Strategic management is a practice by which organizations or other business units with an aim to develop come up with ideas to form their goals and objectives and a way of implementing them for the growth of the organization in both output and input. This practice is continuous and changes as the organization grows and is mainly done by the executives based on the available resources, internal and external surroundings that the organization competes against(Hitt, Hoskisson & Ireland, 2017). The process is carried out in five stages and failure of one results to the failure of the organization, these are, goal setting, analysis, policy formation, policy implementation and policy monitoring. Woolworths Limited is a company in Australia that gives take away services to liquor retailers proving to be the giant in the field. In 2016 August, the company happened to be in the news for making a huge loss of $1.235billion and 40% decrease in its basic earnings from its Australian food and gasoline business.
Theoretical concepts are a set of ideas that have not been confirmed, they give assumptions to inform questions that human beings ask in any given field. May it be in health, education, and economics among many other fields. In strategic management, theoretical concepts give a view of social construction in that, the external and internal world of organizations is important for its primary and secondary functioning. Some of these theoretical concepts include; institutional theory, resource dependency theory, agency theory and game theory.
Institutional theory, this is a concept that has clearly showcased organizations as agents not only seeking to maximize economic prospects but also act within the set social norms and expectations that characterize managerial choice (Bonnafous-Boucher, & Rendtorff,2016). The set social rules provide frameworks for an organization to understand other related social institutions and dictate the right code of behavior to fit both the society and the set level of social prescriptions within the organization if taken for granted it becomes hard to change or resist. These are transmitted by the assistances of state, analyst, consultants and other related agencies. Conformity to the prescriptions instead of doing what is expected affects the level of efficiency and other economic problems making the organization face institutional complexity and may result to disagreements thus instability. The theory clearly illustrates that many institutions or rather organizations are not original and tend to adopt comparable strategies and managerial provisions, this greatly contributes to the lack of effectiveness and efficiency in their daily provision as nothing is unique to make it better than others.
Resource dependence theory (RDT), is a concept that gives a view on the importance of external controls of an organization affecting its performances. Involvement of external resources is important in both strategic and tactical management of the business to help achieve its set goals. The theory also has aspects of the process of recruiting staffs in the company, means of production strategies, and extensity of contract structure among others. It suggests that no firm/company that can survive alone without interacting with other relevant firms and personnel in terms of resources, ideas and other relevant abilities to help in the growth of the company. Since not every single firm that can be able to come out with countervailing enterprises for required capitals, they should go to the principal of scarcity and criticality. These are critical resources that an organization cannot function without making it come up with various alternatives to help it acquire the critical product for its functioning. The theory also gives a view of competition that a firm face with other firms that makes the top management decisions to be made in a way that fits also those who are not leaders. Managers and other leaders understand that the firm's success is tied to customers demand as their performance is reflected when customer outcome is positive, making the customer be the crucial resource on which the organization depends on.
Agency theory, this is a perspective that gives an overview of how organizations experience a range of conflicting interest from internal forces with different interests but within same assets. This means disagreements between managers of a company, shareholders, board members and at times even other influenced staff agents. The theory tries to explain that relationship between two core principals of the company and agents is of great importance and in any case, they disagree they should reconcile as it risks the company’s performance. It also goes ahead to explain that conflicts arise when liaising parties have dissimilar attitudes towards the risk with different goals with the division of labor causing an agency problem. Conflicts between managers and shareholders may relate to the profits of the company and the rate at which they would be paid as dividends in relation to the investment capital to be retained. All shareholders are investment goons to own a certain amount of any company’s profits they have shares since it’s their primary role and if not respected they tend to cause conflicts especially to the managers who are solely responsible for coordinating and controlling the company’s outcomes. Other reasons for their conflict may be as a result of social responsibility policies and other company’s ethical policies that directly affect the managers and shareholders and may not be in line with their specified interest. As a result of selfish attitudes and inappropriate behaviors by some managers who seek to optimize their personal utility at the cost of the company’s shareholders may compromise the best interests of the firm contributing to poor outcomes thus enhancing conflicts with bad relations. These conflicts result to increase in the cost of agency cost of the company to help retain a focus on the main goals and objectives set at the beginning. This involves expenditure cost to restructure the company as desired to help limit any unwanted managerial behaviors by appointing new team members to the board of directors, rearranging the firm’s industrial components and administration ladder. Secondly, opportunity cost suffered when shareholders impose limitations that greatly affects the company management. This cost can be prevented by reducing conflicts that arise from the organization executives. Also, the theory gives a solution to the numerous conflicts by suggesting that board of directors in the organization practice the role of monitors hired by the shareholders to act over executives.
Examine and evaluate critically how these theoretical concepts influence managerial practices in Woolworth Limited in Australia.
