way things are done on a day-to-ay basis

They can also represent a taken-for-grantedness about how things should happen which, again, can guide how people respond to issues but be difficult to change.

Question 29

What are rituals (cultural web)?

Answer 29

Activities or special events that emphasise, highlight or reinforce what is important in the culture

Question 30

What role do stories play (cultural web)?

Answer 30

May act to embed the present in its organisational history and also flag up important events and personalities. Can also be a way of letting people know what is important.

Question 31

What are symbols (cultural web)?

Answer 31

Objects, events or acts that people convey, maintain or create meaning over and above their functional purpose

Question 32

What is power (cultural web)?

Answer 32

Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action. So power structures are distributions of power to groups of people in an organisation. The most powerful individuals or groups are likely to be closely
associated with the paradigm.

Question 33

What can structure say about culture (cultural web)?

Answer 33

Reflect power structures, emphasises which roles and relationships really matter in an organisation. Formal
hierarchical, mechanistic structures may emphasise that strategy is the province of top managers and everyone else is ‘working to orders’. Structures with less emphasis on formal reporting relationships might indicate more participative strategy making.

Question 34

How are control systems related to culture (cultural web)?

Answer 34

Control systems are the formal and informal ways of monitoring and supporting people within and around an organisation and tend to emphasise what is seen to be important in the organisation. They include measurements and reward systems.

Question 35

What is strategic drift?

Answer 35

“…the tendencies of strategies to develop incrementally on the basis of historical and cultural influences but failing to keep pace with a changing environment”. Matters if you are interested in the organisation.

Question 36

What are 4 phases of strategic drift that may lead either to the organisation’s death or transformational change?

Answer 36

Incremental strategic change

Strategic drift emerges when the rate of environmental change starts to outpace the rate of the organisation’s strategic change

Flux – triggered by the downturn in performance caused by the growing gap between organisation and environment

Transformation or death

Question 37

What are 4 possible sources of strategic drift?

Answer 37

Uncertainty about that “changing environment”

Lock-in to historically-justified behaviour. Old capabilities can become core rigidities, existing relationships can become shackles

Cultural entrenchment

Powerful people (of the wrong kind)