BP: Module 5: Culture and Stakeholder Expectations

Business Policy: Module 5
Expectations and Purposes

Source: JOHNSON, G., and SCHOLES, K. (1997). Exploring Corporate Strategy, Fourth Edition, Prentice Hall, New York. Chapter 5 (Excerpts).

The Cultural Context of Strategy

There are a wide variety of factors which influence the expectations that individuals and groups are likely to have of an organisation. When analysing the significance of these factors in the strategic development of any organisation, it is useful to ask three questions: first, which factors inside and outside the organisation have most influence on the expectations of groups and individuals within the organisation?; second, to what extent do current strategies reflect the influence of any one factor or a combination of factors?; third, how far would these factors help or hinder the changes which would be needed to pursue new strategies? Readers are encouraged to bear these questions in mind while reading this section.

External Influences

The expectations of individuals are influenced by an number of factors which are external to the organisation: in particular, the values of society and organised groups.

Values of Society

Attitudes to work, authority, equality, and a number of other important issues are constantly shaped and changed by society. From the point of view of corporate strategy, it is important to understand this process for two reason. First, values of society change and adjust over time, and, therefore policies which were acceptable twenty years ago may not be so today. There has been an increasing trend within many countries for the activities of companies to be constrained by legislation, public opinion, and the media. Second, companies which operate internationally have the added problem of coping with the very different standards and expectations of the various countries in which they operate.

There have been a number of research studies into how national culture influences employee motivation, management styles, and organisational structures. The conclusions are that individual countries are markedly different from each other. For example, British culture appears to be far more tolerant of uncertainty than many other societies -- notable European examples being France, Spain, and Germany.

This research is a reminder that the way in which organisations analyse and respond to their environment is strongly tied up with national culture, which is a key frame of reference for managers. It is not surprising against this background that there have been markedly different reactions among member countries to the European moves towards a single market. It has been suggested, for example, that Latin European managers -- such as the French -- are more risk averse than others. They react to uncertainty by referring it to higher authority and expecting government action to provide a buffer from adverse environmental influences.

Figure 1 below is a checklist against which the influence of national culture on strategic management process can be assessed. This is clearly of major importance to multinational organisations in determining how the strategic management process might best be undertaken in the various divisions or companies which make up the organisation, and can be particularly important following mergers across more than one country.

Figure 1: National Culture and Organisational Strategies

STRATEGIC ISSUES	APPROACH TO MANAGING ISSUES
(a) Relationships with environment Coping with uncertainty Influencing the environment Assessing truth/reality Attitude to time/change (b) Internal relationships Power and status Individualism Social orientation	In that culture do managers generally: avoid or tolerate? reduce or accept? manage or adapt? behave proactively or reactively? prefer action or fatalism? analyse facts or theoretical logic? assess inductively or deductively? relate to past or future? prefer continuous or step change? use hierarchy or network? respect individuals or groups? emphasise tasks or social needs?

Source: Adapted from S. Schneider (1989). “Strategy formulation: the impact of national culture”, Organisation Studies, Vol. 10, No. 2.

Although it is difficult and perhaps dangerous to stereotype nations against the checklist, two extreme stereotypes can be identified:

A culture where uncertainty is managed by attempting to reduce it; when organisations are seen as having control and being proactive; and where the hierarchy, the individual and the work tasks are stressed. Here strategies are likely to be planned. US culture comes close to this stereotype.

In contrast, the adaptive model of strategic management is more likely to be found in cultures where uncertainty is accepted as given; where the organisation has less control and is reactive; and where the orientation is towards the group and social concerns. Japanese culture is close to this stereotype.

Organised Groups

Individuals often have allegiances to organised groups which are very influential on their beliefs, values, and assumptions, and are a key frame of reference, as mentioned above. These allegiances may be highly institutionalised and directly related to their working situation (such as membership of trade unions), or they may be more informal and unrelated (such as membership of churches or political groups). Within an industry the concept of an industry recipe is a reminder of the importance of common values and expectations in shaping the dominant strategies of the industry (or strategic groups within the industry). The membership of professional bodies or institutions can be particularly important in organisation with a high proportion of professional staff. Engineering companies R&D departments, accountancy sections, and many public service departments are all dominated by people who very often have a strong ‘professional’ view of their role, which many not be in accord with the managerial view of how these people can best be used as a resource.

