Strategic Management Purpose, shareholder value, and stakeholders

1. Strategic ManagementPurpose, shareholder value, and stakeholders Prof.Dr. E.Vatchkova

2. Contents Identifying stakeholders The political power in the organization Sources of power Stakeholder mapping Power/dynamism matrix Power/interest matrix Conflicts of expectations Managerial values Ethical issues Cultural frames

3. Freeman’s definition (1984) • “Any group or individual who can affect or is affected by the performance of an organization”

4. Stakeholders concept is valuable when: • The organizational objectives are defined • Specific strategic developments will take place • The strategic choice is to be made

5. Groups of stakeholders External stakeholders • The state • Customers • Suppliers • Financial institutions • Shareholders • Unions • Media Internal stakeholders • Managers • Employees

6. Power The ability of individuals or groups to persuade, induce or coerce others into following certain courses of action The organization is a political arena

7. Source of power within the organization • Hierarchy (formal) • Influence (informal) • Control of strategic resources • Possession of knowledge and skills • Control of the environment • Involvement in strategy implementation

8. Sources of power for external stakeholders • Control of strategic resources • Involvement in strategy implementation • Possession of knowledge (skills) • Through internal links

9. Indicators of power Internal stakeholders • Status • Claim on resources • Representation • Symbols External stakeholders • Status • Resource dependence • Negotiating arrangements • Symbols

10. Stakeholders mapping – assessing the importance of stakeholder expectations • How likely each stakeholder is to impress its expectations on the company • Whether they have the means to do so (assessment of power) • The likely impact of stakeholder expectations on future strategies

11. Power /dynamism matrix High Low Predictability Low Power High Adapted from Mendelow, 1999

12. Power / interest matrix Level of interest Low High Low Power High Adapted from Mendelow, 1999

13. Stakeholders expectations(1) Shareholders: • Annual dividends • Increasing the value of their investments in the company as the share price increases

14. Stakeholders expectations(2) Managers • salaries and bonuses • proxy payments • responsibility • challenge • working for a well known and prestigious company

15. Stakeholders expectations(3) Employees • wages • holidays • job satisfaction • working conditions • security

16. Stakeholders expectations(4) Consumers • desirable and quality products • competitive prices • new products at appropriate time

17. Stakeholders expectations(5) Distributors • on time and reliable deliveries Suppliers • constant orders • payment on time Financers • interest payments • loan repayments

18. Stakeholders expectations(6) Government • payment of taxes • provision of employment • contribution to the nation’s exports Society in general • socially responsible actions

19. Common conflicts of expectations • Growth – profitability • Cost efficiency – jobs • Volume – quality • Savings in one SBU –increased spending in elsewhere • Division’s belonging to two organizational fields

20. Definition • Values are broad, general beliefs about some way of behaving or some end state is preferable to the individual

21. The influence of values • The way other individuals and groups are perceived, thereby influencing interpersonal relationships • The decisions and problem solutions • The perception of situations • The criteria for ethical behavior • The acceptation or resistance to organizational goals • The ways to achieve the success

22. Types of values • Theoretical – order, system, logic • Economic – usefulness and practicability • Aesthetic – art and beauty • Social – people and their welfare • Political – power over people and things • Religious – unity and harmony

23. The political and cultural aspect of the organization 1.Whom the organization does actually serve? • The concept of stakeholders 2. Which purposes an organization should fulfill? • Ethical considerations 3. Which purposes are actually prioritized? • The cultural concepts

24. Some questions of CSR J&S,02 Internal aspects • Employee welfare • Working conditions • Job design • Intellectual property External aspects • Green issues • Products • Markets and marketing • Suppliers • Employment • Community activity

25. The cultural web Stories Symbols Routines and rituals Paradigm Power Control Organizational structures

26. Expectations and purposes model Corporate governance Business ethics • Organizational • Purposes • Mission • Objectives Stakeholders Cultural context

27. Managing for shareholder value General consideration: How to make the business value-based? Objective: Maximizing shareholder value over time Strategy: Significant change in management Action tasks (initiatives)

28. Key steps (initiatives) 1(Cadbury-Schweppes plc,1966) 1. Preparing a multi-year blueprint for the many changes to make the business value-based 2. Identify sources of value creation and destruction, using financial and performance measures: • Economic profit • Return on total invested capital • Earning growth • Free cash flow 3. Set performance targets 4. Manage day-to day performance

29. Key steps (initiatives) 2 (Cadbury-Schweppes plc,1966) 5. Focusing business strategies on the search for profitable growth 6. Creating short- and long term incentive plans for senior managers 7. Reviewing the value performance of all the businesses 8. Delivering awareness and training sessions on managing for value (top 300 executives worldwide)

30. Key steps (initiatives) 3 (Cadbury-Schweppes plc,1966) 9. Carrying two pilot studies in core group businesses (produce “value champions”) 10. Establishing the first “rolling strategic management agenda” for the board: • list of issues • managers in charge • value-maximizing decisions

31. Funding strategies in different circumstances: the Growth/share matrix

32. THANK YOU !