Strategic Analysis Report
Corporate Strategy.
Week 3: Lecture
Organisational Purpose & Stakeholders.
Organisational Purpose:
- understanding vision, mission & objectives.
Governance and Corporate Social Responsibility (CSR):
- unpacking systems and non-economic influences.
Stakeholders - scope and analysis:
- links to strategy via power/interest.
Learning Outcomes.
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Organisational Purpose & Objectives.
It’s tempting to focus on “How”, while minimising “What” – and “Why”.
Think of examples from Lecture 1:
Kodak – “How do we make better film for cameras?”
Nokia – “How do we make better mobile handsets?”
BUT as Peter Drucker observed:-
“That business purpose & business mission are so rarely given adequate thought is perhaps the most important cause of business frustration and failure”.
(from: Management: tasks, responsibilities, practices, 1973)
Pyramid of Purpose.
These can be extended i.e.“Management by Objectives” cascading down plus further links to strategy via “Balanced Scorecard” metrics & SMART tests at operational levels
(SMART = Specific, Measurable, Attainable, Relevant, Time-based)
Level 1: WHY?
Vision, Values,Mission
Level 2: WHAT?
Goals & Objectives.
Level 3: HOW?
Strategy & Action.
Level 4: WHO?
People, Systems & Resources.
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The Vocabulary of Objectives.
Objectives are statements of specific outcomes to be achieved.
They can be expressed in: financial, market & increasingly social terms.
BUT - there can be confusion with Goals, Aims, Objectives, Targets. They should all be as SMART as possible!
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Vision & Mission Statements.
Vision concerns the desired future state of the organisation; an aspiration to enthuse, motivate & stretch.
It’s question is: ‘What do we want to achieve?’
Mission aims to provide clarity on the overriding purpose of the organisation
It’s questions are: ‘What business are we in?’ ‘How do we make a difference?’ ‘Why do we do this?’
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Some Tech Company Missions.
Facebook: to give people the power to share & make the world more open and connected.
Google: to organise the world‘s information & make it universally accessible & useful.
Microsoft: to enable people & businesses throughout the world to realize their full potential.
Skype: to be the fabric of real-time communication on the web.
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Influences on Purpose.
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Governance & CSR.
Corporate governance:
structures and systems of control holding managers to account to those who have a legitimate stake in an organisation
Corporate social responsibility (CSR):
‘the responsibility of enterprises for their impacts on society’ (official definition of the European Commission in Brussels)
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| Ownership structure | Dispersed | Concentrated, interlocking pattern of ownership between banks, insurance companies, and corporations | Concentrated in either the hands of owner-mangers or the wider circle of employees in joint-stock corporations | Highly concentrated; recent tendency to more dispersed ownership | Highly concentrated in state-owned companies; fairly concentrated in private enterprises | Highly concentrated ownership by family owned business groups; wave of privatization since 1990 has reduced state ownership |
| Ownership identity | Individuals Pension and mutual funds | Banks Corporations State | Owner-managers Employees State | Families Foreign investors Banks | State Families Corporations | Family owned business groups State |
| Changes in ownership | Frequent | Rare | Frequent, but decreasing tendency | Traditionally extreme rare, but recently changing | Rare, but increasingly dynamic | Rare Increasing influence of foreign investors |
| Goals of ownership | Shareholder value Short term profits | Sales, market share, headcount Long term ownership | Profit for owners Long term ownership | Long term ownership Growth of market shares | Long term ownership Sales, market share | Long term ownership Profit for owners |
| Board controlled by | Executives Shareholders | Shareholders Employees | Owner-managers Other insiders | Owners Other insiders | Owners Party/the state | Owners/ shareholders |
| Key stakeholders | Shareholder | Owners Employees (trade unions, works councils) | Owners State | Owners Customers in overseas markets | Owners Guanxi-network of suppliers, competitors and customers (mostly) in overseas markets | Owners Customers in overseas markets |
Anglo-American
Rhenish Capitalism
Russia
India
China
Brazil
Different Corporate Governance Systems.
purpose of the corporation to maximize shareholder wealth, underpinned by company law and corporate reliance on stock market financing
US stockholders: emphasize short-term transactions and dividends
clear link between earnings per share and stock prices
if managers fail to emphasize short term profits and stock prices fall, the managers loose personally
if companies are undervalued on the stock market, they are vulnerable to takeovers
Corporate Governance System in the USA.
Greater focus on stakeholders within the keiretsu
Japanese investors: less volatile than US investors
Companies do not pay dividends as % of profits
Japanese managers do not have stock options compensation plans
Consistent dividends reassure the Japanese stockholder of a company's health
Stockholders are not the most important stakeholders
Lack of outside directors to look out for the welfare of the stockholder
Thus: a different strategy approach that allows long-term relationships
Corporate Governance System in Japan.
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There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits.
(Milton Friedman)
Traditional view of business responsibility.
The idea of profit at any cost is something that is past its time.
Ralph Shrader, Chairman/CEO, Booz Allen Hamilton
In a 2008 McKinsey Survey of 2687 executives, 16% agreed with Friedman that high returns should be a firm’s only focus, 84% said that high returns to investors should be accompanied by broader contributions to the public.
In a 2013 survey of 1000 global CEOs from 107 countries by Accenture, 93% of CEOs believed that sustainability will be important to the future success of their business.
Is the traditional view past its time ?
In 1988, 18% of FTSE 100 companies had an ethical code of practice.
In 2006, 90% of FTSE 100 companies had an ethical code.
In 2002, 45% of Global 250 had a CSR report.
In 2015, 92% of G250 had a CSR report.
