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Acctng For Governmental,Not-For-Profit Entities (ACT GOV)
Far Eastern University
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The concept of strategy -
- Introduction and objectives
- Lady Gaga and Jeff Bezos Opening Case: Strategy and success:
- The role of strategy in success
- A brief history of strategy
- Origins
- The evolution of business strategy
- Strategy today
- What is strategy?
- How do we describe a firm’s strategy?
- How do we identify a firm’s strategy?
- emergence How is strategy made? Design versus
- What roles does strategy perform? - stakeholders Strategy: In whose interest? Shareholders versus - Strategy: Whose interests should be prioritized? - Profit and purpose - The debate over corporate social responsibility - organizations Strategic management of not‐for‐profit - The approach taken in this book - Summary - Further reading - Self-study questions - mud runs into a global business Closing Case: Tough Mudder LLC: Turning - Notes
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Introduction and objectives
Strategy is about success. This chapter explains what strategy is and why it is important to individuals and organizations in achieving their goals. We will distinguish strategy from planning. Strategy is not a detailed plan or programme of instructions; it is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organization. The principal task of this chapter is to introduce the notion of strategy, to make you aware of some of the key debates in strategy and to present the basic framework for strategy analysis that underlies this book. By the time you have completed this chapter, you will:
● appreciate the contribution that strategy can make to successful performance, both for individuals and for organizations; ● be aware of the origins of strategy and how views on strategy have changed over time;
● be familiar with some of the key questions and terminology in strategy; ● understand the debates that surround corporate values and social responsibility;
● gain familiarity with the challenges of strategy making in not‐for‐profit organizations ; ● comprehend the basic approach to strategy that underlies this book.
Since the purpose of strategy is to help us to understand success, we start by looking at the role that strategy has played in enabling individuals to achieve their goals. Our Opening Case provides a brief outline of two different success stories: Lady Gaga’s attainment of celebrity status and Jeff Bezos’s building of Amazon. These two individuals working in very different fields offer fascinating insights into the foundations of success and the nature of strategy.
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FOUNDATIONS OF STRATEGYA distinctive feature of Gaga’s market development is the emphasis she places on building relations with her fans. The devotion of her fans – her ‘Little Monsters’ – is based less on their desire to emulate her look as upon empathy with her values and attitudes. They recognize Gaga’s images more as social statements of non‐conformity than as fashion statements. In communicating her experiences of alienation and bullying at school and her values of individuality, sexual freedom and acceptance of differences – reinforced through her involvement in charities and gay rights events – she has built a global fan base that is unusual in its loyalty and commitment. As ‘Mother Monster’, Gaga is spokesperson and guru for this community, which is reinforced by her ‘Monster Claw’ greeting and the ‘Manifesto of Little Monsters’. 2 To support her own talents as a singer, musician and songwriter, designer and showman, she created the Haus of Gaga as a creative workshop. Modelled on Andy Warhol’s ‘Factory’, it includes choreographers, fashion designers, hair stylists, photographers, makeup artists, publicists, marketing professionals and is led by a creative director. 3
Jeff Bezos and Amazon In 1994, at the age of 30, Jeff Bezos left the investment firm D. E. Shaw & Company and travelled from New York to Seattle in order to set up an e‐commerce business that a year later became Amazon. Since he was a child, Bezos had been obsessed with science and technology and while researching investment opportunities at D. E. Shaw he had become convinced that the Internet would offer a once‐in‐a‐lifetime business opportunity. On 3rd April 1995, Amazon made its first book sale through a primitive website which linked to a catalogue drawn from Books in Print. Amazon then ordered the book from a local book distributor and dispatched the book from its office, a converted garage, using the US Postal Service. The customer received the book within two weeks. However, Bezos’s goal was not to create an online bookselling business. His vision was the potential to use the Internet as an intermediary between manufacturers