Use of Strategic Management Tools, Firms in Saudi Arabia - Thesis Example

Chapter Four 4.1 Introduction The primary research was conducted by means of a survey amongst 137 exchange-listed firms in Saudi Arabia, which represented a variety of business sectors. The 137 firms were from a target sample of 150 firms. As explained in the first chapter, the number of exchange-listed firms varies as firms are added or de-listed; 150 appeared to be the approximate number of “long-term” exchange participants, i.e., firms that have been listed for two years or more, and are not subject to potential suspension due to capitalisation problems (Tadawul, 2011). The sampling method was a combination of systematic and “snowball” sampling; one manager from each of the selected firms was recruited for the survey, and after completing the survey was asked to suggest other managers in their firms who might provide additional insights. The rationale for this approach was simply to increase the number of survey respondents to allow for more extensive data analysis. While it is recognised the snowball sampling technique has the potential to introduce certain biases in the data gathered (Atkinson & Flint, 2004), because the final overall sample encompassed a very high percentage of the exchange-listed firms (which numbered 157 at the beginning of 2013 according to the Tadawul website, thus the proportion of responding firms was 137/157, or 87.3%), much of the risk of non-randomness was eliminated. The number of individual survey responses gathered was 213, an average of 1.55 responses per firm. After gathering basic demographic information about the responding firms and managers, the survey asked managers to describe the strategic management tools used by their firms and to assess those tools’ effectiveness. Managers’ opinions about the general effectiveness of strategic management tools were overwhelmingly positive, with 211 of the 213 managers surveyed responding affirmatively to the question, “Do you feel your strategic management tools give your organisation a competitive advantage?” There was, however, considerable divergence of opinion amongst the managers in what ways strategic management tools were most beneficial. 4.2 Profile of Surveyed Firms and Managers The surveyed managers were from firms in 10 different business sectors, with an approximately even distribution among the energy and utilities, telecoms, insurance, cement, and building and construction sectors; banking and finance, petrochemical, real estate, and industrial investment firms were also fairly uniformly represented in somewhat smaller numbers, with the least-represented sector being food industries. With respect to firm size, somewhat more than half of the managers (55.9%) represented large firms employing more than 500 people, while 12.2% (26 of 213) represented small firms with 100 or fewer employees; the remaining managers (31.9%) were from medium-sized firms with between 100 and 500 employees: Fig. 10a: Distribution of Firms Surveyed Fig. 10b: Firm Size Firm size also correlated to the extent of firms’ activity in terms of their number of business locations. 88% of the small firms had a single business location, all operating entirely within Saudi Arabia. The medium-sized firms with more than 100 but fewer than 500 employees all had multiple business locations (although fewer than 10 for any single firm), but likewise operated only in Saudi Arabia. Of the large firms (500 or more employees), 74% operated completely within Saudi Arabia, while only 26% had business locations both inside and outside of the Kingdom. 68% of the firms were wholly-independent, while 29% were subsidiaries of larger Saudi companies; only six firms had any degree of foreign ownership, being joint ventures between Saudi and foreign investors. The managers representing their firms in responding to the survey were all men, which is perhaps a consequence of the somewhat non-random nature of the sampling technique. Since gender differences in managers’ perceptions are not explored in this study, the lack of both genders in the sample is not considered significant. In any case, it is largely reflective of gender distribution in Saudi business as a whole; according to the World Economic Forum’s Global Gender Gap Report, Saudi Arabia ranks rather low in terms of gender equity, ranking 132nd and 109th respectively (out of 135 countries) in the areas of female labour force participation and the percentage of women legislators, executives, and senior managers (Hausmann, Tyson & Zahidi, 2012: 304). Most of the responding managers had between five and fifteen years’ experience with their firms, and a similar length of experience in their current positions. Upper and middle management positions were fairly uniformly represented in the survey group: Fig. 11: Survey Respondents’ Experience Fig. 12: Survey Respondents’ Positions within their Firms In terms of the respondents’ participation in the planning process for their firms, all of the managers surveyed did have some involvement in planning; this was another consequence of the snowball sampling technique, which eliminated any negative responses (an earlier test version of the survey based solely on a systematic sample did include some negative responses). In every case, the level of participation in planning processes precisely corresponded to the managers’ positions within their firms, reflecting the strict hierarchical nature which is still widely prevalent in Saudi management culture. 