MGMT 4710 Strategic Management

Transcription

1 Strategic Management Corporate Governance and Social Responsibility Ownership and Managerial Control Shareholders Invest in stock entitling them to profits Accept the risk that there may be no profits Growth may require additional capital Long-term debt Additional equity (dilution) Managers Contract to manage the firm Are compensated for their service Do not bear the risks of the firm Separation of Ownership and Managerial Control Frees owners from day-to-day management Owners can concentrate on portfolios Greater range of strategic competitiveness Agency Costs

2 Agency Theory Principal/Agent Relationships Moral Hazard (shirking) Unobservable behaviors Outcome-based monitoring Manager and Shareholder Risk and Diversification Risk S Shareholder (business) risk profile Managerial (employment) risk profile M Dominantbusiness Related- Constrained Related- Linked Unrelated Level of diversification Ownership Concentration Fewer shares = less incentive to monitor Benefits of monitoring proportional to ownership share Ownership Concentration Institutional Owners Banks Insurance Funds Pension Funds Mutual Funds

3 Growth of Institutional Ownership of U.S. Corporations Institutions Individuals Boards of Directors Representatives of Shareholders Interface with Management Inside vs. Outside Directors Fiduciary Responsibility More Involved Boards U.S. Board Compositions % Outside Directors 1 or more Women 1 or more Minority 1 or more Non-U.S. Citizens Sources: Useem, Michael (1996) Investor Capitalism. New York: Basic Books. and Wheelen & Hunger (2002)

4 Executive Compensation Salaries Incentive Compensation Bonuses Stock Options Compensation Problems Complex Decision-Making Short-Term Orientation Multidivisional Structure More Effective for Monitoring Division Management Not as Effective at Corporate Level Can encourage continued diversification Tendency to focus on financial controls External Governance Mechanisms Market for Managerial Labor Promotions from Within Hiring from Outside Market for Corporate Control Takeovers of Undervalued Firms Replacement of Management

5 Strategic Competitiveness Value-Creating Strategy Sustained Competitive Advantage Normal Profits Above-Normal Profits U.S. National Competitiveness 1860s to 1950s U.S. domination of world markets High skill level of workers High education level of workers Largest pool of investment capital Best technology and managers Largest domestic market U.S. National Competitiveness 1950s & 1960s Emerging global economy eroded U.S. dominance Productivity rates in Japan and some European countries improved more than U.S. U.S. savings rate flattened as other nations increased theirs U.S. firms found themselves competing with Japanese and European firms both around the world and in their domestic markets

6 U.S. National Competitiveness 1970s & 1980s Further deterioration of U.S. competitiveness in light of continued increase in international trade Rigorous competition from effective foreign competitors U.S. moved from largest creditor nation to largest debtor nation U.S. National Competitiveness 1990s U.S. saving rate lowest of most industrialized nations and less than half of Japan s U.S. investment rate lowest of all major industrialized nations Primary & secondary students rank among the lowest on standardized test performances among other major industrialized nations Globalization Continues Increased levels of interdependence Needs of developing countries Continuing disintegration of trade barriers All customers expect high quality at low prices Pressure to shorten product development time frames Strategically-competitive companies leverage capabilities learned in domestic and global markets Need to be successful in domestic markets (for selfprotection) before going global

7 1992 World Competitiveness Scoreboard 1. Japan 2. United States 3. Denmark 4. Switzerland 5. Germany 6. Netherlands 7. Austria 8. New Zealand 9. Sweden 10. Belgium 2002 World Competitiveness Scoreboard 1. United States 2. Finland 3. Luxembourg 4. Netherlands 5. Singapore 6. Denmark 7. Switzerland 8. Canada 9. Hong Kong 10. Ireland Source: International Institute for Management Development, Lausanne, Switzerland, Strategic Intent 1994 Bestseller Resource-Based View London Business School (Hamel) University of Michigan (Prahalad) Harvard

8 Quest for Competitiveness Restructuring the Portfolio and Downsizing Headcount Reengineering Processes and Continuous Improvement Reinventing Industries and Regenerating Strategies Smaller Better Different Competing for Today Market Share Business Units Stand-Alone Systems Speed Structured Arenas Single-Stage Competition versus Competing for the Future Opportunity Share Corporate Competencies Integrated Systems Perseverance Unstructured Arenas Multistage Competition Competition for the Future Intellectual Leadership Management of Migration Paths Competition for Market Share Industry foresight Creative view of Functionality Core competencies Customer interface Strategic Architecture Preemptively building core competencies, alternate product concepts, reconfiguring the customer interface Building and managing coalitions of industry participants Forcing competitors onto longer migration paths Worldwide supplier network Market positioning Preempt competitors Efficiency and productivity

9 Why Great Companies Fail Unparalleled track record of success Accumulation of abundant resources Optimized business system Success confirms strategy No gap between expectations and performance A view that resources will win out Deeply etched recipes Momentum is mistaken for leadership Contentment with current performance Resources substitute for creativity Vulnerability to new rules Failure to reinvent leadership Inability to escape the past Inability to invent the future