Azhar Kazmi: Strategic Management and Business Policy 2008

Chapter 12: Behavioural implementation

Short - Answer Questions*

1. Who are the stakeholders of an organisation? What are the two types of stakeholders?

Stakeholders are the individuals and groups who can affect, and are affected by, the strategic
outcomes achieved and who have enforceable claims on a firm’s performance. Stakeholders can
be divided into: internal stakeholders such as shareholders / owners, managers or employees and
external stakeholders such as customers, suppliers or government

2. Explain the nature of the two-way stakeholder-organisation relationship.

The stakeholders’ association with the organisation is a two-way relationship. Stakeholders

provide support to the organisation and contribute in many different ways. In return, the
organisation tries to satisfy the expectations of the stakeholders and honour their legitimate
claims.

3. Why is stakeholders’ analysis done?

Stakeholders’ analysis is done to set the priority to be assigned by the organisation to its
stakeholders. The level of priority will determine how the organisation engages the stakeholder
in the affairs of the organisation. Another reason for creating prioritisation is the limitation on
the ability of an organisation to satisfy its stakeholders. Realistically, it is not possible to satisfy
all stakeholders equally. Often, the expectations and claims of the stakeholders are at variance.
All these expectations and claims of the stakeholders make a demand on the limited financial
resources available to the organisation. The organisation will have to make a trade-off by
assigning priority to the stakeholders in terms of their power, interest, and legitimacy.

4. Mention a few engagement tactics used by organisations.

There are a range of engagement tactics available to organisations to attract the interest of
stakeholders and sustain it over time. Some large organisations have specific departments and
personnel such as corporate communications or public relations assigned to this task. The range
of activities used for engagement include disseminating information on the website and through
other traditional means such as newsletters, posters, participation in public events, exhibitions,
arrangement of corporate events such as seminars and conferences, and the like.

5. Differentiate between the agency theory and stewardship theory of stakeholder

relationship.

Agency theory states that when a person delegates decision-making authority to another an
agency relationship is created. The person delegating the authority is called the principal and the
person to whom the authority is delegated is the agent. The relationship between the principal
and agent is agency relationship. So long as managers act in the interests of the owners, there is
no conflict of interest. On occasions when managers do not act in the interests of the owners a
conflict of interest is created. This is known as the agency problem. The solution to the agency

* © Prof. Azhar Kazmi

 Azhar Kazmi: Strategic Management and Business Policy 2008

problem is to have corporate governance mechanisms designed to exercise control and place
restraints on the behaviour of managers so that they are required to act in the interests of the
owners.

Stewardship theory takes a positive view of the managers considering them as ‘stewards’ whose
interests are aligned with that of the owners. These managers identify with their organisations
and derive satisfaction from behaviours that support the organisational interests rather than their
own. Stewardship theory, in contrast to the agency theory, proposes corporate governance
mechanisms that support and empower the managers’ behaviours rather than monitor and
control them.

6. Mention the corporate governance mechanisms used in India.

The corporate governance mechanisms in India include both mandatory and voluntary
regulations. The major legislations having provisions related to corporate governance are: The
Companies Act, 1956; The Securities Contract (Regulations) Act 1956 and The Securities
Contracts (Regulation) Amendment Act, 2007; The Securities and Exchange Board of India Act
1992; and The Depositories Act, 1996. Besides there is the listing agreements with stock
exchanges that define the rules, processes, and disclosures that companies must follow to remain
as listed entities. A key element of this is Clause 49, which states the corporate governance
practices that listed companies must follow. If you see the annual report of any listed public
company, you will find the information disclosed by them. These include the major share
ownership and rights, information about the directors and top executives including their
remuneration, and corporate governance structures and policies being implemented. Many
organisations go beyond the mandatory requirement and adopt self-imposed code of conduct
and disclose more information than required under the law to enhance transparency in their
operations.

