Strategic Analysis

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Strategic Management

Module 5 Stakeholders,

Governance and CSR

Dr Xueli (Charlie) Huang

School of Management

Reviewing Modules 2-4: Where are we now in our roadmap of

strategic management?

• Strategic position

– Modules 2 & 3 The environment –The PESTEL framework, Porter’s 5-forces model, concept of strategic group

– Module 4 Strategic capabilities –What are resources and competences?

–Three types of capabilities

–VRIO: the four criteria for diagnosing strategic capabilities

–Managing strategic capabilities: developing (leveraging and stretching), protecting, and

monitoring.

–Resource-based view: key proposition, two assumptions, and managerial implications.

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Strategic position and analysis

Strategic position/ analysis

The environment

Strategic capability

Purposes and expectations

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Modules 2-3

Module 4

Module 5

Opening Case – The Australian Grand Prix Corporation and

Grand Prix Melbourne 2020

• The 2020 Australian Formula 1 Grand Prix was abruptly

cancelled on 13 March, the day that was scheduled to be

officially opened

• https://www.youtube.com/watch?v=jALjNJdNFLg (2’30”)

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Opening case – The Australian Grand Prix Corporation and

Grand Prix Melbourne 2020

• It was expected to attract about 320,000 fans and

generated $1.5 billion for the national economy.

• While the Australian GP Corporation was very adamant

about the opening of this event, the public was very

concerned with the mass gathering that can accelerate the

spread of COVID-19.

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Opening Case – Melbourne Grand Prix

Internal and External Stakeholders

External Stakeholders

• Funding Bodies – Sponsors

– State Government

• Suppliers/Value Chain Partners – Catering

– -Ticketing

• Regulators – State Government

– Department of Health

• Media – Broadcasting and TV

• Customers – Sports Fans, Spectators

• General public

Internal Stakeholders

• Employees

• F1 Teams

• Coaches

• Managers

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Key questions to be addressed

• Who are the stakeholders for this event?

• Which stakeholders are powerful?

• Which stakeholders have motivation/interest to be

involved?

• How should these stakeholders be managed?

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Learning objectives

• On successful completion of this Module, students will

be able to

–Undertake a stakeholder analysis to identify their power and

interest and manage them accordingly

–understand corporate governance, key mechanisms, and the

role of board of directors

–Describe corporate social responsibility and link it to stakeholder

management

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Three factors influence on strategic purpose

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Who are 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.

• Stakeholders are often project- or issue-specific.

– Different projects or issues usually have a different set of

stakeholders

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LO1

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What are key stakeholders to organisations?

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Stakeholders can be grouped in several ways

• Stakeholders can be grouped by the type or nature of the

relationship they have with the organisation and how they

affect success and failure

– Economic: managers, owners, banks, suppliers, customers

–Social: Communities, public

–Environmental: Community, government

• Most commonly grouped as internal and external

stakeholders

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Internal and external stakeholders

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Internal

Employees

Manager

Owners

Founders

External

SocietySupplier

Customer

Government

Creditors

Investors

Advisors

How stakeholders influence strategy?

• Stakeholders influence the

–Purpose of the organisation ( Vision, Mission, Values,

Objectives),

–Formal governance mechanisms

–Ethical considerations (and CSR)

• Which will influence the purpose of the organisation and its

strategy

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How to manage stakeholders?

– Stakeholder Mapping (1/2)

• Stakeholder mapping identifies stakeholder power and

interest and helps in understanding political priorities.

• Power is the ability of individuals or groups to persuade,

induce or coerce others into following certain courses of

action.

– Coercive (regulatory), utilitarian (resources), and normative

power

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Sources of power

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How to manage stakeholders?

– Stakeholder Mapping (2/2)

• Interest is often related to the level of effect by the

project/issue, financially, environmental or psychologically

–Stakeholder interest/motivation includes:

–Financial stake/interest

–Environmental interest

–Emotional interest

–Who are the strongest supporters, who are the biggest

naysayers?