4.3 Use of Strategic Management Tools Use of strategic management tools was much lower than anticipated among the surveyed firms, with just one-third (71 of 213) of the surveyed managers reporting that their firms have used a strategic management tool at any time. Among the firms that have used any SMT at least once, most have apparently found it helpful, as 87.3% are currently using SMTs, in most cases more than one. SWOT Analysis, Key Performance Indicator (KPI) analysis, and Critical Success Factors (CSF) analysis were reported to be the most widely used tools. Balanced Scorecards, Benchmarking, and Product Life Cycle (PLC) analysis were the least-favoured SMTs, although the few firms that did employ these tools expressed satisfaction with them, as is discussed below. SMT use is summarised in Figure 13: Fig. 13: Comparison of current and past use of SMTs 4.3.1 Summary Analysis of SMT Use Overall, the SMTs exhibit a pattern that could be considered normal in that they are currently used by fewer firms than have tried them at any time; the implication is that firms have tried different SMTs, found some unsuitable, and settled on ones that are more effective for their particular needs. The difference between “any use” and “current use” is biggest, however, for Balanced Scorecards and Benchmarking, while the four other SMTs, even the comparatively little-used PLC analysis, have been retained by most of the firms that have tried them at any time. One interesting aspect of the results is the indication that and overwhelming majority (nearly 86%) of firms using SMTs are currently using more than one, and those who use a single tool all use SWOT analysis: Fig. 14: Use of Multiple SMTs by Surveyed Firms The most common combination of tools was SWOT Analysis with CSF and KPI analysis. This particular arrangement is analysed in greater detail in the following sections. 4.3.2 SMT Use in Correlation to Firm Size or Ownership Al Ghamdi’s 2005 study of SMT use among Saudi firms found that the use of strategic management tools was related to firm size and ownership. Approximately twice as many firms defined as “large turnover” firms regularly used SMTs in planning and management than those defined as “small turnover” firms, and joint ownership firms were two-and-a-half times as likely to regularly use SMTs than other types (i.e., exclusively Saudi-owned) of firms (Al Ghamdi, 2005: 393). The results of the current study indicate that the use of SMTs amongst all firms is slightly less prevalent than in the Al Ghamdi study, but that the use of SMTs by small firms is much greater –in fact, universal amongst small firms in the present study, although due to the small proportion of small firms in the study sample (slightly over 12%), there is some uncertainty about how conclusive this result is. Comparing the results of the present study with Al Ghamdi’s earlier study reveals a number of differences: SMT Use by All Firms in Al Ghamdi, 2005 (%) Use by All Firms, present study (%) Use by Small Firms in Al Ghamdi, 2005 (%) Use by Small Firms, present study (%) Use by Joint Venture Firms in Al Ghamdi, 2005 (%) Use by Joint Venture Firms, present study (%) Any Tool 43.23% 32.86% 40.91% 100% 55.05% 100% SWOT 66.67% 32.86% 7.32% 100% 17.65% 71.42% Balance Scorecards Not studied 13.62% Not studied 100% Not studied 0% CSF 72.22% 21.13% 14.63% 100% 41.18% 0% Benchmarking 70.83% 11.27% 9.76% 92.31% 47.06% 0% KPI Analysis Not studied 24.88% Not studied 100% Not studied 71.42% PLC Analysis 48.61% 4.23% 12.21% 0% 23.53% 0% None 44.77% 6.84% 44.09% 0% 33.94% 0% Table 3: Comparison of Results According Firm Type, Size Table 3 above compares tools “regularly used” in Al Ghamdi (2005) with those “used most often” in the present study; the percentages do not add up to 100% because of the use of multiple SMTs by a large number of firms in both studies. The absence of Balanced Scorecards and KPI analysis in the Al Ghamdi study likely skews the comparison to a degree; it is possible that some of the firms “not using” tools in the earlier study were in fact using one or both of those. The results for joint venture firms in the present study are not very useful, as there were only six firms to which this description applies, but they do at least anecdotally suggest that Al Ghamdi’s conclusion that firms with foreign-influenced ownership structures do place a premium on the use of SMTs was valid. 4.4 Perceptions of SMT Effectiveness 4.4.1 Overview Questions 13 through 18 of the survey asked respondents to provide their perceptions of the effectiveness of SMTs according to a 0-5 Likert Scale, with 0 indicating “No Effect” and 5 indicating an “Extremely Positive” effect or “Major Impact” on their firms’ activities: (Q13) How would you rate the impact of SMT on gathering information needed for planning? (Q14) How would you rate the impact of SMT on developing objectives for the firm as a whole? (Q15) How would you rate the impact of SMT on developing objectives for individual departments? (Q16) How would you rate the impact of SMT on monitoring performance in the period covered by the planning? (Q17) How would you compare your firm’s performance using SMT to the most recent period in which you did not use SMT or used a different SMT? (Q18) Did the use of SMT make planning and performance measurement more efficient or easier? 