SM Lecture Four : Strategic Purpose, Culture and Strategy
1. Strategic Management BUSM 3200
These Lecture Slides summarize the key points covered in the respective chapters in your
recommended text; these slides do NOT substitute, at all, the required reading of the assigned
chapter from the text. These slides also may contain additional supplementary material extracted
from other texts and sources outside your text book.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-1
2. This lecture carries two chapters from the book
Chapter 4: Strategic Purpose
Covers issues on purpose of the organization: values,
vision, mission, and objectives
Corporate governance
Corporate responsibility and ethical issues
Stakeholder analysis
Chapter 5: Culture and Strategy
How the internal dimensions of culture will impact on the
efficacy of strategy implementation
BUSM 3200- Strategic Management (Jan 2013) GDS 4-2
4. Learning outcomes
Consider appropriate ways to express the strategic purpose of
an organisation in terms of statements of purpose, values,
vision, mission or objectives.
Identify the components of the governance chain of an
organisation.
Understand differences in governance structures and the
advantages and disadvantages of these.
Identify differences in the corporate responsibility stances taken
by organisations and how ethical issues relate to strategic
purpose.
Undertake stakeholder analysis as a means of identifying the
influence of different stakeholder groups in terms of their
power and interest.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-4
5. Influences on strategic purpose
Figure 4.1 Influences on strategic purpose
BUSM 3200- Strategic Management (Jan 2013) GDS 4-5
6. How the direction and objectives are influenced in SM
The figure earlier shows that strategic planning an
management is a complex process
It is not a matter of one person driving the plan;
rather it is a network of people and constituents
who impact the strategies of the firm
There is a key topic on corporate governance- how
professionally the firm should be managed (this
has became a key issue following the incidences of
corporate frauds in the US and beyond)
Another key topic you need to know well is that of
“ethics” – this has been set in previous exams.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-6
7. Who are the stakeholders?
Stakeholders are those individuals or groups
who depend on an organisation to fulfil their
own goals and on whom, in turn, the
organisation depends.
- There are both internal and external
stakeholder and they could exert significant
impact on the way that strategic decisions are
made.
- The manager need to factor in the likely impact
of strategic decisions on the needs and
expectations of stakeholders
- This is where we get ‘political lobbying’
4-7
BUSM 3200- Strategic
9. Mission statements
A mission statement aims to provide
employees and stakeholders with clarity about
the overriding purpose of the organisation
A mission statement should answer the
questions:
‘What business are we in?’
‘How do we make a difference?’
‘Why do we do this?’
BUSM 3200- Strategic Management (Jan 2013) GDS 4-9
11. Vision statements
A vision statement is concerned with the
desired future state of the organisation; an
aspiration that will enthuse, gain commitment
and stretch performance.
A vision statement should answer the
question :
‘What do we want to achieve?’
BUSM 3200- Strategic Management (Jan 2013) GDS 4-11
14. Statement of corporate values
A statement of corporate values should
communicate the underlying and enduring core
‘principles’ that guide an organisation’s strategy
and define the way that the organisation should
operate.
Such core values should remain intact whatever
the circumstances and constraints faced by the
organisation.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-14
16. Objectives
Objectives are statements of specific
outcomes that are to be achieved.
Objectives are frequently expressed in:
financial terms (e.g. desired profit levels)
market terms (e.g. desired market share)
and increasingly
social terms (e.g. corporate social
responsibility targets)
BUSM 3200- Strategic Management (Jan 2013) GDS 4-16
18. Issues in setting objectives
Do objectives need to be specific and quantified
targets?
The need to identify core objectives that are
crucial for survival.
The need for a hierarchy of objectives that
cascade down the organisation and define
specific objectives at each level.
Objective and control: objectives become the
basis for establishing controls at the end of the
planning cycle.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-18
19. Hierarchy of Objectives
Hierarchy of objectives: the objectives set at a higher level will cascade to
objectives to be set at divisional and business function levels
Corporate level
objective: ROCE
SBU level
objective: ROCE
and Sales/Market
Share
Functional Objective:
example Productivity
or Quality Targets
BUSM 3200- Strategic Management (Jan 2013) GDS 4-19
23. 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.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-23
25. The growing importance of governance:
Reasons
1. The separation of ownership and management
control – defining different roles in governance.
2. Corporate failures and scandals (e.g. Enron) –
focussing attention on governance issues.
3. Increased accountability to wider stakeholder
interests and the need for corporate social
responsibility (e.g. green issues).
