Challenges of Strategic Management

Keywords: strategic management challenges, challenges faced strategic management

The report discusses challenges faced by an organization as far as strategic management is involved. It develops recommendations which the board should apply in order to deal with challenges faced by Jonathan ad the banking department at large. Jonathan, a bank CEO is a threat to the future performance of the company. In spite of the high remuneration received, he is ineffective in leading his staff to achieve higher levels of performance. Performance has dropped to the bottom ranking in the segment of industry managed by Jonathan. The managers are also not keen to hold dialog and discuss organization strategies since he uses an authoritative leadership style which is unpopular with employees. Already some have left the bank and have sought jobs with competitors.

There are two options which the management may take. The first is his dismissal and replacement with another CEO. Another alternative which the board may take is retaining Jonathan, reducing his remuneration and hiring an external consultant to assist him deal with the challenges. Both approaches have various merits and demerits associated with them. The report recommends that the board should adopt the second approach and employ an external consultant to assist Jonathan deal with the issues at hand. His remuneration should also be reduced and he should work on a performance contract. These steps are likely to motivate him to improve the overall performance of the bank through motivating staff (Drucker, 2000 p 33). However, in the event that Jonathan is not comfortable with this approach, he should be sacked and replaced with another CEO since he is likely to negatively influence his employees not to embrace the organizational change being implemented.

Introduction

Background

The company under case study is dealing with challenges involving poor performance of one unit of business in spite of a competitive remuneration package offered to the banking CEO. Most executive directors in the company earn high salaries and share values and this is justified by the growth in performance and profitability of the company. Critics explain that although the company performs well and its board is competent, there is no evidence showing that it is outstanding in its performance and deserves such high remuneration. However, there are certain CEO’s who receive these high remuneration packages and yet their performance is poor. Jonathan is one of these and he is the CEO for merchant banking. In spite of the high remuneration received, his unit is a poor performer. Performance has dropped to the bottom ranking in the segment of industry managed by Jonathan. Although he re-shaped the cost structure, there are no results to show for it.

There are many opportunities for growth which have not been taken advantage of and an independent analysis has shown that innovation is low in the bank. The bank is also slow in following market trends and developing products which suit the trends. This has affected its long term performance and threatens long term survival in the competitive industry (Gill & Johnson, 2006 p 88-91). In addition to these challenges, many experienced senior managers have been taken by competitors and this has left Jonathan with a new team with little experience. The staff has problems in challenging his decisions and discussions on the strategic direction of the bank are rarely held. This may be due to the authoritative leadership style practiced by Jonathan.

Aim

The aim of the paper is to evaluate the problems facing the company with focus being on the banking section. Strategic management is a key concept which will guide the writing of this report. The challenges faced by Jonathan and his staff will be discussed in the paper. Various interventions which should be implemented to deal with the challenges will be evaluated and their pros and cons discussed. The most practical and effective solution will be recommended to the board for implementation. The discussed issues will be summarized at the end of the paper.

Scope

The report will be limited to the issues which have been discussed in the case study. The report will also be limited to the challenges facing Jonathan and the banking unit as opposed to challenges facing other departments of the organization. Finally, the report will analyze issues which are relevant to the topic of strategic management.

Analysis

Difficulties in strategic management when little debate in a senior management team is allowed

There are various challenges which arise in implementation of strategic management if there is little debate on issues or if all stakeholders are not appropriately involved in the process. Strategic management involves strategies developed and implemented by managers to improve performance of firms (Boxall & Purcell, 2008, p 1-10). For strategic management to be successful there needs to be active involvement of all organizational stakeholders. A strategic plan should also be formulated and implemented to meet certain objectives (Albert, 2004 p 66-68). In addition, periodic evaluations should be done after implementation of the plan to assess whether it is effective in meeting its goals. Communication between all organizational stakeholders is key to achieving strategic management goals.

When little debate between senior management is allowed when implementing strategic management, various challenges arise. The first challenge is a lack of clear definition and understanding of strategic management goals. Active debate ensures all stakeholders are aware of the strategic management goals and they work towards them (Smythe 2007 p 11-17). When there is little debate, goals are not clearly defined and each manager may work towards achieving personal goals which are not in line with organizational goals. In such a case, organizational performance is likely to be adversely affected.