4.4.2 Results Overall, the responses for all of the questions fell within a very narrow average range between 4.25 and 4.35; according to the guidance given the survey participants regarding the scale measurements, a response of 4 indicated “Very positive” effects that were “Better than expected” while a response of 5 indicated “Extremely positive” effects that had a “major impact” on the firm’s outcomes. As a general conclusion, the use of strategic management tools is perceived by managers to be quite positive and significantly exceeding their expectations for results. There were, however, some variances among the answers to the individual questions which are best illustrated by comparing the minimum and maximum responses for each of the questions (which were 3 and 5 respectively for all questions). On Question 13, “How would you rate the impact of SMT on gathering information needed for planning?” the number of responses giving a rating of 5 – indicating that SMTs performed well ahead of expectations – outnumbered those rating SMTs as “performing about as expected” by more than 3 to 1 (92 to 26). This was a very similar ratio to that of the responses to Question 16, “How would you rate the impact of SMT on monitoring performance in the period covered by the planning?” where the higher positive marks outnumbered the lower ones by 91 to 29. Questions 14 and 15, which addressed the effectiveness of SMTs in setting objectives for the entire firm or individual departments, had similarly positive ratios (94 to 27 and 98 to 23, respectively). Question 17, “How would you compare your firm’s performance using SMT to the most recent period in which you did not use SMT or used a different SMT?” produced the lowest average score among the six questions, with an average response of 4.25 (mean 4.1932, std. dev 0.6947). While the overall response was very positive, a majority of respondents (60.1%) rated performance under the current strategic management tools used by their firms only “about as expected” or only slightly higher than expected compared to different SMTs. For Question 18, which asked respondents if the use of SMTs made planning and performance management easier or more efficient, 86.85% of the respondents indicated that SMTs had “very” or “extremely” positive effects that significantly exceeded their expectations, while only 13.14% said that the results of SMT use with respect to improving planning efficiency had only been about what they had expected. 4.4.3 Comparative Sub-analyses and Validity Test In order to check the soundness and validity of the results obtained from the survey questions and to investigate differences between different subsets of the sample – similar to the comparison of small firms and medium/large firms as suggested by Al Ghamdi (2005), a series of statistical analyses in the form of the Mann-Whitney U Test were conducted on the set of responses for Questions 13 through 18. Because the responses on the whole fell within a very narrow range, the objective of the U Test analysis, apart from testing the soundness of the data, was to investigate whether or not there were conditions in which the results were not uniformly positive – in other words, if particular firm characteristics such as size or business sector produced different results that were not apparent in the aggregate results for the entire sample. The first comparison conducted was on the full set of responses for Questions 14 and 15, which addressed the impact of SMTs on the development of objectives for entire firms and individual departments, respectively. The objective of the U Test in this case was to verify the correct set-up of the Excel functions for the test; if correct, the results of the U Test would indicate that both sets of responses came from the same population, which would be indicated by a p-value approaching zero. In the basic analysis, the responses for Q15 were slightly higher than those for Q14, indicating that the managers perceived SMTs to be marginally more effective when applied at the department or business unit level, rather than for the whole firm. If the p-value approach (or exceeded) 1, however, that would indicate that either the Excel function set-up was erroneous or that the sets of responses came from different populations, in either case, a large p-value would require further investigation and correction. Effectiveness of SMTs in Objective-Setting for: Whole Firms (Q14) Individual Depts. (Q15) Mean 4.2559 4.2969 Average 4.3146 4.3521 Std. Dev. 0.6865 0.668 p-value 0 Table 4: Comparison of SMTs for Q14 & Q15 The p-value in this test is 0, indicating the two sets of responses come from the same normally-distributed population, and that there are not other factors to explain the slightly higher values for Question 15. Therefore, it can be concluded with some certainty that the general observation that SMTs are perceived to be marginally more effective when applied to individual departments is valid. Because the U Test functions more accurately if the two sets of responses to be compared are equal, or nearly so, a comparison between industrial and non-industrial firms was suggested by the survey data, since these two sets of responses totalled 107 and 106 respectively. Industrial firms are those classified in the survey as petrochemical, cement, building and construction, food industries, and energy and utilities; non-industrial firms are those classified as banking and finance, insurance, real estate development, industrial investment, and telecoms. The U Test was conducted for each of the six questions 13 through 18, and the results are summarised in Table 5 below: Industrial Firms Nonindustrial Firms Mean Average Std. Dev. Mean Average Std. Dev. U p-value Q13 4.606 4.632 0.485 3.930 3.991 0.694 15305 0 Q14 4.606 4.632 0.485 3.935 4.000 0.714 15333 0 Q15 4.606 4.632 0.485 4.011 4.075 0.710 15389 0 Q16 4.606 4.632 0.485 3.890 3.953 0.706 15291 0 Q17 4.587 4.613 0.489 3.837 3.897 0.686 15207 0 Q18 4.606 4.632 0.485 3.868 3.925 0.669 15235 0 Table 5: U Test Results for