At the corporate level, the whole organisational ethos of the company many be influenced by its membership of a trade association or similar body. These bodies may exert influence informally, but often seek to impose norms of behaviour on member companies through the development of ‘codes of conduct’. These relate to issues such as quality of service, dealing with disputes, employment practices, etc. There are many examples in UK industries, such as the Association of British Travel Agents (ABTA), the National House Builders Registration Council (NHBRC), and the British Insurance Brokers Association (BIBA). This process also occurs on an international scale, a well-known example being the Organisation of Petroleum Exporting Countries (OPEC).

Internal Influences

This section suggests how the elements of the cultural web might be analysed as a means of understanding the cultural context within which new strategies may be developed. This is an important background against which an assessment of future choices can be made, both in relation to options which might be possible within the current paradigm and for those which require more significant change. Where change is likely to be required, the analysis provides a background against which to assess how change might be achieved. Each of these various facets of the cultural web will be discussed separately in the sections which follow. However, readers are reminded that it is often the interrelationships between these various issues which is of most importance.

The Paradigm

It was explained earlier that the core of an organisation’s culture is encapsulated in the paradigm of the organisation. Whereas it is easy to talk about culture in vague and generalised terms, the need is to analyse and understand culture in much more precise terms. It is therefore useful to conceive of the paradigm as consisting of three layers:

Values may be easy to identify in an organisation, and are often written down as statements about the organisation’s mission, objectives or strategies. However, these tend to be vague -- such as ‘service to the community’ or ‘equal employment opportunities’.

Beliefs are more specific, but again they are issues which people in the organisation can surface and talk about: for example, a belief that the company should not trade with South Africa, or that professional staff should not have their professional actions appraised by managers.

Assumptions are the real core of an organisaiton’s culture. They are the aspects of organisational life which are taken for granted and which people find difficult to identify and explain. For example, in a regional newspaper company, it was assumed that people were prepared to pay for local news and that the newspaper was a key part of the local community. Advertising revenue, which accounted for a large part of the newspaper’s income, was seen as necessary but not as the core of the business.

This taken-for-grantedness can be very difficult to surface. Nonetheless, unless these beliefs and assumptions are surfaced and challenged, very little will change in the organisation. The assumptions are likely to override the logical, explicit statements of the organisation’s preferred strategies.

Insights into the paradigm can be gained by analysing the elements of the cultural web. The process by which this analysis might be undertaken can vary, from listening to people talk about their organisation to asking managers to undertake the analysis themselves using the cultural web as a checklist. It can also be done by observing the organisation’s day-to-day operation and building a ‘picture’ of the web in that way.

Stories

The stories in organisations provide valuable insights into the core beliefs and assumptions of the organisation. Stories arise and develop over time through the experiences of individuals and groups undertaking the day-to-day tasks of the organisation, and typically deal with the heroes and villains, successes, disasters and mavericks. They distill the essence of the company’s past and legitimise types of behaviour of those individuals and groups currently within the organisation, and attitudes of outsiders towards that organisation. They are the devices for telling people what is important in the organisation. For example, it has been argued that the dominant culture of the health service in many countries is one of curing sickness rather than promoting health. Most of the stories within the health service concern spectacular developments in curing -- particularly terminal illnesses. In contrast, community medicine and preventative care are still the ‘Cinderellas’ of the health service and receive little attention and kudos. The heroes of the organisation are in curing not caring. Stories about mavericks can be useful since, by pointing up what is regarded as unacceptable or unusual, they emphasise what the normal expectations are.

Routines and Rituals

The routines of an organisation represent the way in which the value activities are carried out in delivering the organisation’s strategies. Routines are the mundane aspects of organisational life which often become taken for granted as ‘the way we do things round here’. Indeed, the outsider might be able to discern the elements of the organisation’s paradigm by listening to the way that managers describe the routines of their oganisation. In the regional newspaper the routines for meeting tight publication deadlines were of major importance. They were part of a culture where up-to-the minute news was important, people were slaves to time and short-term performance was dominant.