Another challenge which is likely to emerge is opposition to implementation of management strategies. In many cases, employees oppose organizational change since they are unsure of the effects it will have on their careers (Kroeger 2010 p 77-79). Unless they are involved in change through dialog and communication, they are likely to oppose change. Strategic management involves organizational change. With little debate between senior employees, strategic management goals are likely not to be met due to opposition from staff.

Key reasons for low debate in Jonathan’s team

In Jonathan’s case, there is low debate due to various reasons. The first major reason for low debate is the leadership style. Jonathan’s leadership style appears to be authoritative in nature. This form of leadership has a negative effect on employees since it involves undertaking instructions without questioning orders from the management (Bratton et. al., 2004 p 45-47). Employees are not involved in decision making and this lowers their motivation levels (Diller, 2006 p 22). Since Jonathan applied the authoritative leadership style, employees were not motivated to participate in debate. They knew that decisions would be made by Jonathan regardless of their input. They also knew that he did not tolerate opposition of his views and they therefore saw no need to engage in debate. The lack of debate on strategic management of the company in turn led to poor performance and profitability.

Another key reason for lack of debate is the inexperience of new managers in performing management responsibilities. It had been discussed that many senior managers had left the company to work for competitors. This may be attributed to low motivation levels when working with Jonathan. Since Jonathan was left with inexperienced executives, they were unlikely to engage in meaningful and strong debate due to their relative inexperience in management maters. Finally, low motivation from the overall organizational culture of the bank may be to blame for the low debate on the management team (Gronroos, 2004 p 4-32). In addition to the authoritative leadership style, poor communication, high employee turnover rate, poor organizational performance and inability of employees to participate in decision making all have a negative impact of lowering employee motivation levels (Keller 2002 p 77-79). When their motivation levels are low, they are unlikely to participate in debate with their CEO.

Lessons learned from this

There are several lessons which have been learned from this experience. One major lesson learned is that in order to effectively implement strategic management strategies, all employees should be actively involved in the process and this should include at decision making levels. Jonathan has experienced low debate from managers during meetings and this has been partly attributed to the inability to influence his decisions and also his inability to tolerate positive criticism. When employees are fully involved in the strategic management process and are allowed to make decisions which affect their roles, they are likely to be highly motivated and they will present ideas which will improve implementation of strategic change processes (Proctor & Doukakis, 2003 p 268).

Another important lesson learned is that the leadership style has a great impact on the employee motivation and perception (Hannagan, 2005 p 68). The authoritative leadership style used by Jonathan is not appropriate under the circumstances since it discourages employees from being fully involved in strategic management. Employees are unable to question authority under this leadership style and this lowers their motivation. They are therefore unlikely to fully participate in implementing the decisions made by the CEO. Finally, it is clear that the organizational culture plays a very important role as far as achieving organizational goals is concerned. In order to achieve the goals of strategic management, the organizational culture has to be conducive for employees and the stakeholders at large. Various aspects of organizational culture should be present and these include the democratic leadership style, effective communication at all levels, low employee turnover rate, and active participation of employees in decision making (Zaleznik 2007 p 2-14). The absence of most of these factors in the banking department can be attributed to low employee motivation, lack of participation in debates with Jonathan and poor performance by the bank.

Merits of dismissing Jonathan and searching for another CEO

There are various actions which the board may take against Jonathan with regard to his poor performance at the bank. One of this is his dismissal and replacement with another CEO. This may easily appear to be the best option but it has various merits and demerits. One benefit is that employees will have a new start with a new CEO and they are likely to change their negative perception towards the bank’s CEO as they await assessment of his or her performance. This is likely to boost their motivation levels (Nag et. al., 2007 p 935-955). Another benefit of sacking Jonathan is that employees would view the organizational policies as non-discriminative and evenly applied across all management levels and this may boost their responsibility and accountability skills in their day to day operations (Chen & Silverthorne, 2005 p 280-285). This may boost the overall performance by the bank. Another benefit of sacking the bank CEO is that the organizational culture is likely to change especially with regard to leadership style, communication and employee participation indecision making. These are aspects which have a direct impact on employee motivation. Employing a new CEO who has a belief in employee participation in decision making will boost the employee motivation and improve their productivity.

