People and strategy
Strategy from the top
The board of directors of an organisation are appointed by the shareholders and/or stakeholders to ensure that the business is run operationally with the intention of achieving the strategic objectives desired by those owners
S.172 gives each director a duty to strive towards the success of the company, this has to mean that each director is in some way involved with the establishment and oversight of strategy within the organisation
Lynch (2015) suggests that: strategic leadership is the ability to shape the organisation's decisions and deliver high value over time, not only personally but also by inspiring and managing others in the organisation. That leadership begins with the top management team - CEO, other leading directors and in large companies, the leading divisional directors'
In many organisations the CEO is seen as the chief strategist with ultimate responsibility and ownership of all strategic decisions and full accountability for its success or failure
Montgomery (2008) suggests that a CEO must be the steward of a living strategy that defines what the firm is and what it will become
Strategy from within
Throughout an organisation, many people with management responsibility will also contribute to the development of strategy.
The day to day decisions that are required in any organisation mean that people are constantly having to react to the internal and external forces that surround them
The decisions that they make may be guided by the strategic parameters established by others but the direct impact of their decisions will inevitably influence strategic outcome and therefore strategic direction of an organisation
The suggestion here is that anybody within an organisation who has some aspect of decision-making within their role is also contributing in some way to the strategy of the organisation
While there is not the time to formally involve all people within the strategic development process, appropriate communication structures and a culture of inclusion will ensure that a wide range of differing views are heard by those with the ultimate responsibility for the longer term development of strategy
The deliberate involvement of people can bring some immediately apparent advantages
People working within the organisation have a much greater knowledge of the day to day pressures of the operation
People will find workable solutions to ensure a task is achieved
People are always at the latest 'today' position as opposed to the point where an original strategy was established
People will bring momentum to the strategic success of an operational activity
People will be more motivated to help when they recognise that the development of the strategy has involved others who are directly involved in and understand the requirements
The downside of allowing too much strategic involvement from within the organisation can be:
A lack of understanding of a wider strategic vision from within the organisation
A lack of confidential information that is required to understand the longer term vision
The risk of negative and inappropriate reaction to short-term operational and task failure
Different departments and influencers within an organisation will be able to contribute at particular points to the effective development of strategy
The finance department will have a key role at the outset of the development of a strategy in ensuring the appropriateness of required funding, will also act as a useful sense checker as the strategy involves and finally will be able to provide a financial measurement of success based around key performance indicators
The HR department will need to ensure that the appropriate people are in place at the outset of the strategy and throughout the life of the strategy, ensuring that appropriate succession plans are in place so that strategic failure is not caused by lack of appropriate people and knowledge. HR can be a useful source of people being available to objectively listen and react to feedback
External consultants or experts may be required on an ad hoc basis to supplement existing employees to satisfy particular or complicated short-term requirements both in the initial formulation of a strategy and potentially at key points throughout its evolution
The company secretary or governance professional can play an important part in the strategy process, dependent upon how the position is formulated and viewed within a particular organisation
Conflicts of interest, the agency problem and information asymmetry
Agency
This perceived and actual problem is derived from the representative roles that are often taken by decision makers within an organisation and the fact that their personal beliefs may be in conflict with the role that they are expected to fulfil
The reality is that there will often be a disconnect between the mindset, needs and expectations of an individual strategic influencer and those of other stakeholders
Organisations need to recognise this reality and seek to develop strategy to avoid the risk of conflicted individual influence whenever possible
Asymmetry
One further aspect of conflict is known as information asymmetry and reflects the differing levels of information and therefore knowledge that are available to different players within the development of strategy
A board director will usually have a wide knowledge and awareness of the ultimate strategic objectives of the organisation but will often be lacking in an awareness of the short term day to day decisions that are required to enable the progression of an operational activity
A shift leader in a busy factory will have a keen awareness of what is required to fulfil the expectations of the operational output from the shift and how best to motivate the team to fulfil that short term objective. Unless they also have some other involvement within the organisation, it is unlikely that they will be able to place the direct operational objective of an individual shift within the context of the wider strategic objectives of the organisation.
Initial stakeholder considerations
The term 'stakeholder' implies the input of a 'stake' (an interest, an investment, an involvement of some sort) into the organisation. If the involvement was purely philanthropic then there would be no expectation of any return but the nature of holding a stake implies the expectation of some sort of return or counter-action from the organisation in response to the involvement
Owners as stakeholders
Expect the organisation to fulfil their ownership objectives, such as profit or market share
May have a financial investment and therefore will expect a financial return
May have a range of other expected success factors, which will need to form part of the strategic vision, such as an environmental or societal benefit
Employees as stakeholders
Expect remuneration in line with their contractural terms, together with a range of other potential employment benefits
Invest their time, knowledge and efforts in the organisation to achieve their return
The diversity of employees and their varying needs, abilities and expectations will have a significant influence in strategic planning and development
Customers as stakeholders
Expect their product or service requirements to be fulfilled by the organisation
Rely upon the organisation to fulfil their contractual expectations through investing belief in the ability of the organisation to deliver and then ultimately for the product or service they have received
The need to fulfil customer expectations has to form a core part of strategic planning; without a customer there is no organisational purpose
Other supply-chain stakeholders
Expect satisfaction from the organisation based the differing input; suppliers of raw materials will expect to be paid in accordance with their contract, a bank will expect to receive interest for a loan payable at a pre-agreed date, the government will expect to receive taxation as it falls due
Each different supply chain stakeholder will have a different stake within the organisation
The ability to satisfy each of these stakes and their contractual obligations needs to be taken into consideration as the strategy is developed.