The Use of Strategic Management Tools - Research Paper Example

Chapter Four 4.1 Introduction The primary research was conducted 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 chosen by a simple systematic sampling method from an original list of 300 potential participants, for a response rate of 91.33% (137/150). After completing the survey process, it was found that 20 of responding firms had returned incomplete surveys, not proceeding beyond Questions 8 or 9 and providing no information about strategic management tool use or their opinions and perceptions of them. These surveys were deemed unusable, leaving 117 for the analysis, a final response rate of 78%. 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 115 of the 117 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 firms were from 10 different business sectors, with an approximately even distribution among the energy and utilities, telecoms, insurance, banking and finance, petrochemical, cement, and building and construction sectors; food industries, real estate, and industrial investment firms were less represented. In terms of firm size, slightly more than half of the firms described themselves as “large”, employing more than 500 people, while about a fourth of the survey sample were categorised as “small” with 100 or fewer 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; small- and medium-sized firms had fewer than 10 business locations within Saudi Arabia, while larger firms had more locations, with some firms having business locations outside Saudi Arabia as well. Most of the firms (110 of 117) were either wholly-independent or subsidiaries of another Saudi firm, while seven firms were joint ventures between Saudi and foreign investors. The managers representing their firms in responding to the survey were almost all men (115 of the 117 respondents), and most had between five and fifteen years’ experience with their firms and 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, only about 10% (12 of the 117 respondents) participated in strategic planning at the firm level, even though nearly all the managers survey (110 out of 117) did participate in strategic planning and management at some level. Most planning and strategic management activities are concentrated – at least from the perspective of the managers surveyed – at the level of business units or departments within their firms. 4.3 Use of Strategic Management Tools Use of strategic management tools was widespread among the surveyed firms, with only 6.8% (eight of 117 firms) indicating that they did not currently use any form of SMT. SWOT analysis and Key Performance Indicator (KPI) analysis were the most and second-most widely used tools respectively, while Critical Success Factors (CSF) analysis 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; the totals for each category (shown by the three colours of vertical bars) do not add up to 117 because of some variances in the respondents’ answers to Questions 10 through 12 of the survey. Fig. 13: Comparison of current and past use of SMTs 4.3.1 Summary Analysis of SMT Use Overall, the four most-used SMTs – SWOT analysis, KPI analysis, Balanced Scorecards, and Benchmarking – 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 one that is 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 CSF and PLC analyses, have been retained by most of the firms that have tried them at any time. 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 small firms – and in fact, all firms of any size – is more prevalent than the Al Ghamdi study revealed, and that while the prevalence of use of SMTs cannot be conclusively stated because of the small number in the study sample (only seven of the 117 firms), the present results appear to confirm the finding of the earlier study: 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% 93.16% 40.91% 100% 55.05% 100% SWOT 66.67% 33.33% 7.32% 94.12% 17.65% 71.42% Balance Scorecards Not studied 19.82% Not studied 11.76% Not studied 0% CSF 72.22% 3.6% 14.63% 0% 41.18% 0% Benchmarking 70.83% 16.22% 9.76% 5.88% 47.06% 0% KPI Analysis Not studied 24.32% Not studied 29.41% Not studied 71.42% PLC Analysis 48.61% 2.7% 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. 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 3.35 and 3.64; according to the guidance given the survey participants regarding the scale measurements, a response of 3 indicated “Positive” effects that were “About as expected” from the use of SMTs, while a response of 4 indicated “Very positive” effects that were “Better than expected”. As a general conclusion, the use of strategic management tools is perceived by managers to be positive and slightly exceeding their expectations for results. There were, however, some variances among the answers to the individual 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 2 or 3 – indicating that SMTs performed slightly less than expected or about as expected – outnumbered those rating SMTs as “very” or “extremely” positive by 65 to 52 (55.56%). This was a 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 lower positive marks outnumbered the higher ones by 62 to 55 (52.99%). By contrast, the respondents gave somewhat higher assessments for the two questions addressing the effectiveness of SMTs in setting objectives for the entire firm or individual departments (Questions 14 and 15). SMT effectiveness in developing objectives for individual departments was perceived as being somewhat better than the tools’ effectiveness in developing objectives for the entire firm; the average response for the latter was 3.56, with 13 responses of 5 (“extremely positive”), while for the former the average response was 3.61 with 18 “extremely positive” responses. 