BUSM 3200- Strategic Management (Jan 2013) GDS 4-25
26. The governance chain
The chain shows
the roles and
relationships
between different
groups involved in
the governance of
the organization
Figure 4.2 The chain of corporate governance: typical reporting structures
Source: Adapted from David Pitt-Watson, Hermes Fund Management
BUSM 3200- Strategic Management (Jan 2013) GDS 4-26
27. The principal-agent model
Governance can be seen in terms of the
principal-agent model
Principals pay agents to act on their behalf
(e.g. beneficiaries/trustees pay investment
managers to manage funds, Boards of
Directors pay executives to run a company).
Agents may act in their own self interest.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-27
28. Issues in governance (1)
The key challenge is to align the interests of
agents with those of the principals.
Misalignment of incentives and control – e.g.
beneficiaries may require long term growth but
executives may be seeking short term profit.
Responsibility to whom – should executives
pursue solely shareholder aims or serve a wider
constituency of stakeholders? Key issue in debate on
who the managers are
really accountable to.
There are too many
stakeholders to please!
BUSM 3200- Strategic Management (Jan 2013) GDS 4-28
29. Issues in governance (2)
Who are the shareholders – should boards
respond to the demands of institutional
investment managers or the needs of the
ultimate beneficiaries?
The role of institutional investors – should they
actively intervene in strategy?
Establishing the specific role of the board – in
particular the role of non-executive directors.
Scrutiny and control – statutory requirements
and voluntary codes to regulate boards.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-29
30. Different governance systems
Table 4.1 Benefits and disadvantages of governance systems
BUSM 3200- Strategic Management (Jan 2013) GDS 4-30
31. The role of boards (pg 133)
Operate ‘independently’ of the
management – the role of non-executives is
crucial.
Be competent to scrutinise the activities of
managers.
Have time to do their job properly.
Behave appropriately given expectations for
trust, role fluidity, collective responsibility, and
performance.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-31
32. Corporate social responsibility
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’.1
1 World Business Council for Sustainable Development.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-32
33. Corporate social responsibility stances
Table 4.2 Corporate social responsibility stances
BUSM 3200- Strategic Management (Jan 2013) GDS 4-33
34. Questions of corporate social responsibility –
internal aspects (1)
Table 4.3 Some questions of corporate social responsibility
BUSM 3200- Strategic Management (Jan 2013) GDS 4-34
35. Questions of corporate social responsibility –
external aspects (2)
Table 4.3 Some questions of corporate social responsibility (Continued)
35
BUSM 3200- Strategic Management (Jan 2013) GDS
36. The ethics of individuals and managers
Ethical issues have to be faced at the individual
level :
The responsibility of an individual who
believes that the strategy of the organisation is
unethical – resign, ignore it or take action.
‘Whistle-blowing’ - divulging information to
the authorities or media about an organisation if
wrong doing is suspected.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-36
37. Texas instruments’ guidelines
Is the action legal? . . . If no, stop immediately.
Does it comply with our values? . . . If it does not,
stop.
If you do it would you feel bad? . . . Ask your own
conscience if you can live with it.
How would this look in the newspaper? . . . Ask if this
goes public tomorrow would you do it today?
If you know it’s wrong . . . don’t do it.
If you are not sure . . . ask; and keep asking until you
get an answer.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-37
38. Stakeholders of a large organisation
Figure 4.3 Stakeholders of a large organization
Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-38
39. Stakeholder conflicts of expectations
Table 4.4 Some common conflicts of expectations
BUSM 3200- Strategic Management (Jan 2013) GDS 4-39
40. Stakeholder mapping
Stakeholder mapping identifies stakeholder
expectations and power and helps in
understanding political priorities.
(remember we mentioned earlier on that strategic decision
making is often a ‘political process’. Go back to Chapter
One Appendix and review the Strategy Lenses. This will be
related to the view that ‘Strategy is a Discourse’ –see
Table C.ii)
BUSM 3200- Strategic Management (Jan 2013) GDS 4-40
41. Stakeholder mapping: the power/interest matrix
Employees
Inside each cell
we will indicate
which
Suppliers
stakeholder
group will be
placed in terms Financial
Community
of their
interest and
power (see Customers
figure 4.3)
Figure 4.4 Stakeholder mapping: the power/interest matrix
Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1986
BUSM 3200- Strategic Management (Jan 2013) GDS 4-41
42. Stakeholder mapping issues (pg 143)
Determining purpose and strategy – whose
expectations need to be prioritised?
Do the actual levels of interest and power reflect
the corporate governance framework?
Who are the key blockers and facilitators of
strategy?
Is it desirable to try to reposition certain
stakeholders?
Can the level of interest or power of key
stakeholders be maintained?