Firm Type Comparison The p-value is 0 for the entire table, which was expected after the results of the U Test for Questions 14 and 15. The industrial firms also have a remarkably consistent set of values, with only Question 17 exhibiting any difference. Non-industrial firms generally rated SMTs as being less effective than managers in industrial firms, particularly for Questions 14 and 15, where a higher U value indicates a greater degree of difference between the two groups for these questions than for the others. The mean and average responses for non-industrial firms did follow the overall pattern of the results of the basic analysis – i.e., SMTs are perceived as slightly more effective at the department or business unit level than at the level of the entire firm – while the same difference is not apparent in the responses of industrial firms, according to this test. 4.4.4 Perceptions from Open-Ended Survey Question 19 Question 19 of the survey asked respondents to share their perceptions of the effectiveness of strategic management tools in their own words; Question 19 was a semi-structured question with a number of suggested responses; these responses suggested were followed up on in brief open-ended interviews with 18 of manager-respondents. In response to Question 19, “Do you feel your SMT gives your organisation a competitive advantage, and if so, in what way?” the response was overwhelmingly positive, with all but two of the participants responding affirmatively. The second part of the question suggested a number of ways in which competitive advantage was supported; the responses are summarised in Figure 15: Fig. 15: Perceived Advantages of SMT Use The single response of “Other” was explained as “success and failure indicator”; this was followed up in the open-ended response to Question 20 as “providing a way to easily compare expected/required performance with actual performance.” From the results of Question 19, the indication is that SMTs are widely used with the expectation of seeing a positive impact in firm outcomes, i.e. better service delivery or product quality. Process efficiency is also a key priority, with more efficient use of resources and better plan management – examples provided the respondents in the question included lower costs, better supply chain management and improvements to production management – being indicated as being positively affected by the use of SMTs. In connection with the responses to Question 19, the most common “package” of SMTs the data on SMT use revealed – SWOT combined with CSF and KPI analysis – was analysed in a little more detail to determine if there were some common perceptions of what ways this particular combination of tools benefitted firms. All of the managers using this combination cited “more efficient use of resources,” “product and service improvements,” and “better plan management” as benefits, while two-thirds also cited the SMT combination’s benefits in attracting or retaining workforce talent. Somewhat surprisingly given the unanimous perception of the combination’s contribution to better plan management, only about 20% of the managers also cited “better communications” as a benefit. When asked in follow-up interviews (see the following section) why they felt the particular combination of SWOT, CSF, and KPI was effective, several managers pointed out these tools’ effectiveness in “describing environments,” explaining that SWOT was a relatively easy way to effectively frame the overall business environment, CSF was effective for identifying best practises within their particular business sectors, and KPI was effective for identifying firm-specific objectives and performance measures. 4.4.5 Open-Ended Interviews/Survey Question 20 The final question of the survey invited an open-ended response, asking managers “Overall, what would you describe as SMT's benefits or shortcomings in facilitating planning and performance management?” which was used as the basis for a number of brief interviews with 18 managers (from 30 responses recorded in the surveys to that question). Some of the respondents gave very detailed answered, which provided some interesting insights into how managers view the use of SMTs in actual practice. A common theme among the responses was the advantage provided by SMTs in defining goals and objectives, with several of the respondents citing the importance of aligning departmental objectives with overall firm objectives. Another factor cited by several respondents was the positive impact of SMTs on employee motivation and productivity; the common opinion amongst these respondents was that clarity of plans and objectives was a benefit to employee performance provided by the use of SMTs. A third factor that appeared to be a common priority was the use of SMTs as a means of assessing the firm’s performance in comparison to competitors; not surprisingly, the managers who expressed this point of view were those who indicated their firms used the SWOT-CSF-KPI combination, which appears to encourage a strong, outward-looking perspective. Some disadvantages or problems encountered by the managers in using SMTs were also described, and there were some common themes in this area as well: SMT advantages are reduced by incomplete information – Where SMTs had failed to live up to expectations, a lack of sufficient information in the planning process was cited as a key reason. One respondent in particular noted the challenge of gathering sufficient relevant information about external factors affecting the firm and the function of its SMT. When it was pointed out that the interviewees had given relatively