The Strategic Position 4: Strategic Purpose

Learning Outcomes (1) Identify the components of the governance chain of an organisation Understand differences in governance structures across the world and the advantages and disadvantages of these Identify differences in the corporate social responsibility stances taken by organisations and how ethical issues relate to strategic purpose 4-2

Learning Outcomes (2) Undertake stakeholder analysis as a means of identifying the influence of different stakeholder groups in terms of their power and interest Consider appropriate ways to express the strategic purpose of an organisation in terms of statements of values, vision, mission, or objectives 4-3

Exhibit 4.1 Influences on Strategic Purpose Governance structure Strategic purpose Stakeholder expectations Social responsibility and ethics 4-4

What 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. 4-5

What is 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. 4-6

Exhibit 4.2 The Chain of Corporate Governance 4-7

Issues Highlighted by the Governance Chain To whom are executives responsible? Who are the shareholders? What is the role of institutional investors? What means of scrutiny and control exist? 4-8

Reasons for Imperfect Operation of the Governance Chain Lack of clarity on end beneficiaries Unequal division of power Different levels of access to inform Self-interest among agents Measures and targets reflect agent self-interests rather than those of end beneficiaries 4-9

Exhibit 4.3 Benefits and Disadvantages of Governance 4-10

Guidelines for Boards Operate independently of management Be competent to scrutinise the activities of management Have time to do job properly Behave appropriately given expectations for trust, role fluidity, collective responsibility, and performance 4-11

Ownership Choices Private or public ownership of equity Sale of all or part Acquisition Mutual ownership and partnership Privatisation 4-12

What is Corporate Social Responsibility? Corporate social responsibility (CSR) is concerned with the ways in which an organisation exceeds its minimum obligations to stakeholders specified through regulation. 4-13

Stances on Social Responsibility Laissez-faire Enlightened self-interest Forum for stakeholder interaction Shaper of society 4-14

BP and The Texas City Disaster 4-15

Exhibit 4.6 TI’s Approach to Ethics Is the action legal? Does it comply with values? Will you feel bad? How would it look in newspaper? Do you know it is wrong? Are you sure? 4-16

Exhibit 4.7 Stakeholders of a Large Organisation 4-17

What is Stakeholder Mapping? Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities. 4-18

Exhibit 4.9 The Power/Interest Matrix 4-19

Questions Addressed with Stakeholder Mapping In determining purpose and strategy, which stakeholder expectations need to be most considered? Do the actual levels of interest and power reflect the corporate governance framework? Who are the key blockers and facilitators of strategy? Is it desirable to reposition certain stakeholders? Can level of interest or power of key stakeholders be maintained? 4-20

What is Power? Power is the ability of individuals or groups to persuade, induce, or coerce others into following certain courses of action. 4-21

Sources of Power Within Organisations Hierarchy Influence Involvement Control of human resources Control of strategic resources Knowledge possession 4-22

Sources of Power For External Stakeholders Control of strategic resources Involvement Knowledge possession Informal links to internal power 4-23

Indicators of Power For Within Organisations Status Resource claims Symbols Representation 4-24

Indicators of Power For External Stakeholders Status Symbols Resource dependence Negotiating arrangements 4-25

Organisational Purposes Values Mission statement Vision statement Objectives 4-26

What are Core Values? Core values are the underlying principles that guide an organisation’s strategy. 4-27

What are Mission and Vision Statements? A mission statement provides employees and stakeholders with clarity about the overall purpose of the organisation. A vision statement is concerned with what the organisation aspires to be. 4-28

What are Objectives? Objectives are statements of specific outcomes that are to be achieved. 4-29

Case Example: Product Red and Gap What is the rationale of the founders of Product Red? Is Product Red an appropriate corporate activity? 4-30