Business Strategy 2024/2025 PDF

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION STAKEHOLDERS AND GOVERNANCE Stakeholders, Governance and Ethics INTRODUCTION 3 INTRODUCTION The three issues of stakeholders, governance and ethics recall the discussion of purpose, as r...

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION STAKEHOLDERS AND GOVERNANCE Stakeholders, Governance and Ethics INTRODUCTION 3 INTRODUCTION The three issues of stakeholders, governance and ethics recall the discussion of purpose, as reflected in organisational missions, visions, values and objectives. The wishes of key stakeholders should define the purpose of an organisation; formal governance mechanisms and ethical considerations should then guide the translation of that purpose into strategy. 4 INTRODUCTION In 2018, Facebook has been embroiled in a series of scandals that have raised important questions about its ethics, its mode of governance, and even its strategic directions. Facebook's strategy is based above all on collecting the private data of its users, which is then sold on for advertising purposes. However, this data is vulnerable to misuse. 5 INTRODUCTION In 2018, political consultancy Cambridge Analytica used the data of 87 million Facebook users to secretly influence both the 2016 US presidential election and the UK's Brexit referendum. Facebook has acknowledged a data leak involving 50 million of its users. Throughout this year, Facebook's share price has moved 20% slower than the stock market. 6 INTRODUCTION Politicians and regulators have questioned Facebook about its data protection and usage practices. Many raised doubts about the ability of Mark Zuckerberg, the 34-year- old founder and CEO, to run a company with 30,000 employees, 2 billion users and a market value of more than $600 billion. Mark Zuckerberg's shares carried preferential rights, giving him around 70% of the votes with just 18% of the shares. 7 STAKEHOLDERS STAKEHOLDERS Stakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends. Strategic decisions are influenced by their expectations >> Managers must take all stakeholders into account. However, stakeholder demands can diverge widely, especially in the short term: E.g. profit maximisation on the part of owners may come at the expense of customers who want quality products and employees who want good jobs. Stakeholders of a large organisation STAKEHOLDERS 10 STAKEHOLDERS GROUPS Economic stakeholders, Social/political stakeholders, Technological stakeholders, including suppliers, such as policy-makers, local such as key adopters, customers, distributors, councils, regulators and standards agencies and banks and owners government agencies that ecosystem members (shareholders). may influence the strategy supplying complementary directly or via the context in products or services (e.g. which strategy is developed. apps for particular mobile phones). 11 STAKEHOLDERS GROUPS Community stakeholders, who are Internal stakeholders, who may be affected by what an organisation does. specialised departments, local offices and factories or employees at different E.g. those who live close to a factory or levels in the hierarchy. groups in the wider society. These stakeholders typically have no formal relationship with the organisation but may take action (through lobbying or activism) to influence the organisation. 12 STAKEHOLDERS GROUPS Individuals may belong to more than one stakeholder group and such groups may ‘line up’ differently depending on the issue or strategy in hand. External stakeholders may seek to influence an organisation’s strategy through their links with internal stakeholders. E.g. Customers may exert pressure on sales managers to represent their interests within the company. 13 STAKEHOLDERS GROUPS The influence of these different types of stakeholders is likely to vary in different situations. E.g. Technological stakeholders will be crucial for strategies of new product development. Social/political stakeholders are usually particularly influential in the public-sector context or for multinational companies operating in countries with demanding political and legal systems. 14 COMMON CONFLICTS OF STAKEHOLDER INTERESTS AND EXPECTATIONS Pursuit of short-term profits may suit shareholders and managerial bonuses but come at the expense of investment in long-term projects. Family business owners may want business growth, but also fear the loss of family control if they need to appoint professional managers to cope with larger-scale operations. Investing in growth strategies may require additional funding through share issue or loans, but thereby risk financial security and independence. 15 COMMON CONFLICTS OF STAKEHOLDER INTERESTS AND EXPECTATIONS Going public on the stock market may raise funds, but require unwelcome degrees of openness and accountability from management. Expanding into mass markets may require a reduction in quality standards. In public services, excellence in specialised services might divert resources from standard services used by the majority (e.g. heart transplants come at the cost of preventative dentistry). In large multinational organisations, conflict can result because of a local division’s responsibilities simultaneously to the company head office and to its host country. 