Rituals are of a higher order than routines. They are the special events or circumstances through which the organisation highlights or emphasises something important. Examples of rituals are training, meeting, or union negotiations. The ‘square-bashing’ in military training, for example, is an important means of creating a culture of unquestioning obedience to the command structure. Training programmes of other organisations can also be thought of as rituals which give useful pointers to core beliefs. For example, some organisations have training only in the technical skills of the job, whereas others place more emphasis on the development of general skills and attitudes. By the 1990s many of the major international accountancy firms had extended their services beyond auditing and taxation into management consultancy. This required a major shift of emphasis in their training programmes towards business skills and awareness, which had beneficial effects on their core business too. International expansion also led to the use of training events to build a new international culture within the organisation -- with some considerable difficulty.

Symbols

The importance of symbols and symbolic behaviour is often underplayed both in understanding organisational culture and also in assisting strategic change. They can be an important means of understanding the types of behaviour which are expected and rewarded in the organisation. For example, the symbols of hierarchy such as office size, carpets, and car-parking spaces are useful clues to the extent to which the organisation is rooted to its established way of doing things.

The type of language used in an organisation can also be helpful in understanding the organisational paradigm. For example, when the hovercraft service started Channel crossings in the late 1960s, the companies deliberately mimicked airlines rather than ships, and this was sustained throughout by rituals and symbols -- they had a ‘pilot’, dressed their ‘cabin staff' as did airlines, had ‘flights’ not sailings, etc. In the newspaper example the technical jargon was inaccessible to outsiders, indicating the clannish and somewhat exclusive nature of the enterprise as perceived by the managers and, arguably, a somewhat inward looking culture.

Although symbols are shown separately in the cultural web, it should be remembered that many elements of the web are symbolic in the sense that they convey messages beyond their functional purpose. Routine, control and reward systems, and structures are symbolic in so far as they signal the type of behaviour which is valued in the organisation.

Public statements, such as in the company annual report, are a visible symbol of the organisation's concern with serving a specific set of stakeholder groups.

Organisational Structure

Organisational structure and design is crucial to the successful implementation of strategy. However, organisational structures also preserve the core beliefs of the organisation and are legitimised by its power structure. It is therefore important to understand how the structure relates to the paradigm of the organisation, and how easy or difficult it will be to change in support of new strategies.

The way in which responsibility and authority are distributed within the organisational structure is also an important part of the culture. For example, an organisation which is structured and managed as a series of separate and competitive units is likely to have a cohesive culture at the level of these subunits which makes collaborative ventures (between units) difficult. Indeed, in many such organisations the systems of control and reward are also likely to have developed in a way which encourages and supports competitive (rather than collaborative) behaviour. It is not surprising, therefore, that individuals and groups are likely to favour strategies which can be pursued in a devolved rather than an integrated way. As devolution sweeps through the large organisations in the 1990s, there is a considerable danger that one casualty will be the ability to co-ordinate joint ventures between businesses, divisions, or service departments as the culture at subunit level strengthens at the expense of a cohesive corporate culture.

Control Systems

Understanding of an organisation’s paradigm can be assisted by observing the types of control system in the organisation, and the issues which are most closely monitored or promoted. For example, many public-service organisations have been obsessed with stewardship of funds rather than quality of service. This can be clearly seen in their bureaucratic procedures, which were almost entirely concerned with accounting for spending and had little regard for outputs. The move to develop output-related performance indicators is of major concern to many public and private sector service organisations in the 1990s as the paradigms of the organisations shift towards service and client care.

Reward systems are important indicators of what behaviours are encouraged within the organisation, and can prove to be a major barrier to the success of new strategies. For example, an organisation which has individually based bonus schemes related to volume of throughput will find this a difficult culture within which to promote strategies requiring teamwork and an emphasis on quality not volume. In a more general sense, it is useful to observe whether control systems are geared to reward or punishment, since this will influence the dominant attitudes to risk taking. In the newspaper example the control systems were geared to short-term targets and budgeting -- again reflecting the centrality of news as the core business, as distinct from long-term planning or development.