Will stakeholder positions shift according to the
issue/strategy being considered.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-42
43. Power
Power is the ability of individuals or groups to
persuade, induce or coerce others into following
certain courses of action.
(you have covered the topic of power when you
studied OB. How do you think power impacts
the internal process of strategic decision
making?)
BUSM 3200- Strategic Management (Jan 2013) GDS 4-43
44. Sources of power
Table 4.5 Sources and indicators of power
BUSM 3200- Strategic Management (Jan 2013) GDS 4-44
45. Indicators of power
Table 4.5 Sources and indicators of power (Continued)
BUSM 3200- Strategic Management (Jan 2013) GDS 4-45
46. Key debate
Read page 147
Three different views on the purpose of a
business:
1. Professor Milton Friedman and profit
maximization
2. Professor Charles Handy stakeholder view
3. New capitalists’ argument : “Society and share
owners are becoming one and the same.”
BUSM 3200- Strategic Management (Jan 2013) GDS 4-46
47. Summary (1)
An important managerial task is to decide how the
organisation should express its strategic purpose
through statements of mission, vision, values or
objectives.
The purpose of an organisation will be influenced by the
expectations of its stakeholders.
The influence of some key stakeholders is represented
formally within the governance structure of an
organisation. This can be represented in terms of a
governance chain, showing the links between ultimate
beneficiaries and the managers of an organisation.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-47
48. Summary (2)
There are two generic governance structures systems:
the shareholder model and the stakeholder model though
there are variations of these internationally.
Organisations adopt different stances on corporate
social responsibility depending on how they perceive
their role in society. Individual managers may face
ethical dilemmas relating to the purpose of their
organisation or actions it takes.
Different stakeholders exercise different influence on
organisational purpose and strategy, dependent on the
extent of their power and interest. Managers can assess
the influence of different stakeholder groups through
stakeholder analysis.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-48
50. Learning outcomes
Identify organizations that have
experienced strategic drift and the
symptoms of strategic drift.
Analyze how history influences the
strategic position of organizations.
Analyse the influence of an organisation‘s
culture on its strategy using the cultural
web.
Recognise the importance of strategists
questioning the taken–for–granted aspects
of a culture.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-50
51. Culture and strategy – key issues
Figure 5.1 The influence of history and culture
BUSM 3200- Strategic Management (Jan 2013) GDS 4-51
52. Strategic drift
Strategic drift is the tendency for
strategies to develop incrementally on the
basis of historical and cultural influences
but fail to keep pace with a changing
environment.
More will be covered in Chapter 11 later.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-52
54. Phase 1: Incremental change
strategic drift
During this phase there is a tendency for strategies to develop on the
basis of what the organization has done in the past- especially if they
have been successful. Strategy remains relatively unchanged.
Three reasons:
1. Gradual change in alignment with
environmental change.
2. Building on successful strategies used in the
past (built around core competences)
3. Making changes based on experimentation
around a theme (incremental change built on
a successful formula).This approach is called
Logical Incrementalism
BUSM 3200- Strategic Management (Jan 2013) GDS 4-54
55. Phase 2: The tendency towards strategic drift
Strategies fail to keep pace with environmental change
because :
1. Steady as you go – reluctance to accept that
change requires moving away from strategies that
have been successful.
2. Building on the familiar – uncertainty of change
is met with a tendency to stick to the familiar.
3. Core rigidities – capabilities that are taken for
granted and deeply ingrained in routines are
difficult to change even when they are no longer
suitable.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-55
56. The tendency towards strategic drift (2)
4. Relationships become shackles –
organisations become reluctant to disturb
relationships with customers, suppliers or
the workforce even if they need to change.
5. Lagged performance effects – the financial
performance of the organisation may hold
up initially (e.g. due to loyal customers or
cost cutting) masking the need for change.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-56
57. Phase 3: A period of flux
As performance declines and the
organisation loses track of the environment
then a period of Flux occurs typified by:
1. Strategies that change, but in no clear
direction.
2. Top management conflict and managerial
changes.
3. Internal disagreement on the ‗right‘
strategies.
4. Declining performance and morale.
5. Customers becoming alienated.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-57
58. Phase 4: Transformational change or death
As performance continues to deteriorate the
outcome is likely to be :
The organisation dies (e.g. goes bankrupt
or into receivership).
The organisation is taken over (and
perhaps radically changed by new owners).
The organisation implements
transformational change – multiple, rapid and
fundamental changes.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-58
59. Why history is important?
Recognizing that organizational experience
becomes deeply embedded in behavior. Taking
cognizance of the history of the company has 4
main benefits:
1. Avoiding recency bias – learning from the past.
2. Asking ‗what if‘ questions based on past
experience.
