As a financial investor in a business enterprise the stakeholders had expectations that must be satisfied by the management.
First and foremost stakeholders expect a maximization of their wealth .This may be accomplished through increase in annual revenues and profits by increasing market share, business expansion, creation of customer loyalty and ensuring the continued operation of the business by making it globally competitive. All these expectations may give rise to strategic risks. Stakeholders may interfere in the budget allocation of the business which may not be in the best interest of the industry. Or in their desire to increase profits the stakeholders may not approved employee benefits thereby increasing the risks of the business’ failure to retain highly qualified personnel. However, effective corporate governance may be use to manage strategic risks arising from competing stakeholders expectations.Effective corporate governance is characterized by a governance framework that focuses on the following issues: 1) focusing on overall impact economic performance of the business by promotion of market integrity and the and the creation of incentives for market participation , 2) all legal and regulatory activities must abide in the imposed government law,3) existence of a well-defined responsibilities in the organization and , 4) all supervisors and enforcement authorities possessed all the necessary skills , integrity and resources to fulfill their duties in a professional and objective manner. The end result of the application of effective governance is that it enabled the business to function efficiently .
In such a scenario, the management can easily make and implement mitigation strategies, plans and actions in addressing risks especially by adopting a proactive assessment of strategic risks .Other result of effective governance is that it develops trust between the business and the, stakeholders as well as the clients and government with the knowledge that the company is managed through the principles of good governance. Trust foster customer loyalty while the government may reduce restrictions or grant favors to the business.
Trust enables the stakeholders to have confidence in the decision of the corporate management. So whatever risks may arise due to stakeholders decisions the management can easily make adjustments through the support of clients and government. Or that the stakeholders themselves may not interfere so much with the company.2.
Organizational structure is a hierarchical arrangement of human resources, usually by departments, to fulfill a goal. In this set-up job specialization is promoted as each department performs specific tasks that contribute to the attainment of company goals and objectives. Power in the organizational structure is from bottom up, the higher is the ranking in the ladder the greater is the authority. Each department is responsible for the implementation of strategies applicable to their field of work. For example in a customer care service in a hospitality industry, specifically in a hotel enterprise, department supervisors must see to that the needs of customers are satisfied by providing them with a clean and well-accommodated rooms and that attendants will respond immediately and politely to their requests. To accomplish this he must train his personnel in good housekeeping habits as well as in the improvement of their interpersonal skills. This may be done by sending them to seminars or by personal example.
In this way, the company’s objective of delivering efficient and quality service is attained. The ultimate goal of creating customer loyalty is then realized. Usually a department supervisor will not implement strategies without first obtaining the go-signal of his immediate superior which may be his department manager( Borgatti, 2002).In each department it is also expected that short-term and long-term risks are identified and monitored as well as addressed accordingly by the members of the department. In the event that there is a failure to implement strategies or there is a failure to identify and solve risks the department head is required to make an explanation to his immediate superior. Based on the outcome of the explanation, whether it was valid or invalid, and the manager in turn make necessary steps to correct the problem.
The accountability does not end with the department manager for he will answer to his immediate supervisor regarding the activities of his department and the process goes up until it reaches the highest authority which may be the President of the hotel.Organizational structure then provides a means by which all strategies are implemented to the last detail with corresponding close monitoring by responsible persons.3. An understanding of external environment is very important in the generation of strategic options .It must be remembered that all business enterprise is affected by external factors such as product demand, cultural and religious values of consumers, existing rules and regulations imposed by the government, changing demographics, global financial trends, currency issues, supply chain , etc.
For example, a hotel may have enjoyed increased revenues for the past years and presently decide to make additional rooms to increase capacity. However the project planning had failed to inquire on the stalled government project of rerouting. The purpose of rerouting was to make a short cut traveling distance for motorist and travelers to specific locations so that it will be unnecessary for motorist and travelers to pass the hotel.Since the government project of making short cut roads was abandoned for some years due to contract issues the project planning committee had forgotten to include it in their project evaluation. In other words, they failed to inquire regarding its present status. We can say at first that the hotel project was a success because the additional rooms was constructed within projected time and budget .However, six months after the additional rooms were constructed, the government resumed the making of roads and within that year the project was finished. As expected travelers preferred to take the new route and therefore it lead to the decrease in the potential customers of the hotel.
As a result, there was a decrease in hotel revenue and the new additional rooms were almost never occupied. The hotel had to ultimately close down as customers continue to decline and maintenance cost continues to rise. The knowledge of external factor, in this case, demand of rooms for the next years, may have prevented from making additional rooms.One of the methods that can guide the choice of strategic options is scenario planning.
This requires extensive knowledge of the external environment. In scenario planning the project planning committee may try to imagine what their competitors will do or what kind of adverse circumstances is going to happen so that they can prepare alternative strategies. The project planners may try to project themselves in the future, making a complete set of stories about it, describing events that may affect the business. In the future scenario, possible consequences or outcomes are then described in detailed fashion so as to make the listeners (Stakeholders, Board of Directors, Company President, etc.) feel its impact.