lauantai 18. joulukuuta 2010

Nordqvist - Strategy Processes and Ownership

I promise, this is the final part of Nordqvist's PhD thesis, at least for a time. Here is how he handles strategy processes and ownership. The reason why I quoted so many parts of his PhD thesis is that the topic fits perfectly in my own dissertation and is in the core focus of this blog. I apologize for not summarizing or editing the text and for not adding my own input and ideas, I just thought that this time the original version speaks for itself. For further information, I highly recommend to at least glance through the thesis, which can be found here. One of the best and most interesting thesis I have read so far.

Strategy Processes and Ownership

In the diverse field of strategy, a common trait is the relatively little attention paid to the role of ownership in strategic processes (Goodstein and Boeker, 1991; Thomsen and Pedersen, 2000). Thomsen and Pedersen (2000), for instance, claim that strategy research has paid too little attention to the type of ownership and its connection with objectives and strategies of firms. Goodstein and Boeker (1991), moreover, draw attention to the lack of knowledge of how ownership affects strategic change and suspect that researchers simply assume that ownership interests have little influence on strategic processes.

Rather than being concerned with how and why ownership plays a role in the strategic processes of firms, Ravasi and Zattoni (2004) observe that earlier research on the relation between ownership and strategy “has largely searched for correlations between quantitative measures of ownership distribution and archetypal strategic options.” For instance, Amihud and Lev (1981), Denis et al. (1999), Lane et al. (1999) and Collin and Bengtsson (2000) all investigated how ownership structure is related to the amount of diversification; Bethel and Liebeskind (1993) and Johnson et al. (1993) looked at corporate restructuring and the role of ownership; Baysinger et al. (1991), Graves (1988), and Hill an Snell, (1988) investigated how innovation is linked to the ownership structure of the firm; Palmer et al. (1993) and Meyer and Whittington (2004) studied the relation between ownership and corporate structure, especially the multidivisional form, and Oswald and Jahera Jr. (1991) looked at how ownership is linked to financial performance.

These studies typically describe ownership structure in terms of concentration and size of legal owners or size of management stockholding. However, the identity of the owners and their specific preferences may influence strategic processes as well (Ravasi and Zattoni, 2004; Pedersen and Thomsen, 2000; Hoskisson et al. 2002; Golden and Zajac, 2001). Ravasi and Zattoni (2004) point out that earlier research typically assumes homogenous interests among shareholders, also in firms with several owners. Recent contributions have, however, pointed out how owners may differ in time horizons and incentives, and thus in their attitude to, for instance, innovation (Hoskisson et al., 2002) and internationalization (Tihanyi et al., 2003). But most work done is still on the legal and structural ownership per se in firms and to what extent this is related to the content of strategies (Ravasi and Zattoni, 2004). Most published studies on the relation between ownership structure and strategy also investigate publicly traded companies, thus only paying attention to a fraction of the total number of firms (Turnbull, 1997). Thus, there is some knowledge about whether ownership structure matters for different archetypal strategic choices.

Much less is known, however, about how and why ownership plays a role in micro levels of strategic processes. This is, for instance, evident in reviews of strategy research (e.g. Mintzberg et al., 1998; Hoskisson et al., 1999; Farjoun, 2002). References to ownership, owners, or even their representatives are rare. Despite the lack of studies on how and why ownership matters in the strategic process, there are convincing arguments that this is an important topic worth more attention, both internationally (Porter, 1992; Thomsen and Pedersen, 2000; Daily et al., 2003) and in Sweden (Nyberg, 2002; Tson Söderström, 2003). Nyberg (2002) argues that ownership is typically depicted as a problem rather than a resource in the long-term development of firms, but he also observes a growing interest in the role of ownership in the long-term development of firms in Sweden and other countries.

In an editorial of a special issue of Academy of Management Journal on governance through ownership, Daily et al. (2003) observe that the different objectives of various ownership types need to be accounted for when examining the relationship between ownership and detailed firm processes and outcomes. This is linked to an increasing awareness of the growing complexity of different ownership types in both publicly listed and privately held firms (Daily et al., 2003). In a Swedish context, this is especially so because concentrated ownership both inside and outside the Swedish stock exchange is common (Tson Söderström et al., 2003). This is a characteristic that the Swedish economy shares in common with several other European economies.

A main reason for the lack of attention to the role of ownership in studies of strategy processes can be that most research on strategy has been conducted in American and British contexts (Pettigrew et al., 2002), and is based on corporations assumed to have widely-held ownership separated from management. This is extensively believed to be a characteristic of publicly listed firms in the USA and the UK In the USA, for instance, S&P 500 firms typically dominate strategy research and the role of ownership in these is rarely acknowledged, even if it may be notable (Anderson and Reeb, 2003). Moreover, Miller and Le Breton-Miller (2003) note that when firms with concentrated ownership are the focus of literature on successful firms, authors rarely pay attention to this ownership.

Another reason is the dominant interest that strategy scholars have had for CEOs and top managers as the actors in strategic processes. In many studies it seems to be taken for granted that the actor involved – the strategist – is the dominant CEO, or at most, the CEO in interaction with his team of top managers (Pettigrew, 1992a; Davis and Useem, 2002). Tricker (1996), for instance, points out that most scholars of strategy and organization seem to assume that organizations peak with the CEO, and Davis and Useem (2002:238) note that academic researchers have long been …drawn to the same pinnacle of the pyramid, partly on conceptual premise that the chief executive is the manager who matters, and partly on the pragmatic ground that little is publicly known about anybody except the CEO.

Pettigrew (1992a) wants more attention to what he calls ‘managerial elites’, with no reference to owners, and it is not until recently that board members and their role and contribution to strategy have been investigated in greater depth (e.g. Zahra and Pearce, 1989; McNulty and Pettigrew, 1999; Forbes and Milliken, 1999). The ‘upper-echelon’ perspective (Hambrick and Mason, 1984) triggered a stream of research taking into account the groups of top managers, but the owners remain largely invisible in actor-oriented research on strategic leadership. Perhaps the reason is, as Davis and Useem (2002) suggest, that traditional strategy research has assumed that the impact of owners is either invisible, or “direct and unproblematic”, which they argue is the case in for instance owner-managed firms.

Source: Mattias Nordqvist (2005) - Undestanding the role of ownership in strategizing.

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