In 2011, 20% of India’s 100 largest companies had a CSR report.
In 2015, 100% of India’s 100 largest firms had a CSR report.
Growth of CSR in the UK and world-wide.
UK
key source of pressure: public opinion & NGOs
role of government: effective regulation and social welfare
little spending on CSR activities in UK
key issues: climate change, cultural sponsorship
Nigeria
key source of pressure: local communities & government
role of government: ineffective regulation and social welfare
hundreds of millions on social investments by oil companies
key issues: local communities, social investments, infrastructure
Example: UK versus Nigeria.
Example: China versus UK on animal rights.
The European Commission simply defined CSR as ‘the responsibility of enterprises for their impacts on society’.
It may be useful to think of CSR as an umbrella term for a variety of views and practices all of which recognize the following:
that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and liability of individuals;
that companies have a responsibility for the behaviour of others with whom they do business (e.g. suppliers);
that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society.
Blowfield / Frynas CSR definition.
Responsibility in global supply chains
Stakeholders – Scope & Analysis.
Stakeholders: individuals/groups who depend on an organisation to fulfil their goals & on whom, in turn, the organisation depends.
OR:
Individuals/groups who affect, or are affected by, the operations of an organisation in achieving its goals.
Stakeholder Mapping: useful in analysing strategy – identifies stakeholder power, expectations & political priorities.
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Stakeholders of a large organisation.
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Key stakeholders for Shell International in London
What about subsidiaries of the multinational firm?
For example, the Shell subsidiary in the United States or Shell in Nigeria faces many different “stakeholders”.
CSR issues can differ widely between different subsidiaries of the firm.
Stakeholders of a large multinational firm.
Stakeholder Mapping Issues.
Whose expectations need to be prioritised?
Do actual levels of interest & power reflect the governance framework?
Who are the key strategic blockers & facilitators?
Should we try to reposition certain stakeholders?
Can levels of interest or power of key stakeholders be maintained?
Will stakeholder positions shift according to the issue/strategy being considered?
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Stakeholder Mapping: The power/interest matrix.
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Session Summary.
Week 3 Seminar groups will use the stakeholder mapping tool to examine the BAE/EADS merger case.
We explained the importance and key elements of Organisational Purpose.
We unpacked Governance/CSR and their links to strategy development.
We examined the stakeholder idea and discussed mapping of relevant of stakeholders.
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Corporate Strategy.
Week 3: Seminar.
Stakeholder Analysis at BAE/EADS.
Airbus website: http://www.airbus.com/
Wk3 Seminar: Session Plan.
Today’s seminar uses Wk3 ideas to analyse & map stakeholders plus their affect on the failed 2012 merger between BAE & EADS.
Prepare by reviewing Wk3 notes plus Moodle for case material.
Again there will be class group work. Results will inform your assessment task.
Wk3 Seminar: Session Brief.
The Brief:- (choose one question)
1. Identify the key strategic issues facing BAE & EADS in their merger proposal. Why were they “strategic”?
2. Use the Power/Interest matrix to carry out a Stakeholder analysis on the BAE/EADS merger case. Identify & map the main players.
3. Use course ideas to establish the Strategic Purpose of BAE/EADS for its merger proposal. Which Stakeholders were opposed & why?
Form groups (5/6) to answer the brief. You have 40 mins to produce a flip chart for class sharing.
EADS and BAE Systems
- thanks to Vlad for these seminar slides.
Q1: Identify the key strategic issues facing BAE & EADS in their merger proposal. Why were they “strategic”?
Long-term
French and German governments’ loss of control
German job losses
UK relationship with USA
EADS: heavy reliance on Airbus
EADS: entry to US defence market
BAE: coming back to Airbus (currently heavily reliant on defence)
BAE might lose some work to Spanish companies (competitive position)
Complex (various governments involved)
Strategic importance for a number of governments (defence): US government concerns about German and French involvement with US defence contracts
Cost savings and synergies
Negative cycle for both civil aviation and defence sometimes coincide
Stakeholder Mapping: the power/interest matrix.
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Q2: Use the Power/Interest matrix to carry out a Stakeholder analysis on the BAE/EADS merger case. Identify & map the main players.
| Competitors (Dassault & Thales) EADS & BAE Shareholders US government and Boeing | |
| French government German government UK government EADS Management BAE System management Trade unions |
Low Interest High
High Power Low
Pyramid of Purpose.
These can be extended i.e.“Management by Objectives” cascading down plus further links to strategy via “Balanced Scorecard” metrics & SMART tests at operational levels.
Level 1: WHY?
Vision, Values,Mission
Level 2: WHAT?
Goals & Objectives.
Level 3: HOW?
Strategy & Action.
Level 4: WHO?
People, Systems & Resources.
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Q3: Use course ideas to establish the Strategic Purpose of BAE/EADS for its merger proposal. Which Stakeholders were opposed and why?
Why? To compete with Boeing and to reduce reliance on Airbus (civil aviation)
What? Simplify the governance. Get defence contracts in USA.
How? Merger with BAE Systems
Who? Governments, EADS and BAE management and employees
Opposed stakeholders:
French and German government
BAE shareholders (Invesco perpetual)
BAE Systems
Vision: “To be the premier global defence, aerospace and security company”.
Mission: “To deliver sustainable growth in shareholder value through our commitment to Total Performance”.
Source: http://www.baesystems.com/en/our-company/about-us/our-culture
EADS (Airbus Group)
“We aim to remain a leader in commercial aeronautics and defence and space markets”.
Source: http://www.airbusgroup.com/int/en/group-vision.html