Strategic ManagementStrategic Management

Purpose, shareholder value, Purpose, shareholder value, and stakeholdersand stakeholders

Prof.Dr. E.VatchkovaProf.Dr. E.Vatchkova

ContentsContents1.1. Identifying stakeholdersIdentifying stakeholders2.2. The political power in the organizationThe political power in the organization3.3. Sources of power Sources of power 4.4. Stakeholder mappingStakeholder mapping5.5. Power/dynamism matrixPower/dynamism matrix6.6. Power/interest matrixPower/interest matrix7.7. Conflicts of expectationsConflicts of expectations8.8. Managerial valuesManagerial values9.9. Ethical issuesEthical issues10.10. Cultural framesCultural frames

Freeman’s definition Freeman’s definition (1984)(1984)

““Any group or individual who can Any group or individual who can affect or is affected by the affect or is affected by the performance of an organization”performance of an organization”

Stakeholders concept is valuable Stakeholders concept is valuable when:when:

The organizational objectives are definedThe organizational objectives are definedSpecific strategic developments will take Specific strategic developments will take placeplaceThe strategic choice is to be made The strategic choice is to be made

Groups of stakeholdersGroups of stakeholdersExternal stakeholdersExternal stakeholders

The stateThe stateCustomersCustomersSuppliersSuppliersFinancial institutionsFinancial institutionsShareholdersShareholdersUnionsUnionsMediaMedia

Internal stakeholdersInternal stakeholders

ManagersManagersEmployeesEmployees

PowerPower

The abilityThe ability of individuals or of individuals or groups to persuade, induce or groups to persuade, induce or coerce others into following coerce others into following certain courses of actioncertain courses of action

The organization is a The organization is a political arenapolitical arena

Source of power within the Source of power within the organizationorganization

Hierarchy (formal)Hierarchy (formal)Influence (informal)Influence (informal)Control of strategic resourcesControl of strategic resourcesPossession of knowledge and skillsPossession of knowledge and skillsControl of the environmentControl of the environmentInvolvement in strategy implementationInvolvement in strategy implementation

Sources of power for external Sources of power for external stakeholdersstakeholders

Control of strategic resourcesControl of strategic resourcesInvolvement in strategy implementationInvolvement in strategy implementationPossession of knowledge (skills)Possession of knowledge (skills)Through internal linksThrough internal links

Indicators of powerIndicators of powerInternal stakeholdersInternal stakeholders

1.1. StatusStatus2.2. Claim on resourcesClaim on resources

3.3. RepresentationRepresentation

4.4. SymbolsSymbols

External stakeholdersExternal stakeholders

1.1. StatusStatus2.2. Resource Resource

dependencedependence3.3. Negotiating Negotiating

arrangementsarrangements4.4. SymbolsSymbols

Stakeholders mapping – Stakeholders mapping – assessing assessing the importance of stakeholder the importance of stakeholder

expectationsexpectations How likely each stakeholder is to impress How likely each stakeholder is to impress its expectations on the companyits expectations on the company

Whether they have the means to do so Whether they have the means to do so (assessment of power)(assessment of power)

The likely impact of stakeholder The likely impact of stakeholder expectations on future strategiesexpectations on future strategies

Power /dynamism matrixPower /dynamism matrix

AA

Few Few problemsproblems

BBUnpredictable but Unpredictable but manageablemanageable

CCPowerful Powerful but but predictablepredictable

DDGreatest danger or Greatest danger or opportunitiesopportunities

Predictability

Power

Low

LowHigh

High

Adapted from Mendelow, 1999

Power / interest matrixPower / interest matrix

AAMinimal Minimal efforteffort

BBKeep Keep informedinformed

CCKeep Keep satisfiedsatisfied

DDKey playersKey players

Level of interest

Power

Low High

Low

High

Adapted from Mendelow, 1999

Stakeholders expectations(1)Stakeholders expectations(1)

Shareholders:Shareholders:

Annual dividendsAnnual dividends

Increasing the value of their investments in Increasing the value of their investments in the company as the share price increasesthe company as the share price increases

Stakeholders expectations(2)Stakeholders expectations(2)

ManagersManagerssalaries and bonusessalaries and bonusesproxy paymentsproxy paymentsresponsibilityresponsibilitychallengechallengeworking for a well known and working for a well known and

prestigious companyprestigious company

Stakeholders expectations(3)Stakeholders expectations(3)EmployeesEmployees

wageswagesholidaysholidaysjob satisfactionjob satisfactionworking conditionsworking conditionssecuritysecurity

Stakeholders expectations(4)Stakeholders expectations(4)

ConsumersConsumers

desirable and quality productsdesirable and quality productscompetitive pricescompetitive pricesnew products at appropriate timenew products at appropriate time

Stakeholders expectations(5)Stakeholders expectations(5)DistributorsDistributors

on time and reliable deliverieson time and reliable deliveriesSuppliersSuppliers

constant ordersconstant orderspayment on timepayment on time

FinancersFinancersinterest paymentsinterest paymentsloan repaymentsloan repayments

Stakeholders expectations(6)Stakeholders expectations(6)

GovernmentGovernmentpayment of taxespayment of taxesprovision of employmentprovision of employmentcontribution to the nation’s exportscontribution to the nation’s exports

Society in generalSociety in generalsocially responsible actions socially responsible actions

Common conflicts of Common conflicts of expectationsexpectations

Growth – profitabilityGrowth – profitabilityCost efficiency – jobsCost efficiency – jobsVolume – qualityVolume – qualitySavings in one SBU –increased spending Savings in one SBU –increased spending in elsewherein elsewhereDivision’s belonging to two organizational Division’s belonging to two organizational fieldsfields