and customers, thereby offering an unprecedented range of products supported by information that could allow these products to be tailored to each customer’s needs – what Bezos referred to as the ‘everything store’. Books would be Bezos’s first product: their durability, transportability and huge variety made them suitable for the online venture that Bezos envisaged. Amazon was not the first online bookstore: books and Abacis preceded it – nor was it alone in its market space: by 1998 a host of new start‐ups and established booksellers had established online businesses, including Borders and Barnes & Noble. However, what distinguished Amazon was Bezos’s uncompromising ambition, its obsessive frugality and its unshakable belief in the potential of technology to transform the customer experience through augmented services and unprecedented efficiency. Amazon’s strategy was dominated by a single objective: growth. According to Bezos: ‘This is a scale business ... fixed costs are very high and the variable costs of doing this business are extremely low. As a result our major strategic objective has always been GBF – Get Big Fast.’ Achieving growth meant offering customers the cheapest deal possible, irrespective of its impact on profitability. Amazon’s price cutting and offers of free delivery meant that as business grew so did Amazon’s losses: not until the final quarter of 2001 did Amazon finally turn a profit. Achieving growth also meant continually augmenting customers’
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buying experience: designing the website to make customers’ shopping experience quick, CHAPTER 1 THE CONCEPT OF STRATEGY easy and interesting; allowing customers to review and rate books; offering personalized book recommendations; and constantly seeking new opportunities to surprise and delight customers. Bezos viewed Amazon as, first and foremost, a technology company. Its mission ‘to be Earth’s most customer‐centric company, where customers can find and discover anything they might want to buy online and that endeavours to offer its customers the lowest possible prices,’ was to be achieved primarily through information technology. However, this also required the company to build leading logistical and merchandising capabilities which involved hiring executives from leaders in marketing and physical distribution companies such as Walmart, Coca‐Cola, Allied Signal and the US Army. Amazon’s basis in technology, its mission and its array of marketing, logistical and customer service capabilities meant that books were merely a starting point in fulfilling its growth ambitions: its online business system could be transferred to other products and replicated in other countries. In 1998, Amazon diversified into audio CDs and DVDs and expanded into the UK and Germany. By the end of 2001, Amazon was offering a vast range of products that included computers and electronic products, software and video games, tools, toys and housewares. In addition, it was also hosting products from third‐party suppliers – a move that further reinforced its identity as a technology platform rather than an online retailer. Amazon’s second decade (2005–2014) saw further diversification that proclaimed its credentials as one of the world’s leading technology companies. Initiatives included:
● 2005 Mechanical Turk – crowdsourcing Internet marketplace where ‘requesters’ post
tasks and ‘responders’ bid to do the work. ● 2006 Amazon Web Services – online services for other websites and client‐side applications; by 2010, Amazon Web Services had established itself as the world’s leading provider of cloud computing services. ● 2007 Kindle – Amazon’s e‐book reader was launched a year after the Sony Reader but soon dominated the market for dedicated e‐book readers. ● 2014 Amazon Instant Video – Amazon’s entry into streaming movies and TV shows began with Amazon Unbox in 2006 and was built through the acquisition of UK‐based LoveFilm in 2011.
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3 Objective appraisal of resources.
a In positioning herself as a celebrity performance artist, Lady Gaga has exploited her talents in relation to design, creativity, theatricality and self‐promotion while astutely augmenting these skills with capabilities she has assembled within her Haus of Gaga.
b Jeff Bezos’s leadership of Amazon has exploited his talent as a business and technological visionary and his attributes of persistence and ruthlessness while bringing in the technical, logistical and merchandising know‐how that he lacked.
4 Effective implementation.
a Without effective implementation, even the best‐laid strategies are likely to flounder. The ability of Lady Gaga and Amazon to beat the odds and establish outstanding success owes much to their leaders’ determination and ability to encourage collaboration and commitment from others.