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 3.36. While the overall response was positive, a majority of respondents (52.14%) rated performance under the current strategic management tools used by their firms only “about as expected” compared to different SMTs, while 11.11% said their performance was slightly or much less than expected. For Question 18, which asked respondents if the use of SMTs made planning and performance management easier or more efficient, just over half of the respondents (50.43%) indicated that SMTs had “very” or “extremely” positive effects that significantly exceeded their expectations, while only 8.55% (10 of 117 respondents) said that the results of SMT use with respect to improving planning efficiency had been less than 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 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. 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 is to verify that both sets of responses came from the same population; in other words, if the indication from the analysis was that they did not, the next step would be to investigate whether one set of responses or the other could be identified with a subset of the population, such as particular kinds of firms, responses from managers with the same length of experience in their positions, or other identifiable common descriptors. Effectiveness of SMTs in Objective-Setting for: Whole Firms (Q14) Individual Depts. (Q15) Mean 3.460 3.512 Average 3.556 3.607 Std. Dev. 0.803 0.820 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 higher values for Question 15. Therefore, it can be concluded with some certainty that the general observation that SMTs are somewhat more effective when applied to individual departments is valid. The analysis was then repeated to compare the small firms with those that described themselves as medium or large firms, as described in Section 4.3.2 above. The main objective in this part of the analysis was to check for consistency in the results for all six questions (Questions 13 through 18). Even if the answers for the subset of small firms (totalling 17) were different on individual questions than those of the larger firm subset (totalling 100), the results of the statistical formulas in the U Test for each question should be similar to the results for the other questions. Besides serving as a validity test, the U Test for these questions also helps to identify where there are differences between small and large firms, particularly for the gaps that were present in Al Ghamdi (2005), where Balanced Scorecards and KPI Analysis were not included in that earlier study. The data for the six questions is given in Tables 5 below: Small Firms Large Firms Mean Average Std. Dev. Mean Average Std. Dev. U p-value Q13 3.293 3.412 0.939 3.408 3.520 0.882 1745 4.445-12 Q14 3.419 3.529 0.874 3.405 3.510 0.835 1731 9.493-12 Q15 3.548 3.647 0.862 3.492 3.590 0.830 1738 6.505-12 Q16 3.489 3.588 0.870 3.459 3.560 0.845 1743 4.597-12 Q17 3.250 3.353 0.862 3.233 3.360 0.882 1739 6.162-12 Q18 3.406 3.529 0.943 3.462 3.610 0.963 1740 5.836-12 Table 5: U Test Results for Firm Size Comparison The values across the table are fairly consistent, particularly the U and p-values, so the validity of the data is established. In terms of differences between small firms and large firms in their perceptions of strategic management tools’ effectiveness, there are not significant variations. The largest difference between the two groups is in the responses to Q13, which addresses SMT’s effectiveness in information-gathering; small firms gave tools a lower assessment by a bit more than 0.1, and the greater U value indicates a larger difference – i.e., lower overall ranking of the responses – for this group. However, the difference is still objectively quite small. 4.4.4 Perceptions from Open-Ended Responses Questions 19 and 20 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, and Question 20 was fully open-ended. 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 114 of the 117 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 14: Fig. 14: 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 better plan management and more efficient use of resources – 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 Question 20 the managers were asked, “Overall, what would you describe as SMT's benefits or shortcomings in facilitating planning and performance management?” 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 benchmarking, which tends to encourage an 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. 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. 4.5 Conclusion The primary research for the study consisted of survey administered to 137 managers from firms listed on the Saudi Stock Exchange, from which 117 usable surveys were returned. This was a response rate of 78% from the original target sample of 150, and represents 75% of the 156 firms listed on the exchange as 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 cement 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 ten 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 Balanced Scorecards and Benchmarking, although SWOT and KPI together were roughly twice as frequently-used as the latter two SMTs. In addition, while the numbers of responses for the questions “tools used at any time” and “tools used currently” were similar for both SWOT 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 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 3.35 to 3.64 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 small and medium/large firms, extending the analysis of an earlier study of Saudi firms by Al Ghamdi (2005). 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