An Empirical Study of the Relationships between Consensus and Performance in Functional Strategy Implementation of Enterprise

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1 An Empirical Study of the Relationships between Consensus and Performance in Functional Strategy of Enterprise Li YANG 1, Jingyun ZHANG 2, Jionghua LI 1 1 Management School, China Women s University, Beijing, China, Business School, Beijing Technology and Business University, Beijing, China, yangbaihe05@163.com, zyl4567@sina.com, lijionghua@126.com Abstract: In the field of strategic management research, strategic process is usually considered to be involved in a process of cultivating consensus. Consensus would influences strategy implementation and directly. This paper explores the dimensions of consensus and builds a theoretical model of consensus on functional strategy implementation and analyzes the relationships between consensus and. Keywords: Strategy ; Consensus; Performance 1 Introduction With the accelerated process of economic globalization, enterprises must take a strategic perspective to grasp the future in order to survive and develop under fierce domestic and international markets. Jowell Rose and Michael Jamie have said, the organization without strategy just like a ship without rudder, will be walking around in circles (Thompson, Strickland III, 2005). However, although some companies formulated sound strategies, they had not gained the desired effect because of bad strategy implementation. Both local and multinational companies are often caught in the plight of strategy implementation. In the " The research paper on China enterprises strategy implementation in 2006 ", egate Consulting Shanghai Co., Ltd. (2006) stated: strategy implementation has become a " the biggest management challenges of all types of domestic enterprises ", 83% of the surveyed enterprises are unable to implement its strategy successfully. Zuo Jia management consulting limited company in Shanghai published "Research report of Chinese enterprises strategy management in 2007" which surveyed 856 companies and found 710 companies lacked their own strategic execution power, accounting for 82.9% of the total surveyed. Neilson & Martin & Powers (2008) surveyed more than 1,000 enterprises from 50 countries in the worldwide for five years by network and found out that about two-thirds of employees believed the company's important strategic decision has not been converted to action quickly. There is a phenomenon in many companies, a series of strategic decision-making is often neither understood by the majority of members, has not been widely recognized. These strategic decisions were often worked out by senior managers and imposed on other members, with little regard for their feelings. This led directly inconsistent strategic understanding of staff in the organization, unable to reach consensus and form a so-called "implementation gap". " gap" set up barriers of the realization of strategic objective smoothly, and become a prominent problem plagued enterprise s managers. 2 Research Model As Kellermanns et al (2005) said, there lacked consensus regarding strategic consensus research. Based on previous research review, they pointed out there has limited consistency about the concept of consensus and how to measure it and so on. For example, for the definition of consensus, different scholars had different interpretations. Consensus was treated as a process (Amason, 1996; Marino, 1996), a method of decision making (Tjosvold & Field, 1983; Schweiger & Sandberg & Ragan, 1986; Schweiger & Sandberg & Rechner, 1989), the result of decision-making (Dess & Origer, 1987; Dess, 1987; Wooldridge & Floyd, 1989; Dess & Priem, 1995), a shared understanding and commitment (Wooldridge & Floyd, 1989; Noble, 1999), a shared understanding (Bowman & Ambrosini, 1997), a kind of recognition (Dess, 1987; Dess & Priem, 1995; Homburg, etc., 1999; Knight, 1999), cohesiveness (Stagner, 1969; Whitney & Smith, 1983), a shared view (Dess & Origer, 1987; Bourgeois, 1980), a mental model (Knight et al, 1999) and so on. Most of the researches regarding consensus tested binary relations between consensus and, and there was no consistent conclusion: under certain conditions, these two might be positive correlation (Hrebiniak & Snow, 1982; Dess, 1987; ST.John etc., 1991; Rapert, etc., 1996; Iaquinto & Fredrickson, 1997; Noble, 1999; Rapert al, 2002; Xue Yunkui etc. 2005; 89