16 STAKEHOLDER MAPPING Stakeholder mapping identifies stakeholder power and attention in order to understand political priorities. The underlying view is that organisations involve political coalitions of stakeholders, each of which has different kinds of power and each of which pays different amounts of attention to issues. 17 STAKEHOLDER MAPPING Power is the ability of individuals or groups to persuade, induce or coerce other into following certain courses of action. It is not delivered from people’s hierarchical position within an organisation or from formal corporate governance arrangements. 18  SOURCES AND INDICATORS OF POWER 19 STAKEHOLDER MAPPING Attention In assessing the attention that stakeholders are likely to pay, three factors are particularly important: 1. Criticality: stakeholders will pay more attention to issues that are critical for them. 2. Channels: stakeholders will pay more attention where there are good channels of information. 3. Cognitive capacity: sometimes stakeholders simply do not have the cognitive capacity to process all the information they have. 20  POWER/ATTENTION MATRIX 21 STAKEHOLDER MAPPING Building stakeholder coalitions is at the core of strategy. Stakeholder mapping can help in three aspects of the coalition- building process: 1. Analysing who the key blockers and facilitators of a strategy are likely to be and the appropriate response. 2. Repositioning of certain stakeholders is desirable and/or feasible 3. Maintaining the level of attention or power of some key stakeholders. 22 OWNERS Publicly-Quoted Companies: State-owned enterprises Shares are traded on public stock exchanges, Wholly or majority owned by national or allowing the public and institutions to regional governments. buy/sell shares. Owners (shareholders) typically do not Politicians delegate control to manage the company directly; professional professional managers, but may oversee managers are responsible for day-to-day major strategic decisions. operations. Must earn profit or surplus, but also Managers aim to generate financial returns pursue government policy goals. for shareholders. Privatisation has reduced these in If shareholders are dissatisfied, they can sell developed economies, though quasi- shares or push for management changes. privatised agencies still exist. 23 OWNERS Entrepreneurial Businesses Family Businesses Controlled by founders who maintain Passed on from the founder to the power through ownership and deep family. business knowledge. Family often retains majority control, Often bring in professional managers while bringing in professional and external investors as they expand. managers. Attend closely to profits but may Prioritize long-term survival, prioritise other goals. minimizing risks, and succession over short-term profit maximisation. 24 OWNERS There are several other variants that play smaller but still significant roles in the economy: Non-profit organisations; The partnership model; Employee-owned firms. 25  Ownership, management and purpose OWNERS 26 CORPORATE GOVERNANCE CORPORATE GOVERNANCE Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. Key stakeholders in corporate governance are typically the owners, but may include other groups such as employee representatives. Connecting stakeholder interests with management action is a vital part of strategy. GOVERNANCE CHAIN Managers and stakeholders are linked together via the governance chain. Governance chain shows the roles and relationships of different groups involved in the governance of an organisation. E.g. Small family business – the governance chain is simple: there are family shareholders, a board with some family members and there are managers, some of whom may be family too. 29 The chain of corporate governance: typical reporting structures GOVERNANCE CHAIN 30 GOVERNANCE CHAIN Principal-agent model: ‘Principals’ employ ‘agents’ to act on their behalf. The principal is simply the owner and the agent is the manager. Large publicly-quoted corporates: more complex, with principal and agents at every level. 31 GOVERNANCE CHAIN The governance issues in principal–agent theory arise from three problems: 1. Knowledge imbalances: Agents typically know more than principals; it is they who are actually doing the job and they have been hired for their expertise. 2. Monitoring limits: It is very difficult for principals to monitor closely the performance of their agents. 3. Misaligned incentives: Unless their incentives are closely aligned to principals’ interests, agents are liable to pursue other objectives that reward them better. 32 HANDBOOK Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy - Text and Cases (11th ed.). Pearson Education. 33