These observations about the role of strategy in success can be made in relation to most fields of human endeavour. Whether we look at warfare, chess, politics, sport or business, the success of individuals and organizations is seldom the outcome of a purely random process. Nor is superiority in initial endowments of skills and resources typically the determining factor. Strategies that build on the basic four elements almost always play an influential role. Look at the ‘high achievers’ in any competitive area. Whether we review the world’s political leaders, the CEOs of the Fortune 500 or our own circles of friends and acquaintances, those who have achieved outstanding success in their careers seldom possessed the greatest innate abilities. Success has gone to those who combine the four strategic factors mentioned above. They are goal focused; their career goals have taken primacy over the multitude of life’s other goals – friendship, love, leisure, knowledge, spiritual fulfilment – which the majority of us spend most of our lives juggling and reconciling. They know the environments within which they play and tend to be fast learners in terms of understanding the keys to advancement. They know themselves in terms of both strengths and weaknesses. And they implement their career strategies with commitment, consistency and determination. As the late Peter Drucker observed: ‘We must learn how to be the CEO of our own careers.’ 4
Profound understanding of the competitive environment
Objective appraisal of resources
EFFECTIVE IMPLEMENTATION
Simple, consistent, long-term goals
Successful strategy
Figure 1 Common elements in successful strategies.
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There is a downside, however. Focusing on a single goal may lead to outstanding success but may be matched by dismal failure in other areas of life. Many people who have reached the pinnacles of their careers have led lives scarred by poor relationships with friends and families and stunted personal development. These include Howard Hughes and Steve Jobs in business, Richard Nixon and Joseph Stalin in politics, Marilyn Monroe and Elvis Presley in entertainment, Joe Louis and O. J. Simpson in sport and Bobby Fischer in chess. Fulfilment in our personal lives is likely to require broad‐based lifetime strategies. 5
A brief history of strategy
Origins Enterprises need business strategies for much the same reasons that armies need military strategies: to give direction and purpose, to deploy resources in the most effective manner and to coordinate the decisions made by different individuals. Many of the concepts and theories of business strategy have their antecedents in military strategy. The term ‘strategy’ derives from the Greek word strategia , meaning ‘generalship’. However, the concept of strategy did not originate with the Greeks. Sun Tzu’s classic The Art of War , written in about 500 bc, is regarded as the first treatise on strategy. 6 Military strategy and business strategy share a number of common concepts and principles, the most basic being the distinction between strategy and tactics. Strategy is the overall plan for deploying resources to establish a favourable position; a tactic is a scheme for a specific action. Whereas tactics are concerned with the manoeuvres necessary to win battles, strategy is concerned with winning the war. Strategic decisions, whether in military or business spheres, share three common characteristics:
● they are important;
● they involve a significant commitment of resources; ● they are not easily reversible.
Case Insight 1. Strategy versus tactics
A key lever for Amazon to drive sales growth was its shipping charges. During the 2000 and 2001 holiday seasons, Amazon began offering free shipping (initially to customers placing orders of a $100 or more). Such cuts in shipping costs were tactical measures – they could be introduced and withdrawn at relatively short notice, and while they were effective at boosting sales, they did not necessitate significant resource commitments. The introduction of Amazon Prime in 2005 was different. In charging a $79 fee to cover 12 months for free express delivery Amazon was, first, making a commitment for a year, second, it shifted consumers’ behaviour: members of Prime had a huge incentive to maximize their purchases from Amazon, which then gave Amazon an incentive to broaden its range of merchandise. Prime was a strategic initiative.
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emphasized that: ‘Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.’ 11 During the 21st century, new challenges have continued to shape the principles and practice of strategy. Digital technologies have had a massive impact on the competitive dynamics of many industries, creating winner‐takes‐all markets and standards wars. 12 Disruptive technologies 13 and accelerating rates of change have meant that strategy has become less and less about plans and more about creating options for the future 14 , fostering strategic innovation 15 and seeking ‘blue oceans’ 16 of uncontested market space. The complexity of these challenges has meant being self‐sufficient is no longer viable for most firms – they increasingly depend on other firms through outsourcing and strategic alliances. The continuing challenges of the 21st century, including the recession of 2008/9, are encouraging new thinking about the purpose of business. Disillusion with ‘shareholder value capitalism’ has been accompanied by renewed interest in corporate social responsibility, ethics, sustainability of the natural environment and the role of social legitimacy in long‐term corporate success. Figure 1 summarizes the main developments in strategic management over the past 60 years.