Power Structures

Power is a key force which shapes organisation culture, and also a means whereby some expectations influence strategy more strongly than others. Power often accrues to those perceived most able to reduce uncertainty in organisations. Since the paradigm is the set of assumptions by which people reduce their personal uncertainty, change may require an attack on the power structures which protect and legitimise the paradigm. Therefore an important issue to assess is the strength of belief among the most powerful individuals and groups; in other words, whether they are idealists or pragmatists.

Overall

The cultural web has so far been used to analyse culture through the separate elements of the web. However, it is important to be able to describe the dominant culture of the organisation as a whole -- as manifested in these separate elements. This can be done in several ways:

One means of achieving an overall view of culture is through observing the way in which strategies have developed historically. History is a powerful influence on an organisation’s culture and, in turn, affects the choices of strategies. Studies have shown that the way companies are organised and managed bear a strong relationship to the era in which their particular industry had its foundations. For example, the pre-industrial revolution industries, such as farming or construction, still retain many of the features associated with craft industries despite modern methods of operation.

History and tradition can often be forces which prevent organisatins from recognising the need to respond to key changes in the environment, such as new technologies. The extent to which this is a potential problem for an organisation needs to be assessed, particularly if it is likely to cause strategic drift.

Miles and Snow categorise organisations into three basic types in terms of how they behave strategically (see Figure 2 below). When undertaking a strategic analysis, this categorisation provides a means of assessing the dominant culture of the organisation. By reviewing the historical choices of strategy, the analyst can distinguish between a defender and a prospector organisation, and hence judge the extent to which new strategies might fit the current paradigm.

The extent to which a cohesive culture is a strength or a weakness for the organisation needs to be assessed. A cohesive culture almost demands, and often produces, a situation where more and more like-minded individuals are selected into key leadership roles or become socialised into the organisation’s dominant beliefs and approaches. The symptoms are usually clear: established routines are not deviated from: powerful symbols and stories exist which encourage a commitment to the strategies which the organisation has pursued historically; there is little tolerance of questioning and challenge; and so on. These are the circumstances where strategic drift is likely to occur. However, managers may be unable to detect this drift themselves. It is often the case that it is not until performance has significantly dropped that the stimulus for change occurs. Perhaps a more healthy situation is one of constructive friction -- where a strong corporate culture is maintained, but where the core beliefs and assumptions are continuously subjected to critique.

The dominant culture also tends to vary from one industry to another, making the transition of managers between sectors quite difficult. A number of private-sector managers were encouraged to join public services during the 1980s in an attempt to inject new cultures/outlooks into the public sector. Many were surprised at the difficulties they experienced in adjusting their management style to the different traditions and expectations of their new organisation.

Figure 2: Different types of organisational culture and their influences on strategic decision making.

Characteristics of strategic decision making

Organisation Type	Dominant objectives	Preferred strategies	Planning and control systems
1. Defenders	Desire for a secure and stable niche in market.	Specialisation; cost- efficient production; marketing emphaisses price and service to defend current business; tendency to vertical integration.	Centralised, detailed control; emphasis on cost efficiency; extensive use of formal planning.
2. Prospectors	Location and exploitation of new product and market opportunities.	Growth through product and market development (often in spurts); constant monitoring of environmental change; multiple technologies.	Emphasis on flexibility, decentralised control, use of ad hoc measurements.
3. Analysers	Desire to match new ventures to present shape of business.	Steady growth through market penetration; exploitation of applied research; followers in the market.	Very complicated; co-ordinating roles between functions (e.g., product managers); intensive planning.

Source: Adapted from R. E. Miles and C. C. Snow, Organisational Strategy Structure and Process, McGraw-Hill, 1978.

Stakeholder Analysis

Stakeholder Mapping

Assessing the importance of stakeholder expectations is an important part of any strategic analysis. It consists of making judgments on three issues :

How likely each stakeholder group is to impress its expectations on the company.

Whether they have the means to do so. This is concerned with the power of stakeholder groups.

The likely impact of stakeholder expectations on future strategies.

Two methods of mapping stakeholders will be considered : the power/dynamism matrix: and the power/interest matrix.

Power/dynamism Matrix

Figure 3 shows the power/dynamism matrix on which stakeholders can be plotted. This is a useful way of assessing where the ‘political efforts’ should be channelled during the development of new strategies. The most difficult group to cope with are those in segment D, since they are in a powerful position to block or support new strategies, but their ‘stance’ is difficult to predict.