2 Rusjan, 2006), may not be relevant (Grinyer & Norburn, ; Wooldridge & Floyd, 1990), may be unable to determine their advantages and disadvantages (Hambrick, 1981; Bowman & Ambrosini, 1997), or it may be mixed results (Bourgeois, 1980, 1985; Wooldridge & Floyd, 1989). Therefore, based on the literature reviews, this article divides the dimensions of consensus, and makes an empirical test, and analyzes the relationship between the dimension of consensus and. Consensus: H4: The general level of commitment about strategic content among department members during the process of functional strategy implementation of enterprise is 4 Research Methods 4.1 The formation of measurement items The consensus s measurement items Measurement items of strategic cognition (1-2 items), agreement (3-6 items) and commitment (7-10 items) in table 1. Cognition Performance: Target Complement Table 1. Measurement items of strategic cognition, agreement and commitment Agreement No Measurement items Commitment 1 know the specific content of the current strategy a Figure 1. Theoretical model of consensus and Figure 1 is the theoretical model of consensus- including three dimensions of consensus and implementation. Yang (2009) defined consensus as the level of consistency of functional department members cognition, agreement and commitment on strategy. These three are interrelated, and also relatively independent. Strategic cognition is the initial stage of consensus, including knowing and understanding about the strategy; strategic agreement is the level of blind or rational support on strategy from department members; strategic commitment is the senior level of consensus which refers to strive to achieve the strategic target for department members. The outcome variable in this model is the implementation, namely the completion of the strategic objectives. It will be measured by the single dimension subjectively. 3 Hypotheses Based on three dimensions of consensus, we put forward the following assumptions need to be verified: H1: The level of consensus about strategic content among department members during the process of functional strategy implementation of enterprise is H2: The general level of cognition about strategic content among department members during the process of functional strategy implementation of enterprise is H3: The general level of agreement about strategic content among department members during the process of functional strategy implementation of enterprise is understand the specific content of the current strategy a believe that the present strategy can utilize resources with the highest efficiency b believe that the current strategy has a great help to achieve department b believe that the present strategy has many problems(r) a 6 support the current strategy b To achieve strategic objectives, department members are willing to accept any type of work b To achieve strategic objectives, department members are willing to make an extra effort a members take the realization of strategic objective as their responsibility a believe that it is their obligation to 10 contribute to the strategic goals c The sources of terms: a. design by myself; b. Rapert, etc. (1996); c. Wen-Quan Ling, etc. (2000); (R) on behalf of reverse scoring title. The above terms are used to measure the level of consensus among functional department members for current strategic content. This variable is measured using Likert scale from 1-7, namely strongly disagree to strongly agree. There is a reverse problem(no.5) Measurement items of implementation 90

3 Previous literature had little consistency regarding how to conceptualize and measure organizational (Bourgeois, 1980, 1985; Iaquinto & Fredrickson, 1997; Knight, etc., 1999; Wooldridge & Floyd, 1990). We measure implementation with subjective measurement terms in Table , accompanied by the corresponding probability value is less than 0.01, reject the null hypothesis the correlation coefficient matrix is the identity matrix. Thus, the variable is suitable for factor analysis. Table 3. Consensus s KMO and Bartlett test results Table 2. Measurement items of implementation Kaiser-Meyer-Olkin Measure of Sampling Adequacy No Measurement items 1 's strategic initiatives have been implemented abcdf complete the strategic objectives within the expected 2 time bcf complete the strategic objectives within budget 3 limitation bcf 4 s tasks fit for the relevant requirements d 5 Each department members have completed their tasks fg The sources of terms: a. Nalder (1990); b. Al-Ghamdi (1998); c. Jiang ji-liang (2006); d. Chen Guo-quan, Zhao Hui-qun, Jiang Lu (2008); e. Xue Yun-kui (2005); f. Li Ming-yan (2005 ); g. Chen Ye-juan (2002). This variable is measured using Likert scale from 1-7, namely strongly disagree to strongly agree. There is no reverse problem. 4.2 Questionnaire distribution, recycling and screening In this study, we distribute 600 questionnaire to functional department staff (marketing department, finance department and human resources department) with convenient sampling method. Finally, we gain 433 questionnaire, and 278 valid questionnaires in it. 5 Data analysis and results This study uses SPSS 13.0 analyzing data and makes exploratory factor analysis, reliability testing, correlation and regression analysis. 5.1 Factor analysis of consensus and reliability testing The primary task of factor analysis is to concentrate on the original variables, namely extract the overlap factors in original variables and integrate into new factors, in order to reduce the number of variables (Xue Wei, 2008). In this study, we use SPSS13.0 to make principal component analysis, and take varimax method to delete cross-loading variables Factor analysis of consensus For the consensus s dimensions, the first step is to measure whether 10 items is suitable for factor analysis. Shown in Table 3, KMO value is in the main component analysis, Bartlett's Test of Sphericity test is Bartlett s Test of Sphericity Approx.Chi-Square Df 36 Sig.000 Factor extraction uses principal component analysis method and orthogonal Varimax rotation. The results are showed in Table 4.consensus can be precipitated three factors which eigenvalues are all greater than 1 (4.249, 1.375, 1.173), these three factors explain contribution rate % for the variance. Therefore, we can conclude that: consensus s measurement items contain three factors measuring different dimensions of consensus, the result of factor analysis is better. Among them, the item 5 is deleted because of the phenomenon of cross-loading. Variable Consensus Table 4. Factor analysis results of consensus Items To achieve strategic objectives, department members are willing to accept any type of work To achieve strategic objectives, department members are willing to make an extra effort members take the realization of strategic objective as their responsibility Factor Loading Factor1 Factor 2 Factor