Financial Budgeting:
Corporate Planning:
Emergence of Strategic Management:
The Quest for Competitive Advantage:
Adapting to Turbulence:
DCF capital budgeting
Operational budgeting
1950
1960
1970
1980
1990
2000
2014
Corporate plans based on medium-term economic forecasts
Industry analysis and competitive positioning
Shareholder value maximization Refocusing, outsourcing, delayering, cost cutting
Strategic alliances
The quest for flexibility and strategic innovation
Social and environmental responsibility
Exploiting information and communications technology
Emphasis on resources and capabilities
Figure 1 Evolution of strategic management: Dominant themes.
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Strategy today Having looked at the origins of strategy and how views on strategy have changed over time, we are ready to start our exploration of strategy today. We do this by posing a series of basic questions. What is strategy? How might we describe strategy? How do we go about identifying strategies in practice? How is strategy made? What purpose and whose interests does strategy serve? Can the concepts and tools of strategy be applied to not‐for‐ profit organizations? In providing preliminary answers to these questions we introduce a number of key concepts and debates that we return to throughout this book. As you will see when you get further into the subject, strategy is a complex and contested field of study, so answers, which at first sight seem straightforward, can on deeper inspection raise further questions and force us to reflect on some things we may have previously taken for granted. For example, when we address the question of whose interests strategy serves, we find ourselves immediately propelled into considering whose interests strategy should serve. Before we get to that debate, we need to familiarize ourselves with some basic terminology and concepts and the obvious starting point is with the definition of the term ‘strategy’ itself.
What is strategy? In its broadest sense, strategy is the means by which individuals or organizations achieve their objectives. Figure 1 presents a number of definitions of the term strategy. Common to definitions of business strategy is the notion that strategy is focused on achieving certain goals ; that the critical actions which make up a strategy involve allocation of resources ; and that strategy implies consistency , integration or cohesiveness. Yet, as we have seen, the conception of firm strategy has changed greatly over the past half century. As the business environment has become more unstable and unpredictable, so strategy has become less concerned with detailed plans and more about the quest for success. This is consistent with our starting point to the chapter. If we think back to Jeff Bezos and Lady Gaga, neither wrote detailed strategic plans but both possessed clear ideas
Figure 1 Some definitions of strategy.
● Strategy: a plan, method, or series of actions designed to achieve a specific goal or effect. - Wordsmyth Dictionary
● The determination of the long‐run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. - Alfred Chandler, Strategy and Structure (Cambridge, MA: MIT Press, 1962)
● Strategy is the pattern of objectives, purposes, or goals and the major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be. - Kenneth Andrews, The Concept of Corporate Strategy (Homewood, IL: Irwin, 1971)
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As an integrated approach to firm strategy, this book deals with both business and corporate strategy. Our initial emphasis is on business strategy. This is because the critical requirement for a company’s success is its ability to establish competitive advantage. Hence, issues of business strategy precede those of corporate strategy. At the same time, these two dimensions of strategy are intertwined: the scope of a firm’s business has implications for the sources of competitive advantage; and the nature of a firm’s competitive advantage determines the range of businesses in which it can be successful.
How do we describe a firm’s strategy?
These same two questions ‘Where is the firm competing?’ and ‘How is it competing?’ also provide the basis upon which we can describe the strategy that a firm is pursuing. The where question has multiple dimensions. It relates to the industry or industries in which the firm is located, the products it supplies, the customer groups it targets, the countries and localities in which it operates and the vertical range of the activities it undertakes. However, strategy is not simply about competing for today; it is also concerned with competing for tomorrow. This dynamic concept of strategy involves establishing objectives for the future and determining how they will be achieved. Future objectives relate to the overall purpose of the firm ( mission ), what it seeks to become ( vision ) and specific performance targets (Figure 1).
