Fundamentals of Strategy

Fifth Edition

Part I
The strategic position

Chapter 5
Stakeholders and culture

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 Learning outcomes
• Undertake stakeholder analysis in order to identify
the power and attention of different stakeholder
groups.
• Analyse the strategic significance of different
ownership models for an organisation’s strategy.
• Relate corporate responsibility to purpose and
strategy.
• Analyse the relationship of organisational culture
to strategy.

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 Who are the stakeholders?

Stakeholders are those individuals or groups that

depend on an organisation to fulfil their own goals
and on whom, in turn, the organisation depends.

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 Stakeholders of a large organisation

Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.

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 Stakeholder mapping

Stakeholder mapping identifies stakeholder

power and attention in order to understand
political priorities.
The power and interest of stakeholders depend
on the particular issue being considered –
different issues require different maps.

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 Conflicts of stakeholder interests
and expectations: Examples
• Pursuit of short-term profits may suit shareholders
and managerial bonuses but come at the expense
of investment in long-term projects.
• In public services, excellence in specialised
services might divert resources from standard
services used by the majority (e.g. heart
transplants come at the cost of
preventative dentistry).

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 Stakeholder mapping: The
power/attention matrix

Source: Newcombe, R. (2003) From client to project stakeholders: a stakeholder mapping approach, Construction Management and Economics,
21.8, pp. 841–848.

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 Stakeholder mapping issues

• Determining purpose and strategy – whose

expectations need to be prioritised?
• Who are the key blockers and facilitators of
strategy?
• Is it desirable to try to reposition certain
stakeholders?
• Can the level of interest or power of key
stakeholders be maintained?
• Will stakeholder positions shift according
to the issue/strategy being considered?

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Ownership, management and purpose

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 Ownership models (1 of 5)

Publicly-quoted companies
• Shares are sold to the general public or financial
institutions.
• Such companies are usually managed by
professional managers.
• Their objective is to make a financial return for
the owners (profit focus).
• Unsatisfied shareholders will sell their
shares or seek to remove the managers.

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 Ownership models (2 of 5)

State-owned enterprises
• Organisations wholly or majority owned by national or regional
governments. They are especially important in developing
economies (e.g. China, Russia and Brazil).
• Privatisation has reduced their importance but there are many
quasi-privatised organisations (e.g. Free schools).
• Politicians delegate day-to-day control to professional
managers but may intervene on strategic issues.
• They need a financial surplus to fund investment
but also pursue other objectives in line with
government policy.

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 Ownership models (3 of 5)

Entrepreneurial businesses
• Such businesses are substantially owned and controlled
by their founders (e.g. Arcelor Mittal, Facebook and the
Virgin Group).
• With growth, more professional managers and external
investors are required.
• They typically focus on profit to survive and grow but may
also have personal missions favoured by the
founder(s).

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 Ownership models (4 of 5)

Family businesses
• Ownership has been passed on from the founding
entrepreneur to descendants.
• Typically small to medium-sized enterprises (SMEs) but
may be large (e.g. Ford, Walmart).
• The family may retain the majority of shares while
floating some shares on the stock market.
• Professional managers may be employed but ultimately
the family remain in control.
• The need to retain family control may lead to
rejecting high-risk strategies or those requiring
substantial external finance.
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 Ownership models (5 of 5)

There are other types of organisation:

• Not-for-profit organisations (e.g. Mozilla).
Frequently charitable foundations that exist to
pursue a social mission.
• Partnerships (e.g. law firms). Organisations
owned and controlled by senior employees.
• Employee-owned firms (e.g. John Lewis).
Ownership is spread among all the
employees. They may not be able to raise
capital easily and may be more
conservative in terms of strategy.

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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.

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 The growing importance of
governance
• The separation of ownership and
management control – defining different roles in
governance.
• Corporate failures and scandals (e.g. Enron) –
focusing attention on governance issues.
• Increased accountability to wider stakeholder
interests and the need for corporate social
responsibility (e.g. green issues).

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 The governance chain (1 of 2)

The governance chain shows the roles and

relationships of different groups involved in
the governance of an organisation.
•In a small family business, the governance
chain is simple.
•In large publicly-quoted corporations,
however, influences on governance
can be complex – Figure 5.5.

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 The governance chain (2 of 2)

Source: Adapted from David Pitt-Watson, Hermes Fund Management.

