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STRATEGIC MANAGEMENT
Lecture 11 Dr. John Kraft
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Opening Case
The Fall of John Thain
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3. The Causes of Poor Performance
Poor management
Sheer incompetence
Neglect of core business
Insufficient number of good managers
Dominant, autocratic chief executive with passion for empire-building
Autocratic manager who tries to do it all in the face of complexity and change
Source: Publisher’s PowerPoint, Ch11-Slide 2
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4. The Causes of Poor Performance
Poor management (cont’d)
Lack of balanced expertise at the top
Lack of strong middle management
Lack of succession planning
Failure by board to monitor strategic decisions
Unethical behavior
Source: Publisher’s PowerPoint, Ch11-Slide 3
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5. The Causes of Poor Performance (cont’d)
High cost structure
Low labor productivity
Low capital productivity
Inadequate financial controls
Inadequate differentiation
Poor product quality
Lack of compelling product attributes
Source: Publisher’s PowerPoint, Ch11-Slide 4
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6. The Causes of Poor Performance (cont’d)
Overexpansion
Empire-building that adds little value
Loss of control
Declining profitability
Structural shifts in demand and new competitors
Technology
Economic or political conditions
Social and cultural norms
Source: Publisher’s PowerPoint, Ch11-Slide 5
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7. The Causes of Poor Performance (cont’d)
Organizational inertia
Distribution of power and influence in the organization
Organization culture
Preconceptions about the appropriate business model
Source: Publisher’s PowerPoint, Ch11-Slide 6
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8. Strategic Change: Improving Performance
Changing the leadership
New leader is often from outside the company
New leader must make difficult decisions, motivate, listen, and delegate
Changing the strategy
Redefine strategic focus
Divest unwanted assets
Improve profitability
Make acquisitions
Source: Publisher’s PowerPoint, Ch11-Slide 7
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9. Stakeholders and Corporate Performance
Stakeholders are individuals or groups with an interest, claim, or stake in the company, what it does, and how well it performs.
Stakeholders are in an exchange relationship with the company
Contributions: they supply the organization with important resources
Inducements: in exchange they expect their interests to by satisfied
Companies should pursue strategies that maximize long-run shareholder value and
must also behave in an ethical and socially responsible manner.
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10. Stakeholders and the Enterprise
Source: Publisher’s PowerPoint, Ch11-Slide 9
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Strategy in Action
Bill Agee at Morrison Knudsen
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Strategy in Action
Price Fixing at Sotheby’s and Christie’s
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13. The Challenge for Principals
Confronted with agency problems, the challenge for principals is to:
Shape the behavior of agents so that they act in accordance with goals set by principals
Reduce information asymmetry between agents and principals
Develop mechanisms for removing agents who do not act in accordance with goals and principals
Principals try to deal with these challenges through a series of governance mechanisms.
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Agency Theory
Problems can arise in a business relationship when one person delegates decision making authority to another
Principal-agent relationships
Agency relationship: when one party delegates decision-making authority to another
Principal: person delegating authority
Agent: person to whom authority is delegated
Source: Publisher’s PowerPoint, Ch11-Slide 14
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The Agency Problem
Agents and principals may have different goals
Agents may pursue goals that are not in the best interests of their principals
Information asymmetry: Agents almost always have more information
Difficult for principals to measure performance
Trust
On-the-job consumption
Empire building
Source: Publisher’s PowerPoint, Ch11-Slide 15
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Strategy in Action
Nike Sweatshop Debate
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Strategy in Action
The Agency Problem and the Collapse of Barings Bank
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Real World
“The Jack-in-the-Box Poisonings – Questionable Ethics?”
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Closing Case
Working Conditions at Wal-Mart
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Closing Case
Chainsaw Al Gets the Ax
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Strategy in Action
Self Dealing at Computer Associates
Computer Associates
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Real World
“Body Shop International”
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Closing Case
The Rise and Fall of Dennis Kowalski
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End of Lecture 11
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