7. Relate corporate governance to strategy formulation and strategy implementation.

• Corporate governance and strategy formulation Deciding on the specific corporate and
business strategies of the organisation is the responsibility of the top management of an
organisation. In this task, they need to follow the guidance provided by the board of
directors as well as keep the objectives that the strategies are designed to achieve in
view. Shareholders as stakeholders are typically interested in gaining higher returns on
their investment. This should be reflected in the choice of the strategies. Those strategies
that are designed to achieve higher returns would be in favour of the shareholders.
Managers on the contrary might be interested in strategies that are designed to create
stable long-term employment, increase their decision-making authority or provide them
higher job satisfaction. Corporate governance mechanisms are needed to reconcile the
differences in the goals that shareholders and managers try to achieve.
• Corporate governance and strategy implementation The arena of strategy
implementation is almost fully under the control of the managers of the organisation.
The board of directors or the shareholders have little say or scope for direct intervention.
Yet, strategy implementation determines whether the strategies formulated achieve
desired level of success. There is a danger that managers might deviate in strategy
implementation from what they committed during the strategy formulation process.
Again, the corporate governance mechanisms need to be in place to ensure that such
deviation from commitments does not occur.
 Azhar Kazmi: Strategic Management and Business Policy 2008

8. What are the typical functions that the board of directors perform?

In theory, the functions of the board are defined in many different ways. One classification of
the functions is:
• determine the company’s purpose and ethics;
• decide the direction, that is, the strategy;
• plan;
• monitor and control managers and CEO; and
• report and make recommendations to shareholders.

Almost all the functions mentioned above are strategic in nature. In practice, however, there is a
wide difference among the roles played by the board in various types of organisations. These
differences may arise due to the ownership patterns in public and private sector companies. Even
within these sectors, there might be variations. Private sector companies which are family-
owned differ from multinationals. Further, professionally managed, family-owned companies
may differ from family-managed, family-owned concerns.

9. State the five more important tasks that strategic leaders perform.

The five more important tasks that strategic leaders perform are: determining strategic direction,
effectively managing the organisational resources portfolio, sustaining an effective
organisational culture, emphasising ethical practices, and establishing balanced organisational
controls.

10. Enumerate the major insights developed by leadership theory to help strategists in
leadership implementation.

One of the major insights developed by leadership theory to help strategists in leadership
implementation relates to the style adopted by them. The importance of leadership style is
demonstrated by the fact that several of the leadership theories have been developed on the basis
of two or more contrasting styles. From the 1939-classification by Kurt Lewin of the
democratic, autocratic, and laissez-faire styles through the behavioural theories of leadership like
the Ohio State University studies (initiating structures versus consideration styles) and the
University of Michigan studies (job-centred and employee-centred styles) down to the relatively
more recent Bass’s framework of transactional and transformational styles, leadership is
explained through two or more contrasting styles.
Another major development in the theory of leadership is that of contingency approach. In this
approach, the leadership style is related to the situation the leadership is exercised. An example
of this is Fiedler’s contingency theory of leadership that uses task and relationship motivation as
the two ends of a continuum that determines the leadership style and the appropriateness of the
style is determined by the situation. Among the contingency factors, the cultural/national context
could be an important variable. In the Indian context, for instance, Sinha suggests that a purely
authoritarian or a purely participative style may not be effective.
Further leadership theory points out that a strategy creates certain competency requirements that
should be fulfilled by the leadership style adopted. If this is done, then there is a higher
likelihood of strategy being effective.
 Azhar Kazmi: Strategic Management and Business Policy 2008

11. What is meant by the phrase ‘appropriate style of leadership’?

The idea that a particular strategy creates special requirements in terms of leadership style is
intuitively powerful. One can think of it as something natural that different strategies cannot be
implemented by adopting similar leadership styles. The central premise in matching style with
strategy is that effective implementation of a strategy requires a leader with a style that has
characteristics consistent with the competencies required by the strategy.

12. How can the choice of future strategists through succession planning help in their
development?

Choosing future strategic leaders is a matter of great concern as the future of the organisations
depends on this crucial decision. Organisations in India in the public sector enterprises,
multinational, family-owned, and professionally-managed private companies, and in non-
governmental organisations differ in their policies and practices with regard to developing
strategic leaders. In the government, the officers of the central and state administrative services
handle the public sector enterprises though professionals outside the government system too are
increasingly being encouraged to take up top positions. In the family-owned private sector
companies the family members are chosen while professionally-managed and multinational
companies choose the strategists on a competitive basis relying on a mix of experience and
merit. Generally, talented individuals are spotted early in their careers to be groomed for top
positions.