4 Principal component eigenvalue Explained variance Cumulative explained variance believe that it is their obligation to contribute to the strategic goals believe that the present strategy can utilize resources with the highest efficiency believe that the current strategy has a great help to achieve department support the current strategy know the specific content of the current strategy understand the specific content of the current strategy % % % % % % Extraction method: principal component analysis; rotation method: Kaiser standardized orthogonal rotation method. Thus, the level of strategic consensus of members in functional departments can be measured from three aspects: strategic cognition, strategic agreement and strategic commitment Reliability test of consensus Table 5 is the result of reliability measurement of consensus s three factors. The results show that reliabilities of measurement scale are all above 0.70, in line with research requirements. Table 5. Reliability analysis of consensus Variable items Cronbach α cognition agreement commitment Factor analysis and reliability testing of implementation Factor analysis of implementation For implementation s dimensions, the first step is to measure whether 5 items is suitable for factor analysis. Shown in Table 6, KMO value is in the main component analysis, Bartlett's Test of Sphericity test is , accompanied by the corresponding probability value is less than 0.01, reject the null hypothesis the correlation coefficient matrix is the identity matrix. Thus, the variable is suitable for factor analysis. Table 6. s KMO and Bartlett test results Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett s Test of Sphericity Approx.Chi-Square Df 10 Sig.000 Factor extraction uses principal component analysis method and orthogonal Varimax rotation. The results are showed in Table 7. can be precipitated one factor which eigenvalue is greater than 1 (3.326), the factor explain contribution rate % for the variance. Therefore, we draw the following conclusion: implementation s measurement items contain one factor, the result of factor analysis is better. Table 7. Factor analysis results of implementation Variable items Factor loading Factor1 92

5 's strategic initiatives have been implemented complete the strategic objectives within the expected time complete the strategic objectives within budget limitation s tasks fit for the relevant requirements Each department members have completed their tasks Principal component eigenvalue Explained variance % Cumulative % explained variance Extraction method: principal component analysis Reliability test of implementation Table 8 is the result of reliability measurement of implementation. The result shows that reliabilities of measurement scale is 0.868, in line with research requirements. Table 8. s reliability analysis Variable items Cronbach α 5.3 Correlation Analysis Table 9. Variables correlation coefficient of cognition, agreement, commitment and implementation cognition 1 cognition agreement commitment agreement.266** 1 commitment.267**.540** 1.341**.512**.499** 1 ** Indicates the result is significant at the level of 0.01 (two-tailed test), * indicates the result is significant at the level of 0.05 (two-tailed test), Pearson correlation coefficient. According to Table 9, there have significant positive correlation relationships between cognition, agreement, commitment and implementation. They pass through significance tests of 0.01, and then regression analysis can be done. 5.4 Regression Analysis Following correlation analysis between variables, we have a basic understanding for the relationship between the variables, but the correlation analysis can only reveal the initial relationship between variables, and the next step, this study will take "cognition","agreement", "commitment" as independent variables, and take implementation as the dependent variable to explore the impact of consensus s three dimensions on implementation with linear regression (Table 10). Table 10. Linear regression between cognition, agreement, commitment and implementation dependent variable independent variables Standardized coefficients (β) cognition 0.183** agreement 0.311** commitment 0.282** ** Indicates the result is significant at the level of 0.01 (two-tailed test) The relevant data in Table 10 shows that, "cognition" (β = 0.183, p <0.01), "agreement" (β = 0.311, p <0.01), "commitment" (β = 0.282, p <0.01) are all have significant positive effect on "implementation " and pass through significance tests of Thus, the hypothesis H1, H2, H3, H4 are all supported. There has no severe collinearity among the independent variables in the regression equation. 6 Management Implications 6.1 Deepen the understanding of consensus s connotation In previous consensus research, consensus is often treated as a one-dimensional variable, or two-dimensional variable. Moreover, previous empirical research has not yet formed mature measurement scale of consensus. According to the empirical findings of this article, the consensus is a variable contains cognition, agreement and commitment. It is the complement and extension of previous consensus outcomes. Among three dimensions of consensus, cognition means the level of functional department members knowing and understanding about the strategic content. Firstly, members need know the specific strategic content and then understand and grasp it correctly. Higher degree of knowing and understanding could achieve a higher level of cognition. 93