Figure 3: Stakeholder mapping: power/dynamism matrix

Source: Adapted from A. Mendelow, Proceedings of 2nd International Conference on Information Systems, Cambridge, Mass, 1991.

The implication should be clear; a means must be found to ‘test out’ new strategies with these stakeholders before an irrevocable position emerges. In contrast, stakeholders in segment C are likely to influence strategy through the process of managers anticipating their stance and building strategies which will address their expectations. Although stakeholders in segments A and B have less power, this does not mean they are unimportant. Indeed, the active support of such stakeholders may, in itself, have an influence on the attitude of the more powerful stakeholders.

Power/Interest Matrix

A valuable development of the power/dynamism matrix can be seen in Figure 4. This classifies stakeholders in relation to the power they hold and the extent to which they are likely to show interest in the organisation's strategies. The matrix indicates the type of relationship which the organisation will need to establish with each stakeholder group. Clearly the acceptability of strategies to the key players (segment D) should be a key consideration during the formulation and evaluation of new strategies. Often the most difficult stakeholders are those in segment C. Although these stakeholders might in general be relatively passive, readers are reminded that stakeholder groups tend to emerge and influence strategy as a result of specific events. It is therefore critically important that the likely reaction of stakeholders towards future strategies is given full consideration. A disastrous situation can arise if their level of interest is underrated and they suddenly reposition to segment D and frustrate the adoption of a new strategy. Similarly, the needs of stakeholders in segment B need to be properly addressed -- largely through information. They can be crucially important ‘allies’ in influencing the attitudes of more powerful stakeholders. The value of this type of stakeholder mapping is in assessing the following:

Whether the political/cultural situation is likely to undermine the adoption of a particular strategy. In other words, mapping is a way of assessing cultural fit (which will be an important consideration in strategic evaluation).

Who the key blockers and facilitators of change are likely to be, and therefore, whether strategies need to be pursued to reposition certain stakeholders. This could be to lessen the influence of a key player or, in certain instances, to ensure that there are more key players who will champion the strategy (this is often critical in the public-sector context).

The extent to which maintenance activities will be needed to discourage stakeholders from repositioning themselves. This is what is meant by keep satisfied in relation to stakeholders in segment C, and to a lesser extent keep informed in segment B. Side payments to stakeholders as a means of securing their acceptance to new strategies have traditionally been regarded as a key maintenance activity.

Figure 4: Stakeholder mapping: power/interest matrix

Source: Adapted from A. Mendelow, op. cit.

These questions, of course, raise some difficult ethical issues for managers in deciding the role they should play in the political activity surrounding strategic change. For example, are managers really the honest brokers who weigh the conflicting expectations of stakeholders groups? Or are they answerable to just one stakeholder -- such as shareholders -- and hence is their role to ensure the acceptability of their strategies with other stakeholders? Or are they, as many authors suggest, the real power behind the throne, constructing strategies to suit their own purposes and managing stakeholder expectations to ensure acceptance to these strategies? These are important issues for all managers to consider.

Power

Sources of Power Within Organisations

Power within organisations can be derived in a variety of ways, any of which may provide an avenue whereby the expectations of an individual or group may influence company strategies. The following are the normally recognised sources of power:

1. Hierarchy provides people with formal power over others and is one method by which senior managers influence strategy. In particular, if strategic decision making is confined to top management, this can give them considerable power. However, it is important to remember that this type of power has a very limited effect if used in isolation. Many industrial disputes illustrate the impotence of management if they rely only on formal power.

2. Influence can be an important source of power and may arise from personal qualities (of leadership) or because a high level of consensus exists within the group or company (i.e., people are willing to support the prevailing viewpoint). Indeed, there is strong support for the view that the most important task of managers is to shape the culture of the organisation to suit its strategy.

It is not surprising that those individuals most closely associated with the core beliefs or paradigm are likely to accrue power. In professionals organisations, key professionals have considerable power through their influence on others (doctors in the health services, accountants in accountancy firms: even engineering firms tend to have qualified engineers as managing directors). It is important to recognise, however, that the extent to which an individual or group can use influence is determined by a number of other factors. For example, access to channels of communication (e.g., the media) could be an essential requirement.