13. How is the development of strategists done through career planning and development
programmes by Indian companies?

Both formal and informal means are adopted to put in place the career planning and
development for future strategic leaders. Appointing executive assistants is another popular
approach to developing future top managers in India. These persons are appointed at a young
age to assist the CEOs and other senior managers in various ways such as helping in strategic
planning and decision-making by providing critical information inputs. With widespread
management education in India, executives have the benefit of studying integrative courses such
as strategic management and business policy giving them the basic understanding required to be
strategists. Those executives who have not had such a benefit may undergo specialised training
usually at an external institution. Many educational and training institutions in India such as the
Administrative Staff College of India and Indian Institutes of Management offer preparatory
courses for middle-level managers to take up strategic management responsibilities in the future.
Informal means for developing strategists include careful screening, assigning important tasks,
keeping track of achievements, and evaluating and rewarding significant accomplishments.
Family-owned organisations may use these approaches to develop the heirs to take up top
positions in future. A combination of formal and informal means may also be used where the
potential executives may be exposed to training and development programmes followed by
individual guidance and counselling by senior executives in the organisation.

14. List some of the major roles that CEOs are called upon to play in strategic management.

The role of the CEO is evident through all the phases of the process of strategic management. As
the chief strategist, the CEO plays a major role in strategic decision-making. He or she is the
 Azhar Kazmi: Strategic Management and Business Policy 2008

person who is chiefly responsible for the execution of functions which are of strategic
importance to the organisation. In other words, a CEO performs the strategic tasks: actions
which are necessary to provide a direction to the organisation so that it achieves its purpose. He
plays a pivotal role in setting the mission of the organisations, deciding the objectives and goals,
formulating and implementing the strategy and, in general, seeing to it that organisation does not
deviate from its predetermined path designed to move it from the position it is in to where it
wants to be. In short, a CEO is primarily responsible for all aspects of the strategic management
of the organisation.

15. What does corporate culture consist of?

Culture in organisations exists at two levels of visible artefacts and observable behaviour such as
ceremonies, stories, slogans, behaviours, dress, and physical settings, and the deeper values
embedded in the minds of people in the form of values, assumptions, beliefs, and thought
processes.

16. In what ways could a conservative family business group in India mould its corporate
culture to implement expansion strategies?

A conservative family business group in India is likely to have a conservative culture. For
instance, it may not be open to accept equity as a route to capital augmentation, may restrict
employment particularly at top levels to people of one’s own community, may have scepticism
about professional methods of management, etc. If such a business group wishes to implement
expansion strategies it would have to mould its culture to become liberal in terms of
professionalization of management.

17. What approaches can strategists adopt to create a strategy-supportive culture?

The strategists have four approaches to create a strategy-supportive culture.

a. To ignore corporate culture The first approach may be followed when it is nearly
impossible to change culture.
b. To adapt strategy implementation to suit corporate culture It is easier to change
implementation to suit the requirements of corporate culture. This is possible
because the behavioural aspects of implementation offer a range of flexible
alternatives to strategists in terms of structure, systems, and processes.
c. To change the corporate culture to suit strategic requirements In some cases it may
be imperative to change the culture by a careful understanding of existing culture,
making strategic tasks explicit, assessing risks of cultural change, enhancing
managerial capability to imbibe changes, and most importantly, exhibiting a strong,
assertive leadership.
d. To change the strategy to fit the corporate culture Rather than changing culture to
suit strategy, it is better and more economical to consider the cultural dimension
while formulating strategy in the first place.

18. How do values-related and ethical considerations affect behavioural implementation?

The twin issues of personal values and business ethics have come to occupy centrestage in
management. There is an increasing awareness around the world about ethical practices in
business. Business ethics is being identified as a major source of competitive advantage.
 Azhar Kazmi: Strategic Management and Business Policy 2008

Companies that are recognised as ethical organisations are able to attract investment and human
capital, retain talent, differentiate themselves in the market, and create a perception of being
customer-friendly. A major set of tasks in strategy implementation is to create consistency
among the personal values and business ethics and the proposed strategy. This is done through
inculcating the right set of values, reconciling divergent values, and modifying values that are
not consistent with the strategy.