3. History as legitimisation – past success can be
used as evidence to support specific
strategies.
4. Innovation based on historic capabilities which
can be adapted and transferred.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-59
60. Path dependency
Path dependency is where early events
and decisions establish ‗policy paths‘ that
have lasting effects on subsequent events
and decisions.
It is a way of thinking about how historical
events and decisions, within and around
the organization, have an effect on that
organization – either positive or in
negative ways
BUSM 3200- Strategic Management (Jan 2013) GDS 4-60
61. Path dependency and lock-in
Figure 5.3 Path dependency and lock-in
BUSM 3200- Strategic Management (Jan 2013) GDS 4-61
62. The impact of path dependency
Building strategy around the path-
dependent capabilities that have been
successful in the past.
Path creation – changing strategies in a
way that is built on the past and
acceptable to key players.
Management style may be rooted in and
evolved from the early style adopted by
the founder(s).
BUSM 3200- Strategic Management (Jan 2013) GDS 4-62
64. Organisational culture
Organisational culture is the taken-for-
granted assumptions and behaviours that
make sense of people‘s organisational
context
BUSM 3200- Strategic Management (Jan 2013) GDS 4-64
66. Cultural frames of reference
Figure 5.4 Cultural frames of reference
BUSM 3200- Strategic Management (Jan 2013) GDS 4-66
67. National and regional cultures
Work of Hofstede (you will remember him if
you studied International Business or
Global Marketing – cultural dimensions)
Also read up Illustration 5.3 : differences in
management between Chinese and
Western managers
BUSM 3200- Strategic Management (Jan 2013) GDS 4-67
68. The organisational field
An organisational field is a community of
organisations that interact more frequently
with one another than with those outside
the field and that have developed a shared
meaning system.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-68
69. Recipes
A recipe is a set of assumptions, norms and
routines held in common within an
organisational field about the appropriate
purposes and strategies of field members.
In effect it is ‘shared wisdom’.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-69
70. Legitimacy
Legitimacy is concerned with meeting the
expectations within an organisational field
in terms of assumptions, behaviours and
strategies.
Strategies can be shaped by the need for
legitimacy in several ways:
Regulation
Normative expectations
The recipe
BUSM 3200- Strategic Management (Jan 2013) GDS 4-70
71. Organizational Culture in four layers
Figure 5.5 Culture in four layers
BUSM 3200- Strategic Management (Jan 2013) GDS 4-71
72. The paradigm
The paradigm is the set of assumptions
held in common and taken for granted in an
organisation.
The paradigm:
is built on collective experience
informs what people in the
organisation do
influences how organisations respond
to change.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-72
73. Values
A key aspect of culture relates to the
values that the organization upholds
In chapter 4 , we considered issues of
ethical standards
Ethics is often impacted by the
organization culture and the values it
subscribes to.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-73
77. Culture‘s influence on strategy development
Figure 5.6 Culture’s influence on strategy development
Source: Adapted from P. Gringer and J.-C. Spender, Turnaround: Managerial Recipes for Strategic Success, Associated Business Press, 1979, p. 203
BUSM 3200- Strategic Management (Jan 2013) GDS 4-77
78. The cultural web
The cultural web shows the behavioural,
physical and symbolic manifestations of a
culture that inform and are informed by
the taken-for-granted assumptions, or
paradigm, of an organisation
BUSM 3200- Strategic Management (Jan 2013) GDS 4-78
79. The cultural web of an organisation (1)
Figure 5.7 The cultural web of an organization
BUSM 3200- Strategic Management (Jan 2013) GDS 4-79
80. The cultural web of an
organisation (2) – stories
What core beliefs do the stories reflect?
What stories are commonly told e.g. to
newcomers
How do these stories reflect core
assumptions and beliefs?
What norms do the mavericks
deviate from? Stories
Tend to be about heroes, villains
mavericks, successes and Paradigm
disasters.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-80
81. The cultural web of an
organisation (3) – symbols
Symbols are objects, events, acts or people
that convey, maintain or create meaning
over and above their functional purpose.
What objects, people or events do people in
the organization particularly identify with?
What are these related to in the
history of the organization? Symbols
What aspects of strategy are
highlighted in publicity? Paradigm
BUSM 3200- Strategic Management (Jan 2013) GDS 4-81
82. The cultural web of an
organisation (4) – power structures
Where does power reside?
Who makes things happen?