Case Insight 1. Corporate versus business strategy Lady Gaga’s extension of her brand from recorded music to live concerts and interactive games illustrates the decisions she has taken at a corporate strategic level, because they are concerned with where she competes. In contrast her frequent changes in image, her emphasis on personal interaction with fans using digital media and her focus on theatricality are examples of how she chooses to compete and constitute decisions about business strategy.
What do we want to become? -Vision statement
How are we competing? -What is the basis of our competitive advantage?
COMPETING FOR THE PRESENT
PREPARING FOR THE FUTURE
Where are we competing? -Product market scope -Geographical scope -Vertical scope How will we get there? -Guidelines for development -Priorities for capital expenditure, R & D -Growth modes: organic growth, M & A, alliances
What do we want to achieve? -Mission statement -Performance goals
Strategy as Positioning Strategy as Direction
Figure 1 Describing a firm’s strategy: Competing in the present, preparing for the future.
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How do we identify a firm’s strategy? Even if we know how to describe a firm’s strategy, where do we look to find what strategy a firm is pursuing? Where does information of the type outlined in Figure 1 come from? Strategy is located in three places: in the heads of the chief executive, senior managers and other members of the organization; in the top management team’s articulations of strategy in speeches and written documents; and in the decisions through which strategy is enacted. Only the last two are observable. While the most explicit statements of strategy – in board minutes and strategic planning documents – are almost invariably confidential, most companies, and public companies in particular, see value in communicating their strategy to employees, customers, investors and business partners and, inevitably, to the public at large. Collis and Rukstad identify a hierarchy of strategy statements: 17
● The mission statement is the basic statement of organizational purpose; it addresses ‘Why we exist’. ● A statement of principles or values outlines ‘What we believe in and how we will behave’.
● The vision statement projects ‘What we want to be’.
● The strategy statement articulates ‘What our competitive game plan will be’.
Collis and Rukstad argue that the game plan should comprise three definitive components of strategy: objectives , scope (where we will compete) and advantage (how we will compete). A version of some or all of these statements is typically found on the corporate pages of companies’ websites. Featured Example 1 illustrates this point. More detailed statements of strategy, including qualitative and quantitative medium‐term targets, are often found in top management presentations to analysts which are typically included in the ‘For investors’ pages of company websites. More detailed information on scope (Where?) and advantage (How?) can be found in companies’ annual reports but this kind of information can be difficult to find for privately owned companies. The usefulness of public statements of strategy is, however, limited by their role as public relations vehicles. This is particularly evident in vision and mission statements, which are frequently grandiose and clichéd. Hence, explicit statements of strategy need to be checked against decisions and actions:
● Where is the company investing its money? Notes to financial statements often provide detailed breakdowns of capital expenditure by region and business segment. ● What technologies is the company developing? Identifying the patents that a company has filed (using the online databases of the US and EU patent offices) indicates the technological trajectory it is pursuing. ● What new products have been released, major investment projects initiated and/or top management hires made? A company’s press releases usually announce these strategic decisions.
Identifying a firm’s strategy requires drawing upon multiple sources of information in order to build an overall picture of what the company says it is doing and what it is actually doing.