DefinitionDefinition

Values are broad, general beliefs about Values are broad, general beliefs about some way of behaving or some end state some way of behaving or some end state is preferable to the individualis preferable to the individual

The influence of valuesThe influence of valuesThe way other individuals and groups are The way other individuals and groups are perceived, thereby influencing interpersonal perceived, thereby influencing interpersonal relationshipsrelationshipsThe decisions and problem solutionsThe decisions and problem solutionsThe perception of situationsThe perception of situationsThe criteria for ethical behaviorThe criteria for ethical behaviorThe acceptation or resistance to organizational The acceptation or resistance to organizational goalsgoalsThe ways to achieve the success The ways to achieve the success

Types of valuesTypes of valuesTheoretical – order, system, logicTheoretical – order, system, logicEconomic – usefulness and practicabilityEconomic – usefulness and practicabilityAesthetic – art and beautyAesthetic – art and beautySocial – people and their welfareSocial – people and their welfarePolitical – power over people and thingsPolitical – power over people and thingsReligious – unity and harmonyReligious – unity and harmony

The political and cultural aspect The political and cultural aspect of the organizationof the organization

1.Whom the organization does actually 1.Whom the organization does actually serve?serve?The concept of stakeholdersThe concept of stakeholders

2. Which purposes an organization should 2. Which purposes an organization should fulfill?fulfill?Ethical considerationsEthical considerations

3. Which purposes are actually prioritized?3. Which purposes are actually prioritized?The cultural conceptsThe cultural concepts

Some questions of CSR Some questions of CSR J&S,02J&S,02

Internal aspectsInternal aspects

Employee welfareEmployee welfareWorking conditionsWorking conditionsJob designJob designIntellectual propertyIntellectual property

External aspectsExternal aspects

Green issuesGreen issuesProductsProductsMarkets and Markets and marketingmarketingSuppliersSuppliersEmploymentEmploymentCommunity activityCommunity activity

The cultural webThe cultural web

Paradigm

StoriesSymbols

Power

Routines and rituals

Control

Organizational structures

Expectations and purposes modelExpectations and purposes model

Corporate governance Business ethics

Stakeholders Cultural context

OrganizationalPurposes•Mission•Objectives

Managing for shareholder valueManaging for shareholder valueGeneral consideration:General consideration:

How to make the business value-based?How to make the business value-based?Objective:Objective:

Maximizing shareholder value over timeMaximizing shareholder value over timeStrategy:Strategy:

Significant change in managementSignificant change in managementAction tasksAction tasks (initiatives) (initiatives)

Key steps (initiatives) 1Key steps (initiatives) 1(Cadbury-Schweppes plc,1966)(Cadbury-Schweppes plc,1966)

1. Preparing a multi-year 1. Preparing a multi-year blueprintblueprint for the many for the many changes to make the business value-basedchanges to make the business value-based

2. Identify 2. Identify sources sources of value creation and of value creation and destruction, using financial and performance destruction, using financial and performance measures:measures: Economic profitEconomic profit Return on total invested capitalReturn on total invested capital Earning growthEarning growth Free cash flowFree cash flow

3. Set 3. Set performance targetsperformance targets4. Manage 4. Manage day-to day performanceday-to day performance

Key steps (initiatives) 2 Key steps (initiatives) 2 (Cadbury-Schweppes plc,1966)(Cadbury-Schweppes plc,1966)

5. Focusing business strategies on the 5. Focusing business strategies on the search for profitable growthsearch for profitable growth

6. Creating short- and long term incentive 6. Creating short- and long term incentive plans for senior managersplans for senior managers

7. Reviewing the value performance of all 7. Reviewing the value performance of all the businesses the businesses

8. Delivering awareness and training 8. Delivering awareness and training sessions on managing for value (top 300sessions on managing for value (top 300

executives worldwide)executives worldwide)

Key steps (initiatives) 3 Key steps (initiatives) 3 (Cadbury-Schweppes plc,1966)(Cadbury-Schweppes plc,1966)

9. Carrying two pilot studies in core group 9. Carrying two pilot studies in core group businesses (produce “value champions”)businesses (produce “value champions”)

10. Establishing the first “rolling strategic 10. Establishing the first “rolling strategic management agenda” for the board:management agenda” for the board:

list of issueslist of issuesmanagers in chargemanagers in chargevalue-maximizing decisionsvalue-maximizing decisions

Funding strategies in different Funding strategies in different circumstances: the Growth/share matrixcircumstances: the Growth/share matrix

Growth (Stars)Growth (Stars)Business risk: HighBusiness risk: HighFinancial risk needs to be: LowFinancial risk needs to be: LowFunding by: Equity (growth Funding by: Equity (growth investors)investors)

Dividends: NormalDividends: Normal

Launch (Question marks)Launch (Question marks)Business risk needs to be: Very Business risk needs to be: Very highhighFinancial risk: Very lowFinancial risk: Very lowFunding by: Equity Funding by: Equity (venture capital)(venture capital)Dividends: ZeroDividends: Zero

Maturity (Cash cow)Maturity (Cash cow)Business risk: MediumBusiness risk: MediumFinancial risk can be: MediumFinancial risk can be: MediumFunding by: Debt and equityFunding by: Debt and equity (retaining earnings)(retaining earnings)Dividends: HighDividends: High

Decline (dogs)Decline (dogs)Business risk: LowBusiness risk: LowFinancial risk can be: HighFinancial risk can be: HighFunding by: DebtFunding by: Debt

Dividends: TotalDividends: Total

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