6 Agreement is the level of department members agreeing with strategy including perceptual and rational agreement. Perceptual agreement is affected by subjective feelings and personal preferences, and rational agreement is formed through objective, rational thinking and judge. In the process of strategy implementation, we should focus on strengthening rational agreement of the staff because it is objective and fair compared to perceptual agreement. Commitment refers to the level of striving to achieve the strategic target for department members. It contains active and passive commitment. Passive commitment mainly caused by punitive mechanisms, such as pay cuts, demotion, removal from office etc., and active commitment is led to by incentives, such as the loyalty, responsibility, dedication, bonuses and others. In business practice, these two forms of commitment are needed. If there has no active commitment or insufficient active commitment, increased passive commitment appropriately is needed in order to achieve strategic goals. 6.2 Focus on the effect of consensus promoting strategy implementation The improvement of the level of strategic cognition of the department members In general, the strategy issued by the top layer is conveyed down step by step, in this process, strategic information have been shrinking, even distorted, so that employees at all levels is lack of common understanding on strategy. Meanwhile, in the general staff view, strategic management is the things of management team, and they concern little on it. At the same time, little organizations provide specific training on strategic management for their employees, thus their employees awareness of strategic management is at low level. In this regard, companies can enhance training on the knowledge of strategic management, to let the staff fully realize that the strategy is not decoration hanging on the wall, but is concrete actions closely related to their daily work. Secondly, the use of communication tools should be emphasized in the process of spread of strategic information. Development of the Balanced Scorecard of Kaplan and Norton (2004) and subsequent extension development of strategy map has played an important role in bridging the big gap between strategy making and strategy implementation. Balanced Scorecard decomposes strategy into system of perceived indicators, thus achieves the cohesion between daily operations and strategy and manages strategy implementation. The better daily operations connect with strategy, the stronger strategy implementation is, and the better the results is. Strategic map by describing the strategy for the organization to understand, provides convenience for organization members to understand, to communicate and to refine their strategies, and builds a solid foundation for the organization to implement strategy faster and more effectively Improve strategic cognition of the department members In the informal employees interview, they recognized that there are several reasons for the low lever of strategic cognition:"leaders rarely listen to the views of junior staff when they formulate strategies", "strategy is not realistic, difficult to implement in practice"," unreasonable strategic task allocation, and does not match individual capacity "and" sometimes there has conflict between strategy and personal interests ", and so on. In this regard, the following measures can improve the staff s strategic cognition: First, pay attention to lower-level employees comments and suggestions when formulates strategy, and improve their participation in the process of strategy formulation. Second, pay attention to strategic task allocation and make it matching with staff capacity. In the specific strategic allocation process, we should seriously consider the staff's ability to execute. If task allocation is too light, staff s capacity is not very good developed and utilized; if task allocation is too heavy, employees will lose confidence, and strategic objectives will not be implemented. Then, pay attention to the balance of all parties interests. In order to make strategy implementation effectively, strategy-makers need to consider the interests of employees and expected results of the strategy. If the strategy implementation would undermine the interests of staff, strategy-makers should give the appropriate compensation or balance, otherwise the lower level of employees strategic agreement will interfere with strategy implementation Improve the level of strategic commitment of department members To improve the level of strategic commitment of department members depends on enhanced incentive and restraint mechanisms. The goal of incentives intend to stimulate staff s enthusiasm and motivation involved in strategy implementation, promote and guide the implementers pursuit the expected goal. The purpose of restraint mechanisms is to remind implementers responding for their actions, in line with the requirements of appropriate monitoring and assessment mechanism. To link Incentive-restraint mechanisms with strategy implementation will promote employees pursuing their own interests from subjective aspect, and try their best to achieve strategic objectives from objective aspect. Thus, it will achieve harmonization of principal and agent s interests, and reduce agents opportunistic behavior to smooth strategy implementation. 94

7 Acknowledgement The China Scholarship Council provided financial support for this study. References [1] egate Consulting Shanghai Co., Ltd.. The research paper on China enterprises strategy implementation in 2006 (short version) [I] com/07/0515 /13/3EHP2TA TE. html [2] YANG, Li. The Study of Consensus in Functional Strategy of Enterprise [D]. Phd thesis of Central University of Finance and Economics, [3] Zuo Jia management consulting limited company in Shanghai. Research report of Chinese enterprises strategy management in 2007[I]. zuojiaco.com/2007dcbg (zuojiaco.com). pdf