high marks to SMTs in terms of gathering information, several of the managers explained the apparent discrepancy by stating that SMTs had strengths in organising information and identifying which information was needed, but that actually gathering or providing that information as inputs to the SMT was a separate process, which evidently varies in effectiveness. Lack of employee understanding or training is the most common cause of unsatisfactory results – Many of the managers stated that SMTs had less than the desired effect because they were not well understood by employees or managers at lower levels in the firm. Relating to this, these managers cited the need to include the entire organization in planning processes for the best results. SMTs must be continuously re-assessed and adapted to changing conditions – The need for flexibility in SMTs was cited by several managers, who saw a risk of plans becoming too rigid and outdated if the SMT did not allow for adjustments to changing conditions. Two managers did point out, however, that problems they had encountered (with using SWOT analysis, specifically) might not be attributable to the tool itself, but rather “bad habits” managers and other employees developed by becoming accustomed to it. “SWOT only tells you certain things,” one manager explained, “If it is used at the same time as something else, like CSF or benchmarking, it works just fine. The problems are created, though, when people think of it in step-by-step terms. They do the SWOT analysis, and then move on to the next method, rather than doing them together. What happens then is, the information that’s used for the next step is just what the SWOT says, and that’s not usually enough.” 4.5 Conclusion The primary research for the study consisted of survey administered to 213 managers from 137 firms listed on the Saudi Stock Exchange. This was a firm-relative response rate of 91.3% from the original target sample of 150, and represents 87.8% of the 156 firms listed on the exchange as of the end of September 2012 (Tadawul, 2012). The distribution of firms in the research sample according to firm type approximates their distribution in the stock exchange, with the highest numbers of firms in the telecom, energy and utilities, and insurance sectors, and the fewest in industrial investment, food industries, and real estate development. Among the managers surveyed, the majority were from mid-level executive positions such as business unit or department heads, and most had between five and fifteen years’ experience in management. In terms of strategic management tools used by the firms, SWOT analysis and KPI analysis were the most popular, with significant numbers of respondents also indicating they used Critical Success Factors analysis, Benchmarking, and Balanced Scorecards. A popular combination of tools, used by about 40% of the firms currently using any SMTs is the combination of SWOT analysis with KPI and CSF analysis. In addition, while the numbers of responses for the questions “tools used at any time” and “tools used currently” were similar for both CSF and KPI analysis, for both Benchmarking and Balanced Scorecards there were fewer firms using these tools currently, indicating that more firms had tried them and found them to be unsuitable. Overall, the managers rated the effectiveness of SMTs very favourably in six key areas: information-gathering, developing objectives at the firm and department levels, performance management, overall firm performance (compared to different SMTs than used currently, or not using SMTs), and improved planning processes; the average responses to these questions fell within a range of 4.25 to 4.35 on a 5-point scale. While all of the key indicators were rated positively, the weakest amongst them were overall firm performance, information-gathering, and performance monitoring, while the strongest advantages from SMTs were seen to lie in the area of developing objectives, slightly more so at the department than the firm level. Through a Mann-Whitney U Test conducted on different groupings of the survey responses to six Likert scale questions (Questions 13 through 18), no significant differences were found between any particular subgroups in the sample, indicating the results were uniformly valid for the entire sample. This analysis was primarily conducted to determine whether the higher positive responses to the question addressing objective development at the department level versus at the firm level could be attributed to some identifiable characteristic or was a general perception among all firms, and whether there were significant differences in perceptions between industrial and non-industrial firms, a variation on the analysis of an earlier study of Saudi firms by Al Ghamdi (2005) which examined differences between small and large firms. When asked to describe the advantages or disadvantages of the use of strategic management tools, the respondents provided answers that revealed a few common perceptions. SMTs were seen by the majority of respondents to have positive impacts on their firms’ product or service delivery, and to positively impact planning and process efficiency. SMTs were also viewed as having a positive impact on employee motivation and performance. The biggest problems or challenges cited included the negative effect of incomplete information inputs to the SMT, and a lack of familiarity and integration of lower levels of the organisation with the SMT and its application. The conclusions that can be drawn from the results of the research and the implications of it are discussed in the following chapter. Read More