Institutional theory concept on company surrounding, intellectual and regulative arrangements illustrates that firms are formed on the basis of the taste, norms, and beliefs of the external environment and not necessarily the internal factors (Parnell, 2013). To enhance the beliefs of the social constitution within the firm and not in accordance to what the founders or the owners wish to achieve believing that this will enhance the level of productivity and achievements of the organization. Critically, this is not the case by the companies formed today. They are formed on the basis of the owner’s wishes, available resources that affect the nature or intensity of the company to be formed. The hiring of members of staff, managers, and board of directors is in accordance with relations, the amount of responsibilities, the interest of the founders and in very minimal cases in accordance to past performance’s as well as qualifications of the individual. In the case of Woolworth Company, service delivery and company performances are in relation to the set goals and objectives with an aim of retaining its position as one of the largest companies in Australia(Prasad, 2015). Though in action as expected by the customers, the company’s retailing liquor services is based on the terms agreed upon by first the top management and the customers dictated rights. The current situation at Woolworth of $1.235 billion loss has been as a result of poor observance of the set goals relating to other external factors.
Resource dependency theory concept on the association of a company and resources from external factors as well as the lack of independence functioning is applicable. This is because the society is a diverse content and constitute of different people with different beliefs and values thus influencing the type and level of services to be delivered by any given company (Hill, Schilling,& Jones, 2017). People have different knowledge that needs to be provided to different firms to enhance the type of services offered thus there is the interaction between companies to help exchange a series of ideas. Critically, advancing technology has proven otherwise that it’s not a must that companies rely on each other in order to acquire knowledge (Parnell,2013). This is because all relevant business, managerial and other important ideas have been shared on the internet. Though still important for organization’s to depend on each other, it's not as much as it was before since relevant ideas and simplified sources of labor can be easily accessed using technology. Woolworth Limited has critically defected from this concept in that extensive resources are acquired and assimilated using technology. Example, fetching of raw materials to form the liquor and other hotel and supermarket products is done online. Picking of orders and delivering services esteemed customer’s as well is done online hence confirming it challenging to mainly depend on other firms. Though competition has been the main challenge facing the management in the company, it has not been as a result of overdependence of the company but of other poor management factors. Customers are the key resource of the company but that does not mean they dictate the ways in which the company is conducted. Evaluation on this is that a company cannot depend on other firms at a high percentage for it to maximize its productivity.
Agency theory concept on conflicting executives to affect the company’s performance is real and happening in companies today. Board of directors, shareholders and managers having separate and distinct interest but within the same company is something to be acted upon. The management ability to control and coordinate the firm's activities towards the set goals and objectives has proven challenging as a result of the increased conflicts between top leaders. Shareholders and managers conflicting over the organization's profits and a number of dividends to be shared in relation to investment capital results to the unstable level of coordination since no direct convergence of leaders while making critical decisions of the company (alTlman, 2007). This is a major problem that has been greatly impacting on the firm's performances, efforts to solve it have proven futile as many companies opt to change the management team rather than conforming the one present forgetting even the new team could experience the same challenges. These conflicts also result to increased cost that may result to some shareholders defecting from the company with the fear of making both discoverable and undiscoverable losses. Though the conflicts don’t just arise at once, the theory puts it like it is an improm2 problem that happens without a procedure that cannot be viewed if the company leaders actively review what happens on a daily basis (Verbeke & Merchant, 2012). This is not the case as any serious problem affecting a company must have developed in the cause of time the company has been functioning and only proves the ignorant part of the concerned parties to identify the problem. Woolworth Limited has experienced the same management problem resulting to it making a huge loss in 2016. The management made a piece of disturbing decision to expand on the hardware stores that was a disaster and proved a bed of failure due to poor management and poor incorporation of both staffs and customers. Conflicts among the executive team who are believed to be the sole directors of the company may have resulted to this poor coordination of activities that could have given a positive result. The company now faces challenges in getting trust from its customers and the country’s fraternity as well, especially the board of directors who are not free to make any critical decision that directly affects the competence of the company without consulting the business experts’ or analysts relating to that field(Bontis,2002). This is a problem that could be prevented if only the company’s top leadership was keen enough to observe that the hardware stores were not performing as they were expected to by both the company executives and other concerned stakeholders.
Strategic management process is very important for every company’s welfare. To perform its duties and deliver to the stakeholders as expected as well as rise to its goals and objectives. Theoretical concepts put across views on how well organizational planning and controls takes part and are key to achieving any set goals and objectives. Giving a way to strategize on institutional resources and aligning priorities with an effect to resources as well as the importance of conventional relations with other companies for its growth and eventually develop. Conflicts among leaders of a company are not supported and should be at minimal cases and if any resolved with immediate effects since they are the main controllers of the unit to help achieve set objectives. Endorsements on how to improve organizational strategic management are crucial to giving views on better management strategies and should be supported to help develop the economic field.
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