SM A10 Purpose Shareholder Value and Stakeholders

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Strategic Management

Purpose, shareholder value,

and stakeholders 

Prof.Dr. E.Vatchkova

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Contents

1. Identifying stakeholders2. The political power in the organization

3. Sources of power 

4. Stakeholder mapping

5. Power/dynamism matrix6. Power/interest matrix

7. Conflicts of expectations

8. Managerial values

9. Ethical issues10. Cultural frames

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Freeman’s definition (1984)

“Any group or individual who can

affect or is affected by the

 performance of an organization”  

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Stakeholders concept is valuable

when:

The organizational objectives are defined

Specific strategic developments will takeplace

The strategic choice is to be made

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Groups of stakeholders

External stakeholders

The state

Customers

Suppliers

Financial institutions

Shareholders

Unions

Media

Internal stakeholders

Managers

Employees

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Power 

The ability of individuals or 

groups to persuade, induce or 

coerce others into followingcertain courses of action

The organization is a

political arena

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Source of power within the

organization

Hierarchy (formal)

Influence (informal)

Control of strategic resourcesPossession of knowledge and skills

Control of the environment

Involvement in strategy implementation

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Sources of power for external

stakeholders

Control of strategic resources

Involvement in strategy implementationPossession of knowledge (skills)

Through internal links

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Indicators of power 

Internal stakeholders

1. Status

2. Claim on resources

3. Representation

4. Symbols

External stakeholders

1. Status

2. Resource

dependence

3. Negotiating

arrangements4. Symbols

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Stakeholders mapping  – assessing

the importance of stakeholder 

expectations How likely each stakeholder is to impress

its expectations on the company

Whether they have the means to do so

(assessment of power)

The likely impact of stakeholder 

expectations on future strategies

P /d i t i

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Power /dynamism matrix

A

Few

problems

B

Unpredictable but

manageable

C

Powerful

but

predictable

D

Greatest danger or 

opportunities

Predictability

Power 

Low

LowHigh

High

 Adapted from Mendelow, 1999

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Power / interest matrix

A

Minimal

effort

B

Keep

informed

C

Keep

satisfied

D

Key players

Level of interest

Power 

Low High

Low

High

 Adapted from Mendelow, 1999

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Stakeholders expectations(1)

Shareholders:

 Annual dividends

Increasing the value of their investments in

the company as the share price increases

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Stakeholders expectations(2)

Managers

salaries and bonuses

proxy paymentsresponsibility

challenge

working for a well known andprestigious company

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Stakeholders expectations(3)

Employees

wages

holidays job satisfaction

working conditions

security

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Stakeholders expectations(4)

Consumers

desirable and quality productscompetitive prices

new products at appropriate time

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Stakeholders expectations(5)

Distributors

on time and reliable deliveries

Suppliers

constant orderspayment on time

Financers

interest payments

loan repayments

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Stakeholders expectations(6)

Government

payment of taxes

provision of employmentcontribution to the nation’s exports 

Society in general

socially responsible actions

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Common conflicts of 

expectations

Growth – profitability

Cost efficiency – jobs

Volume – qualitySavings in one SBU –increased spending

in elsewhere

Division’s belonging to two organizationalfields

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Definition

Values are broad, general beliefs about

some way of behaving or some end state

is preferable to the individual

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The influence of values

The way other individuals and groups areperceived, thereby influencing interpersonalrelationships

The decisions and problem solutionsThe perception of situations

The criteria for ethical behavior 

The acceptation or resistance to organizational

goalsThe ways to achieve the success

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Types of values

Theoretical – order, system, logicEconomic – usefulness and practicability

 Aesthetic – art and beauty

Social – people and their welfarePolitical – power over people and things

Religious – unity and harmony

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The political and cultural aspect

of the organization

1.Whom the organization does actuallyserve?

The concept of stakeholders

2. Which purposes an organization shouldfulfill?

Ethical considerations

3. Which purposes are actually prioritized?The cultural concepts

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Some questions of CSR J&S,02

Internal aspects

Employee welfare

Working conditions

Job design

Intellectual property

External aspects

Green issues

Products

Markets andmarketing

Suppliers

EmploymentCommunity activity

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The cultural web

Paradigm

Stories

Symbols

Power

Routines and

rituals

Control

Organizationalstructures

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Expectations and purposes model

Corporate governanceBusiness ethics

Stakeholders Cultural context

Organizational

Purposes•Mission•Objectives

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Managing for shareholder value

General consideration:How to make the business value-based?

Objective:

Maximizing shareholder value over time

Strategy:

Significant change in management

Action tasks (initiatives)

Key steps (initiatives) 1

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Key steps (initiatives) 1

(Cadbury-Schweppes plc,1966)

1. Preparing a multi-year blueprint for the many

changes to make the business value-based

2. Identify sources of value creation and

destruction, using financial and performance

measures: Economic profit

Return on total invested capital

Earning growth

Free cash flow

3. Set performance targets

4. Manage day-to day performance 

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Key steps (initiatives) 2

(Cadbury-Schweppes plc,1966)

5. Focusing business strategies on thesearch for profitable growth

6. Creating short- and long term incentive

plans for senior managers7. Reviewing the value performance of all

the businesses

8. Delivering awareness and trainingsessions on managing for value (top 300

executives worldwide)

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Key steps (initiatives) 3

(Cadbury-Schweppes plc,1966)

9. Carrying two pilot studies in core group

businesses (produce “value champions”) 

10. Establishing the first “rolling strategic

management agenda” for the board: 

list of issues

managers in charge

value-maximizing decisions

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Funding strategies in different

circumstances: the Growth/share matrix

Growth (Stars)Business risk: High

Financial risk needs to be: Low

Funding by: Equity (growth

investors)

Dividends: Normal

Launch (Question marks)Business risk needs to be: Very

high

Financial risk: Very low

Funding by: Equity

(venture capital)

Dividends: Zero

Maturity (Cash cow)

Business risk: Medium

Financial risk can be: Medium

Funding by: Debt and equity

(retaining earnings)

Dividends: High

Decline (dogs)

Business risk: Low

Financial risk can be: High

Funding by: Debt

Dividends: Total

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