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implemented – is only partly related to that which was intended (Mintzberg suggests only 10–30% of intended strategy is realized). The primary determinant of realized strategy is what Mintzberg terms emergent strategy – the decisions that emerge from the complex processes in which individual managers interpret the intended strategy and adapt to changing external circumstances. 18 According to Mintzberg, not only is rational design an inaccurate account of how strategies are actually formulated, it is a poor way of making strategy. ‘The notion that strategy is something that should happen way up there, far removed from the details of running an organization on a daily basis, is one of the great fallacies of conventional strategic management.’ 19
Featured Example 1. Honda’s entry into the US motorcycle market Honda’s successful entry into the US motorcycle market has provided a central battleground between those who view strategy making as primarily a rational, analytical process of deliberate planning (the design school) and those who envisage strategy as emerging from a complex process of organizational decision making (the emergence or learning school of strategy). 20 The Boston Consulting Group lauded Honda for its single‐minded pursuit of a global strategy based on exploiting economies of scale and learning to establish unassailable cost leadership. 21 However, subsequent interviews with the Honda managers in charge of US market entry revealed a different story: a haphazard entry with little analysis and no clear plan. 22 As Mintzberg observes: ‘Brilliant as its strategy may have looked after the fact, Honda’s managers made almost every conceivable mistake until the market finally hit them over the head with the right formula.’ 23
The emergent approaches to strategy making permit adaptation and learning though continuous interaction between strategy formulation and strategy implementation in which strategy is constantly being adjusted and revised in light of experience. In practice, strategy making almost always involves a combination of centrally driven rational design and decentralized adaptation. The design aspect of strategy comprises a number of organizational processes through which strategy is deliberated, discussed and decided. In larger companies these include board meetings and a formalized process of strategic planning supplemented by more broadly participative events such as strategy workshops. At the same time, strategy is being continually enacted through decisions that are made by every member of the organization, and by middle management especially. The decentralized, bottom‐up strategy emergence may in fact lead to more formalized strategy formulation. Intel’s historic decision to abandon memory chips and concentrate on microprocessors was initiated by incremental decisions taken by business unit and plant managers that were subsequently promulgated by top management into strategy. 24 In all the companies we are familiar with, strategic planning combines design and emergence – a process that Grant refers to as planned emergence. 25 The balance between the two depends
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greatly upon the stability and predictability of a company’s business environment. The Roman Catholic Church, for example, inhabits a relatively stable environment. For Google, Al Qaeda and Zimbabwe Banking Corporation, however, strategic planning will inevitably be restricted to a few principles and guidelines; the rest must emerge as circumstances unfold. As the business environment becomes more turbulent and less predictable, so strategy making becomes more concerned with guidelines and less with specific decisions. We return to these issues again throughout the book.
What roles does strategy perform?
The transition from corporate planning to strategic management has involved strategy moving from planning departments to the centre of corporate leadership. As such, strategy occupies multiple roles within organizations.
STRATEGY AS DECISION SUPPORT We have described strategy as a pattern or theme that gives coherence to the decisions of an individual or organization. But why can’t individuals or organizations make optimal decisions in the absence of such a unifying theme? Consider the 1997 ‘man versus computer’ chess epic in which Garry Kasparov was defeated by IBM’s Deep Blue computer. Deep Blue did not need strategy. Its phenomenal memory and computing power allowed it to identify its optimal moves based on a huge decision tree. 26 Kasparov, although the world’s greatest chess player, was subject to bounded rationality : his decision analysis was subject to the cognitive limitations that constrain all human beings. 27 For chess players, a strategy offers guidelines and decision criteria that assist positioning and help create opportunities. Strategy improves decision making in several ways. First, strategy simplifies decision making by constraining the range of decision alternatives considered and by acting as a heuristic (a rule of thumb) that reduces the search required to find an acceptable solution to a decision problem. Second, a strategy‐making process permits the knowledge of different individuals to be pooled and integrated. Third, a strategy‐making process facilitates the use of analytic tools: the frameworks and techniques that we will encounter in the ensuing chapters of this book.
STRATEGY AS A COORDINATING DEVICE The greatest challenge of managing an organization is coordinating the actions of different organizational members. Strategy can promote coordination in several ways. First, it is a communication device. Statements of strategy are a powerful means through which the CEO can communicate the identity, goals and positioning of the company to all organizational members. However, communication alone is not enough. For coordination to be effective, buy‐in is essential from the different groups that make up the organization. The strategic planning process can provide a forum in which views are exchanged and consensus developed. Once formulated, the implementation of strategy through goals, commitments and performance targets that are monitored over the strategic planning period also provides a mechanism to ensure that the organization moves forward in a consistent direction.