19. Suggest practical steps that strategists can take to make a strategic use of politics and
power.

a. Considering values and ethics in recruitment and selection to ensure compatibility of the
character traits of potential employees to the ethical system of the organisation
b. Incorporating the statement of values and code of ethics into employee training and educational
programmes
c. Example-setting by top management in terms of actions and behaviours that reinforce the values
d. Communication of the values and code of ethics through wide publicity and explanation of
compliance procedures
e. Constant monitoring of compliance by superior staff and top management
f. Consistent nurturing of values within the organisation through their integration into policies,
practices, and actions
g. Paying special attention to those parts of the organisation that are susceptible to ethically-
sensitive activities, such as, purchase and procurement, dealing with government and other
external agencies.

20. Why are personal values and business ethics especially important to strategists?

Personal values and ethics are important for all human beings. They are especially important for
strategists as they are custodians of immense economic power vested in business organisations
by society. Personal values and a sense of business ethics can help a strategist to distinguish
between moral and amoral use of politics and power as a means to attain organisational goals.

21. How can strategists reconcile divergent personal values among organisational members
or modify them to suit the requirements of strategy implementation?

Strategists have to reconcile divergent values and modify values, if necessary. A typical case of
value divergence may arise while setting objectives and determining the precedence of different
objectives. One group of strategists (may be, a coalition) is interested in production-oriented
objectives such as standardisation and mass production while another group may stress
marketing-related objectives such as product quality and small-lot production. These interests
may be legitimate in the sense that they arise from their functional bias. It is for the CEO now to
reconcile the divergent values. Modification of values is frequently required for strategy
implementation. A particular strategy, say of expansion, may be suboptimal if existing values do
not conform to these requirements. In such cases, modification of values is necessary.

22. Why is ‘purity of mind’ so essential to create an ethical system of strategic management
within an organisation?

The intentions of individuals, that is their ‘purity of mind’ as decision-makers within an

organisation matter a lot in strategic management. This fact is also the basis of the Upper
Echelons theory that proposes that managers’ characteristics influence the decisions that they
make and therefore the actions adopted by the organizations that they lead.
 Azhar Kazmi: Strategic Management and Business Policy 2008

23. Why is social responsibility a contentious issue?

The issue of social responsibility evokes varying – and, often, extreme – responses from
academicians and businesspeople and thus is a contentious issue . At one end, the body of
opinion clearly does not favour including social responsibility in business considerations. At the
other extreme, there is an opposite view which favours the position that it is imperative for
businesses to be socially responsible. In between the two extreme views, there is considerable
support for the opinion that all business organisations should not attempt to solve all, or any,
types of social problems. Rather, social responsibility should be discharged in such a manner
that corporate competence acts as a limitation, and the scope of social responsibility is limited to
those areas where the business organisation can achieve its self-enlightened interest.

24. What is the predominant thinking presently regarding the social responsibility of
business?

There is considerable support for the opinion that all business organisations should not attempt
to solve all, or any, types of social problems. Rather, social responsibility should be discharged
in such a manner that corporate competence acts as a limitation, and the scope of social
responsibility is limited to those areas where the business organisation can achieve its self-
enlightened interest. In other words, the economic goals and social responsibility objectives need
not be contradictory to each other and should be achieved simultaneously.

25. What is meant by aligning strategic management to social responsiveness?

Social responsiveness is the level of interest exhibited by an organisation in discharging social

responsibility. It is generally the top management which takes the major decisions regarding the
choice of social concerns to be addressed, definition of the scope of social responsibility
activities, and resource allocation to social responsibility programmes. These decisions are based
on the views, opinions, personal values, and the disposition towards business ethics of the top
management. The top management should seek to align its social responsiveness with strategic
management. By such an alignment is meant the reflection of social responsiveness in all the
phases of strategic management. Thus, the role of strategists in strategic intent and hierarchy of
objectives, strategy formulation, strategy implementation, and strategy evaluation will all be
affected by social responsiveness.