– Attitude: Positive vs negative effect

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Stakeholder mapping: the power/attention

(level of interest) matrix

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Stakeholder Mapping – More managerial implications

• Who are the key blockers or facilitators of strategy?

• Do the actual levels of Power and Interest reflect the

corporate governance framework?

• Is it desirable to try to reposition certain stakeholders?

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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.

• The growing importance of governance

– The separation of ownership and management control

– Corporate failures and scandals (e.g. AMP)

– Increased accountability to wider stakeholder interests and the need for

corporate social responsibility (e.g. green issues)

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LO2

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The governance chain

• The governance chain shows the roles and relationships

between different groups involved in governance of an

organisation.

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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 – Agency theory.

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Main governance mechanisms

• Three internal governance mechanism

–Ownership concentration

–Large block shareholders have a high level of motivation to monitor managers’ behaviour

–Executive compensation

–Linking executives’ remuneration package (salary, bonus, share options)

to the stakeholder’s objectives.

–Board of directors

• External governance mechanism

–Market for corporate control

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The role of boards

• Operate ‘independently’ of the management – the role of non- executives is crucial.

• Be competent to

– Monitor and control the activities of managers.

– Offer advice to CEOs

– Help provide resources to the organisation due to their interlocking directorate

• Have time to do their job properly.

• Behave appropriately given expectations for trust, role fluidity, collective responsibility, and performance.

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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’.

• CSR is concerned with the ways in which an organisation

exceeds its minimum obligations to stakeholders specified

through regulations.

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LO3

The four layers of CSR

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Scope of CSR: Key dimensions of CSR

• Narrow CSR perspectives/dimensions

–Environmental

–Social

–Economic

• Broader CSR perspectives/dimensions

–Social

–Environmental

–Economic

–Governance

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Why or why NOT CSR?

• Arguments against CSR

– Management has one responsibility and that is to maximize the

profits of its owners or shareholders (Friedman, 1962);

–Business is not equipped with expertise or social skills to handle

social activities;

–CSR dilutes businesses’ primary purpose;

–CSR makes business itself less competitive globally

–Business already has enough power. Adding social power could

make it too powerful.

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Arguments for CSR

• Business’s long-term self interest – enlightened self-interest – to be socially responsible

• Business has the resources for CSR

– Business has a reservoir of management talent, functional expertise and capital.

• CSR will ‘ward off government regulation’

• Proacting is better than reacting

• Business should engage in CSR because the public strongly supports it.

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Questions of CSR

• Should organizations be

responsible for the following

internal aspects

–Employee welfare?

–Working conditions?

–Job design?

–Intellectual property?

• Should organizations be responsible for the following external aspects

–Environmental issues?

–Products?

–Markets and marketing?

–Suppliers?

–Employment?

–Community activity?

–Human rights?

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Four CSR stances

• Laissez- Stance

• Enlightened Self Interest

• Forum for Social Interaction

• Shaper of Society

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Four corporate social responsibility stances

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Module Summary (1)

• The purpose of an organisation will be influenced by the

expectations of its 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.

• Stakeholder relationship can be managed using

stakeholder mapping

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Module Summary (2)

• Corporate governance is concerned with the structures and systems of control to align managers’ interest and behaviours to those of the shareholders and stakeholders.

• There are four governance mechanisms –Ownership concentration

–Executive compensation

–Board of directors

–Market for corporate control

• The board of directors can play four roles: 1) operate ‘independently’; 2) be competent ; 3) have time to do their job properly, and 4) behave appropriately.

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Module Summary (3)

• 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’.

• Organisations adopt different stances on CSR 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.

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Next Module

• Module 6 Business Strategy

– Read Textbook Chapter 7

• Relevant Assignment 2 task

– Task 2: Strategy identification – Approach 1: Using value chain analysis – emerging strategy; or

– Approach 2: Locating organisation’s strategy statement – intended strategy

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