Credit: AFP/Getty Images
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organizations to engage in an ongoing process of balancing and managing multiple objectives and relationships. Bryson outlines a number of key steps in stakeholder analysis: 33
● Identification of the list of potential stakeholders – this stage usually involves a
brainstorming session between informed parties; ● Ranking stakeholders according to their importance and influence on the organization; ● For each stakeholder identifying the criteria that stakeholder would use to judge the organization’s performance or the extent to which it is meeting stakeholders’ expectations; ● Deciding how well the organization is doing from its stakeholders’ perspective;
● Identifying what can be done to satisfy each stakeholder; ● Identifying and recording longer‐term issues with individual stakeholders and stakeholders as a group.
To assist with this analysis Eden and Akerman suggest the use of power interest grids (Figure 1). 34 These grids array stakeholders in a matrix with stakeholder interest forming one dimension and stakeholder power the other. Stakeholder interest refers to a particular stakeholder’s political interest in an organization or issue rather than merely their degree of inquisitiveness. Stakeholder power refers to the stakeholder’s ability to affect the organization’s or the issue’s future. Four categories of stakeholders result. Players are stakeholders who have both an interest and significant power; subjects are stakeholders with an interest but little power; context setters are stakeholders with power but little direct interest; and the crowd make up the final box comprising those with neither interest nor power. The grid is used to identify which stakeholder interests and power bases should be taken into account, but it also helps identify what coalitions amongst
Level of interest
Power
Low
High
Low High
Crowd
Players
Subjects
Context setters
Figure 1 Stakeholder power/interest grid. Source: C. Eden and F. Ackerman (1998) Making Strategy: The Journey of Strategic Management (London: Sage).
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stakeholders managers may wish to encourage or discourage. Figure 1 redraws the matrix to show how managers may respond to different groups in order to gain their compliance. Obviously ensuring the acceptability of strategies to players is of key importance and relationships with these stakeholders need to be managed closely. In contrast stakeholders categorized as part of the crowd may be considered passive but they do have the potential to reposition by taking a more active interest so need to be monitored. Bryson suggests that stakeholder participation, if properly organized, can be of a positive assistance in strategy formulation, implementation and review. 35 This is particularly important in the public and not‐for‐profit sectors, where empowering stakeholders is often a key objective in its own right. In contrast, however, in many countries the prime concern of firms is seen as producing profits for shareholders. The question of whose interests strategy should serve is the subject of much debate, particularly since the 2008 financial crisis revealed some of the shortcomings of shareholder capitalism so in the next section we review some of the main arguments.
Strategy: Whose interests should be prioritized? The notion of the corporation balancing the interests of multiple stakeholders has a long tradition, especially in Asia and continental Europe. By contrast, most English‐speaking countries have endorsed shareholder capitalism, where companies’ overriding duty is to produce profits for owners. These differences are reflected in international differences in companies’ legal obligations. In the US, Canada, the UK and Australia, company boards are required to act in the interests of shareholders. In continental European countries, companies are legally required to take account of the interests of employees, the state and the enterprise as a whole. Whether companies should operate exclusively in the interests of their owners or should also pursue the goals of other stakeholders is an ongoing debate. During the 1990s, Anglo‐Saxon shareholder capitalism was in the ascendancy – many continental European and Japanese companies changed their strategies and corporate
Level of interest
Power
Low
High
Low High
Monitor (minimal e ort )
Keep informed
Keep satisfied
Manage closely
Figure 1 Responses to stakeholders’ positions within the power/interest grid.
Strategy
Course: Acctng For Governmental,Not-For-Profit Entities (ACT GOV)
University: Far Eastern University
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