Strategic Management

Purpose, shareholder value, and stakeholders

Prof.Dr. E.Vatchkova

Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 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

Freemans definition (1984)

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

Stakeholders concept is valuable when:

The organizational objectives are defined Specific strategic developments will take place The strategic choice is to be made

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

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

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

Sources of power for external stakeholders

Control of strategic resources Involvement in strategy implementation Possession of knowledge (skills) Through internal links

Indicators of power
Internal stakeholders 1. Status 2. Claim on resources 3. Representation 4. Symbols External stakeholders 1. Status 2. Resource dependence 3. Negotiating arrangements 4. Symbols

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

Power /dynamism matrix

High Predictability Low

A
Low

Few problems
Power

B Unpredictable but manageable

D Greatest danger or opportunities

High

C Powerful but predictable

Adapted from Mendelow, 1999

Power / interest matrix

Level of interest Low High

Low

A Minimal effort C Keep satisfied

B Keep informed D Key players

Power

High

Adapted from Mendelow, 1999

Stakeholders expectations(1)
Shareholders:

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

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

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

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

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

Stakeholders expectations(6)
Government payment of taxes provision of employment contribution to the nations exports Society in general socially responsible actions

Common conflicts of expectations

Growth profitability Cost efficiency jobs Volume quality Savings in one SBU increased spending in elsewhere Divisions belonging to two organizational fields

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

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

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

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

Some questions of CSR

Internal aspects
Employee welfare Working conditions Job design Intellectual property

J&S,02

External aspects
Green issues Products Markets and marketing Suppliers Employment Community activity

The cultural web

Stories Symbols Routines and rituals Paradigm Control Power Organizational structures

Expectations and purposes model

Corporate governance

Business ethics Organizational Purposes Mission Objectives

Stakeholders

Cultural context

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)

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

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)

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

Funding strategies in different circumstances: the Growth/share matrix

Growth (Stars) Business risk: High Financial risk needs to be: Low Funding by: Equity (growth investors)
Dividends: Normal Maturity (Cash cow) Business risk: Medium Financial risk can be: Medium Funding by: Debt and equity (retaining earnings) Dividends: High

Launch (Question marks) Business risk needs to be: Very high Financial risk: Very low Funding by: Equity (venture capital) Dividends: Zero
Decline (dogs) Business risk: Low Financial risk can be: High Funding by: Debt

Dividends: Total

THANK YOU !