However, there are demerits associated with sacking the bank CEO. The first is that Jonathan has experience dealing with employees and banking issues and it will take time before the new CEO fully familiarizes himself or herself with these aspects of the organization. During this period, the bank may suffer as a result of inexperience. Another demerit is that employees may view his dismissal as a step towards cleaning up the management system and they may view themselves as future candidates for dismissal (Mulcaster, 2009 p 68-75). This may reduce their motivation levels and it may affect the performance by the bank.

Merits of retaining Jonathan and re-evaluating his remuneration as well as appointing an external consultant to deal with the issue

Another alternative which the board may take is retaining Jonathan, reducing his remuneration and hiring an external consultant to assist him deal with the challenges. Similarly, this option has certain merits and demerits. The merits may include injecting new experience from the external consultant who has experience dealing with strategic management challenges (Bateman, 2010 p 24). This may help Jonathan and his staff, solve these challenges facing the bank by for instance improving communication channels and encouraging employee participation in decision making. This will boost employee motivation and improve the overall organizational performance (Barbuto, 2005 p13). Another benefit relates to reducing remuneration received by Jonathan. In addition to saving the expenditure by the company, reducing his remuneration may motivate him to work harder as he realizes that his career is on the line. This may make his change to a positive attitude when dealing with employees and implement effective strategies to improve the organizational performance (Innes & Norris, 2005 p 43-49).

However, weaknesses associated with this strategy include resistance from Jonathan especially when dealing with an external consultant. Employing an external consultant may be deemed by Jonathan as a threat to this career and he may not cooperate with the external consultant who he may perceive to be after his position (Chaudhury & Jean 2002. p 55-57). The reduction in his remuneration may also lower his motivation to work and he may either sabotage the company’s efforts or seek another employment opportunity altogether (Beach, 2007 77-83). This is likely to negative affect the company’s long term performance.

Recommendations on what should be done by the management

The most effective recommendation which should be employed by the board is the second alternative. An external consultant should be hired to assist Jonathan in dealing with the challenges facing the bank. His remuneration should also be reduced and he should be paid according to a performance contract. The experience which the consultant possesses may help Jonathan realize the weaknesses present in his leadership strategy and the bank at large. This should motivate him to adopt a democratic leadership style. Reduction in remuneration should be a motivation for him to work harder. However, this decision should be taken in consultation with Jonathan if his motivation is to increase. The board should explain their reasons for reducing his remuneration and employing an external consultant in order to encourage him to accept the decision. The reasons for the performance contract should also be outlined and explained as good for the long term organizational objectives.

Jonathan may either accept these changes or reject them. If he accepts them, the board should periodically assess the progress made as far as the new changes are concerned. If Jonathan rejects the changes, he should be sacked and replaced by another CEO. This is because his continued stay in the organization will do more harm as far as organizational goals are concerned. He may influence the employees to reject these changes and this will adversely affect the performance of the organization (Anriole, 2008 p 22-24). All employees should also be informed of the pending changes and the reasons for implementing the changes.

Conclusion

In conclusion, employee motivation is very important when implementing strategic management. If employees are not highly motivated, they are unlikely to meet the organizational goals and perform effectively (Schlesinger & Heskett, 2001 p 3-10). The leadership style and organizational culture plays an important role in improving employee motivation (Abell 2002 p 21-28). Jonathan used an authoritative approach which is ineffective in motivating employees. He did not allow them to participate in decision making and this affected their motivation levels. The management should bring in an external consultant who will help Jonathan deal with his challenges. The consultant will help him embrace the democratic leadership approach. Reducing his remuneration and working on a performance contract will motivate him to improve performance. However, if he is against these changes, he should be replaced with another competent CEO in order to ensure the organization achieves its goals.