In many situations, prior commitments to principles or specific courses of action can give individuals influence. Some of these principles may be quite central to the organisation’s mission. For example, following the major changes in eastern Europe in 1989, many organisations were reshaped with the explicit purpose of excluding Communist Party members from senior management positions. This led to some difficult situations in the short term, where those who had been party members for pragmatic rather than ideological reasons were sidelined while other, often less able, managers leapfrogged into senior positions.

3. Control of strategic resources is a major source of power within companies. It should be remembered that the relative importance of different resources will change over time, and hence power derived in this way can show dramatic shifts. The power of organised labour is most potent when demand for output is high and labour supply short. The decline in the position of car workers in the wages league during the 1970s was evidence of the erosion of this source of power. Within any one company the extent to which the various departments are seen as powerful will vary with the company’s circumstances. Design or R&D departments may be powerful in companies developing new products or processes, whereas marketing people may dominate companies which are primarily concerned with developing new markets.

4. The logical extension of the previous point is that individuals can derive power from their specialist knowledge or skills. Certain individuals may be viewed as irreplaceable by the company, and some will jealously guard this privileged position by creating a mystique around their job. This can be a risky personal strategy, since others in the organisation may be spurred to acquire these skills or to devise methods of bypassing them. The power of many organisations' computer specialists was threatened with the advent of microcomputers, which provided others within the organisation with a means of bypassing those specialists. The rapid internationalisation of many organisations has spurred individuals to improve their language skills and international experience as key requirements in the labour market.

5. Control of the environment is another source of power within organisations. Most people know that events in the company’s environment are likely to influence company performance. However, some groups will have significantly more knowledge of, contact with, and influence over the environment than others. This can become a source of power within the company, since these groups are able to reduce the uncertainty experienced by others. It is probably for this reason that financial and marketing managers have traditionally been seen as dominant in strategy determination, while production managers have taken a back seat. This source of power becomes most important when the environment is hostile or unpredictable. Then most of the factions will unite behind those who are considered best able to protect the company, despite the fact that the medicine which might be doled out could represent a denial of many of their expectations.

6. Exercising discretion is a most significant source of power within many organisations and is often overlooked. Individuals derive power because they are involved in the company’s decision processes by the very nature of their jobs. The execution of strategy, by its very complexity, cannot be controlled in all its minutest detail by one person or group. Hence many other people in the company will need to interpret and execute particular parts of the strategy, and in doing so will use their own personal discretion. This is a major source of power for middle management in organisations. The extent of which discretion is allowed to influence strategy is obviously related to the types of structure and control system within the organisation.

Sources of Power for External Stakeholders

As with internal groups, those outside the organisation may have a number of sources of power which help them influence the organisation's strategies.

1. Resource dependence is a common source of power, as discussed earlier. The power that buyers or suppliers exercise over an organisation is also likely to depend on the extent to which they are able to exercise control over resource provision or acquisition. Long-term dependence on a particular resource can shape the attitudes and culture of an organisation in a way which makes ‘switching’ very difficult. However, dependence may often be much wider than just suppliers or buyers. It may be ingrained in the organisation’s routines and assumptions. This has been a problem experienced by many eastern European firms as they have switched from the state-controlled to a free-market situation.

2. Involvement in implementation through linkages within the value system can be an important source of power for suppliers, channels, and buyers. One of the major changes since the 1960s in many industries has been a shift of power from the manufacturing sector to the distribution sector. The greater knowledge that distribution companies have of trends in consumer tastes has allowed them to dictate terms to manufacturers, rather than simply being outlets for goods designed and planned by manufacturing companies.

3. Knowledge and skills critical to the success of the company are another source of power. A sub-contractor, for example, may derive power in this way, it performs a vital activity in the company’s value chain.

4. Internal links can provide a route for external stakeholders to influence company strategy. This is determined by the strategy-making processes within the organisation. At one extreme, a highly authoritarian organisation is likely to be hostile to any attempts by outside stakeholder to be formally involved in formulation of strategy, and therefore any influence on strategy must be derived in other ways. In contrast, some organisations (e.g., well-run public services) actively seek to involve a wide variety of stakeholders in strategic decision making.

___