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 The principal–agent model (1 of 2)

• 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.

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 The principal–agent model (2 of 2)

The key challenges are:

• Knowledge imbalances: agents typically know
more about what can and should be done.
• Monitoring limits: it is very difficult for the principal
to closely monitor the agent’s performance
especially if they have diverse interests.
• Misaligned incentives: without
appropriate incentives, agents may pursue
their own objectives.

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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’.1

1
World Business Council for Sustainable Development.

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Corporate social responsibility
stances

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 Organisational culture

Organisational culture is the taken-for-granted

assumptions and behaviours that are shared within
a particular group and help to make sense of the
organisational context.

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Culture in four layers

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 The paradigm

The paradigm is the set of assumptions held in common

and taken for granted in an organisation.
The paradigm:
•is likely to be about basic but fundamental assumptions
about the organisation (e.g. policing is about ‘thief taking’).
• informs what people in the organisation do.
• influences how organisations respond to change.

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 Culture’s influence on strategy

Culture may have a major influence on strategy:

•‘Cultural glue’ – employees often cohere around the
founding principles and values of an organisation
(e.g. IKEA).
•Captured by culture – faced with changes in the
environment, people may cling to solutions within the existing
culture.
•Managing culture – culture change is difficult to manage.

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 The cultural web (1 of 7)

The cultural web shows the behavioural, physical

and symbolic manifestations of a culture that
inform and are informed by the taken-for-granted
assumptions, or paradigm, of an organisation.

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The Cultural web of an organisation

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 The cultural web (2 of 7)

Rituals and routines

• Which are embedded in history?
• What behaviour do routines encourage?
• What are the key rituals?
• What assumptions and core beliefs do rituals reflect?
• What do training programmes emphasise?
• How easy are routines/rituals to change?

Rituals/ Paradigm
routines

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 The cultural web (3 of 7)

Stories
• Tend to be about heroes, villains, mavericks, successes
and disasters.
• What core beliefs do the stories reflect?
• What stories are commonly told, for example, to
newcomers?
• How do stories reflect core assumptions and beliefs?
• What norms do mavericks deviate from?

Stories Paradigm

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 The cultural web (4 of 7)

Symbols
• Symbols are objects, events, acts or people that convey
meaning over and above their functional purpose.
• What objects, people or events do people in the
organisation particularly identify with?
• What are these symbols related to in
the history of the organisation?
• What aspects of strategy are Symbols
highlighted in publicity?
Paradigm

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 The cultural web (5 of 7)

Power structures
• Where does power reside?
• Who makes things happen?
• Who stops things happening?
• Indicators include:
– Status.
– Claim on resources.
– Symbols of power.
Paradigm Power
structures

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 The cultural web (6 of 7)

Organisational structures
• What are the formal but also informal organisational
structures?
• Do structures encourage collaboration or competition?
• What types of power structure
do they support?

Paradigm

Organisation
Structure

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 The cultural web (7 of 7)

Control systems
• What is closely monitored/controlled?
‒ Formally.
‒ Informally (e.g. social control).
• Is emphasis on reward or punishment?
• Are controls rooted in history or
current strategies? Paradigm
• Are there many/few controls?
Control
Systems

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 Undertaking cultural analysis

When conducting cultural analysis:

• The cultural web – working through all seven elements
can help build an understanding of a culture.
• Statements of cultural values – be aware that
statements in company reports (e.g. values statements)
can be misleading about the actual culture.
• Pulling it together – a cultural web can be quite detailed
so it can be useful to summarise the essence of a
culture in a few brief statements.

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 Summary (1 of 2)

• The purpose of an organisation will be influenced by the

expectations of its stakeholders. Different stakeholders
exercise different influence on organisational strategy,
dependent on the extent of their power and attention.
Managers can assess the influence of different stakeholder
groups through stakeholder analysis.
• The influence of some key stakeholders will be represented
formally within the governance structure of an organisation.
This can be represented in terms
of a governance chain, showing the links
between ultimate beneficiaries and the managers
of an organisation.

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 Summary (2 of 2)

• Organisations adopt different stances on corporate

social responsibility depending on how they perceive
their role in society.
• Organisational culture is the basic taken-for-granted
assumptions, beliefs and behaviours shared by members
of an organisation.
• The seven elements of the cultural web are useful for
analysing organisational cultures and their relationships
to strategy.

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