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Part 1: Governance and Stakeholder
The Potential and Limitations of the Strategy According to OECD, 1999, corporate governance is a set of relationship between the executive board of company and its stakeholders. Also it provides the organizational structure for defining, processing, implementing and evaluating the firm’s objectives. It provides financers with information on company’s operations and performance. Agency theory and stakeholder theory have affected the development of corporate governance.
In Agency theory, one party (principle) delegates work to the other party (agent). It separates ownership and control therefore many limitations arise. Like agent might prefer self-interest as oppose to principle interest in certain condition. Also the information flow between agent and principle has significant effect on their relationship and performance. One advantage is that the compensation paid by the agent can be controlled, if principle appoints more than one agents and the one delivering the best outcome is given an incentive (Hauswirth, 2007).
Stakeholder theory is like a superset of Agency theory. Stake holder theory is more ethical and follows the notion that ‘good ethics’ is ‘good business’ (Solomon, 2007). Carrying out Corporate Social Responsibility is now a part of every company’s action plan, as it conveys good ethical practices and approach of the company. Enron, Energy Company, had to be delisted from SEC and faced failure due to its unethical behavior when Ken Lay, CEO, ignored taking action against its subordinates who were involved in corrupt trading schemes at the cost of bringing earnings to the company (Hill, et al., 2014).
In US and UK companies give preference to shareholders whereas in France, Germany and Japan companies prefer stakeholder theory focusing on firm continuity and employee preservation (Allen, et al., 1995- Present). The stakeholder theory seems a more holistic way of corporate governance than the shareholder approach, which only considers maximizing profits and interests of shareholders. Stakeholder theory enforces corporate accountability; taking social, The Potential and Limitations of the Strategy ethical and environmental factors into account, which results in conductive financial performance. It is focused on making decision for company’s long-term profitability based on interests of suppliers, customers, employees, The Potential and Limitations of the Strategy creditors and local community. The stake holder theory builds a relationship between people making up the company and the company itself. Having an ownership feeling, a say in decision making process or product designing method, motivates employees and they feel worthwhile thus deliver work with determination at a more responsible level.
When following stakeholder’s theory, firms argue that agency problem arises, that is, it is difficult to evaluate the performance of managers as short-term measures are not considered relevant. The directors will have to consider multiple objectives rather than the only criteria of shareholder’s profit maximization therefore it will be difficult for them to balance the demands of all the members having stake. However whatever the demands they will ultimately be directed towards company’s long term profitability therefore after balancing them the decision would be in interest of the company only.
Investors, one of an integral stakeholder, could show two different reactions to the organization practicing stake holder theory, it could either encourage them to invest or discourage them. In the prior condition the level of supervision of corporate governance and social responsibility followed by the company could attract the investor into investing on behalf of its stable performance and good reputation in the community. Whereas, in contrary company not focusing on shareholder’s benefit, could dissuade investors from investing in the company.
Proctor and Gamble practices stakeholders’ theory, The Potential and Limitations of the Strategy as they believe customer play a major role in the success or loss of the company. They spend a large amount of their resources annually on addressing customer complaints and make decisions and amendments accordingly (Freeman, 2010). They consider all of their stakeholders as an integral part of the organization which results in making them market leaders in many products around the global.
Part 2: Culture and Leadership
A change in business vision, technology, The Potential and Limitations of the Strategy organizational structure and business process will have to be carried out through the people within the organization. The need for change can be intrinsic or extrinsic. Intrinsic change could be due to change in organizational structure or business process, whereas extrinsic change can be brought by external factors affecting the organization’s profit like change in technology. When change is incorporated within the organization there is a high chance of experiencing resistance to it. Employees may simply dislike the change, not being comfortable with the uncertainty brought with the change, difficulty in detaching from established culture, not convinced with the need for the change. Therefore stakeholders of the company need to have a clear rationale, aspiration and determination for change before its implementation. The leadership has a very important role of designing change strategy addressing the resistance at different level of its implementation.
When Flybe acquired British Airways in 2007 it faced major change resistance. A Force field analysis can be conducted to get an overview of pressures for and against change. Flybe’s acquisition of BA had driving forces like innovation, dynamics, secure future, position promotion and opportunity to grow, whereas on the other hand there was resisting forces like cultural change, uncertainties, firing and job insecurity. The main issues in implementing change in Flybe included high expectation from top level management, cultural convolution and staff developing a sense of insecurity (Flybe, 2014). Clear, consistent and persuasive communication is needed to share the new vision with stakeholders, to keep them updated on progress, and to ensure that they are aware of their own role in the process. A strong internal communication was the answer to address these issues from top level management to lower level management, informing all the stakeholders and to prepare them for the unexpected.
The path dependency and lock in theory is based on the assumption that continuous process of making decisions becomes restrained for present and future decisions at some point, therefore history matters (Sydow, et al., 2005). If a certain activity results in positive outcomes, then increasing returns can be achieved by strategic paths made through self-reinforcing processes. But this can narrow the scope of strategic management.
Timely strategic change is required by organizations to keep up with the changing business trends, and progress towards company growth. Major changes are evolutionary or revolutionary change, which are types of transformational change. Evolutionary change is one which happens over time for company’s survival due to external forces like technology change and competition; whereas revolutionary change allows a fresh beginning in which company makes drastic, radical and transformational changes to its products or services. It is a proactive approach to look out for necessary changes to be made as by forecasted changing market trend in the near future. Amazon carried out…
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