Indicators include:
status
claim on resources
Paradigm Power
symbols of power structures
BUSM 3200- Strategic Management (Jan 2013) GDS 4-82
83. The cultural web of an organisation
(5) – organisation structure
How formal/informal are the structures?
Do structures encourage collaboration or
competition?
What types of power structure do they
support?
Paradigm
Organization
Structure
BUSM 3200- Strategic Management (Jan 2013) GDS 4-83
84. The cultural web of an organisation
(6) – control systems
What is most closely monitored/controlled?
Is emphasis on reward or punishment?
Are controls rooted in history or current
strategies?
Are there many/few controls?
Paradigm
Control
systems
BUSM 3200- Strategic Management (Jan 2013) GDS 4-84
85. The cultural web of an organisation
(7) – routines and rituals
Which routines are emphasized?
Which are embedded in history?
What behavior do routines encourage?
What are the key rituals?
What assumptions and core beliefs do they
reflect?
What do training programmed Rituals/
routines
emphasize?
How easy are routines/rituals
to change? Paradigm
BUSM 3200- Strategic Management (Jan 2013) GDS 4-85
86. Illustration 5.5: cultural web of a law firm (page 179)
BUSM 3200- Strategic Management (Jan 2013) GDS 4-86
87. Figure 5.8 : The cultural web- some useful questions
BUSM 3200- Strategic Management (Jan 2013) GDS 4-87
88. Impact of culture on strategic management
Read page 181
Strategic capabilities (Chap 3) – culture of the
organization is considered a capability (or
constraint)
Strategy development- culture affects the manner
in which future strategy is crafted
Managing strategic change- would culture
facilitate or hinder desired change?
Leadership and management style
BUSM 3200- Strategic Management (Jan 2013) GDS 4-88
93. Summary (1)
The history and culture of an organisation
may contribute to its strategic capabilities,
but may also give rise to strategic drift as its
strategy develops incrementally on the basis
of such influences and fails to keep pace
with a changing environment.
Historical, path-dependent processes play a
significant part in the success or failure of an
organisation and need to be understood by
managers. There are historical analyses that
can be conducted to help uncover these
influences.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-93
94. Summary (2)
Cultural and institutional influences both inform
and constrain the strategic development of
organisations.
Organisational culture is the basic assumptions
and beliefs that are shared by members of an
organisation, that operate unconsciously and
define in a basic taken-for-granted fashion an
organisation‘s view of itself and its environment.
An understanding of the culture of an
organisation and its relationship to
organisational strategy can be gained by using
the cultural web.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-94
95. PRACTICE ESSAY QUESTIONS
IMPORTANT NOTE: →
These questions are provided for your reference only – they are only
INDICATIVE of the standard of questions you might expect in the final exam.
DO NOT use these questions to “spot”
The RMIT examiner will post advise on the exam on the Learning Hub closer
to the exam; you are required to pay attention to that advise
The questions here show the range of topics that could be tested from this
lecture; they are NOT exhaustive
To score a high grade it is important to LINK the theory to applications and
examples. Where from?
You have been assigned specific cases to read from the text. Each case
study will show you the kinds of strategic decisions the case company
needs to make. You can draw from these examples.
You have selected a case company for your project; you may use
examples from there.
You are supposed to read widely from the business press about local,
regional and international companies strategies. You can use examples
from there as well.
BUSM 3200- Strategic Management (Jan 2013) GDS 6-95
96. Sample Essay Question
Describe the concept of corporate
social responsibility and the four
corporate stances on social
responsibility. Explain the rationale
under each stance and the leadership
and stakeholder relationship required
for each of these four stances.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-96
97. Sample essay question:
Discuss the benefits a firm may gain by
formulating and implementing strategic
management with an ethical approach.
Use examples from the cases studied in this
course or other examples from your reading
of this subject to illustrate your answer.
BUSM 3200- Strategic Management (Jan 2013) GDS 1-97
98. Sample Essay Question
Stakeholder mapping is a useful technique
for stakeholder management. Describe the
process of stakeholder mapping and explain
how its outcomes can help in understanding
the political priorities in managing its
relationships with stakeholders.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-98
99. Sample Essay Question
Describe the concept of organizational
culture. Why organizational culture can be
considered an organization’s strategic
capability (hint: describe what criteria a
resource or competence needs to meet to
become a strategic capability)? Provide an
example to justify your argument
BUSM 3200- Strategic Management (Jan 2013) GDS 4-99
100. Sample Essay Question
Describe the concepts of
organizational culture and the cultural
web. Explain how these concepts can
influence the process of strategic
management. Give examples to
support your argument.
BUSM 3200- Strategic Management (Jan 2013) GDS 4-100