CORPORATE POLITICAL MANAGEMENT READINESS: THE RELATIONSHIP OF ENVIRONMENT-ORGANIZATION AND PERFORMANCE
Robert C. Moussetis
North Central College
30 N. Brainard Street
Naperville, IL 60566
630-637-5475
George Nakos
Clayton State College and University
Georgia, USA
Ali Abu-Rahma
United States International University
California, USA
Athanassios Kriemadis
University of Thessaly
Thessaly, Greece
CORPORATE POLITICAL MANAGEMENT READINESS: THE RELATIONSHIP OF ENVIRONMENT-ORGANIZATION AND PERFORMANCE
Abstract: This paper presents a preliminary empirical investigation of corporate political management readiness. The aspiration of the results is to establish a foundation that would enable corporate management to navigate effectively through environmental shifts and to provide an optimal political response capability that maximizes economic profitability. It establishes a preliminary instrument that facilitates the political posturing of the firm by suggesting what type of managerial political behavior and capability will be appropriate at different levels of environmental turbulence.
Introduction
The federal antitrust suit against AT&T in the early eighties and the most recent legal issues of Microsoft represent a new mosaic for the business institution. The political landscape of the modern firm emphasizes the critical importance of business success as a result of the non-market activities (Baron, 1995). The political scene of the communication industry was permanently altered due to the nonmarket activities while presently we may observe similar results form the software industry. And, if we wanted to speculate, the biotech industry (cloning, organic body parts etc.) will be faced with great nonmarket challenges which will immensely influence the development of the market and the profitability of the industry (what type of laws and regulations would exist in an industry/market where humans could clown themselves to be used as spare parts?).
The transformation of the business institutions into socioeconomic institutions (Ansoff and McDonnell 1990; Drucker, 1980; Drucker, 1985) raises the question of whether firms must institutionalize and/or develop the corporate political capability (Baron, 1995; Useem, 1982) into the overall strategic posturing by the firm.
The political environment of the business corporation is complex and uncertain (Steiner and Steiner, 1994). Complexity of the societal environment of business has increased (Buchholz & Rosenthal, 1995; Steiner & Steiner, 1994; Baron, 1995; Carroll, 1996; Marcus, 1993) with multiple stakeholders influencing the decision making process of the firm (Ansoff and McDonnell, 1990; Carroll, 1989; and Drucker, 1980). Consequently, stakeholder management became a necessity (Carroll, 1989; Freeman, 1984; Keim & Baysinger, 1988) which leads to the degree of power possessed and exercised by the various stakeholders (Freeman, 1984; Wood, 1990). Hence, the political nature of the non-market environment commands a multi-disciplinary arsenal of managerial capabilities (environmental scanning of the political landscape, comprehensive stakeholder management, choice of political strategy, power-exercised etc.) that usually managers are not trained to have. Despite the public policy approach (government affairs divisions, lobbyists, PACs, coalitions etc.), ultimately the corporate managers are responsible to all stakeholders (customers, government, shareholders, general public etc.). Baron (1995:57) clearly stated that “managers are responsible for both the market and nonmarket strategies.”
Strategic management is increasingly concerned with managing the non-market environment (Baron, 1995; Steiner & Steiner, 1994; Ansoff and McDonnell 1990). As societal changes occur in the business environment, management needs to analyze, manage and cope with environmental changes while sustaining measurable organizational performance (Marcus, 1993; Ullman, 1984; Carroll, 1996; Frederick, Post and Davis, 1992). The firm needs to identify a political process and behavior in order to develop a political action structure to manage the complexity of the extended economic environment (Ansoff and McDonnell, 1990) and to engage in strategies that will allow managers to define their societal role and provide effective management of social issues (Vernon-Wortzel, 1994). Consequently, this paper is exploring the managerial strategic behavior and political capability to influence the rules of the game (laws, regulations) (Ansoff and McDonnell, 1990; Peery, 1995) according to societal environmental shifts. Although the public policy field has given considerable attention to the relation of Business and Government, the public policy approach limits the exploration of non-government environmental factors that may require corporate political capabilities (legal action by consumers, infant-unregulated industries etc.).
If strategic management is concerned with the future industry outlook (Hamel and Prahalad, 1994; Ansoff & McDonnell, 1990) association to environment and environmental changes (Ansoff, 1965; Carroll, 1996; Wheelen and Hunger, 1984; Steiner and Miner; 1982) and adaptation to the changing environment (Steiner and Steiner, 1994; Ansoff and McDonnell, 1990), then it is suggested to research the strategic management of political posture using similar perspectives (Baron, 1995; Carroll, 1996). Furthermore, the political management skill is a critical component of success in the political context of the business institution (Buchholz, 1995; Baron, 1993; Ansoff and McDonnell, 1990; Useem, 1985; Vernon-Wortzel, 1994; Carroll, 1996; Keim and Baysinger, 1988).
Consequently, the perspective of this paper is that the strategic management of the political environment of a business is the systematic exploration and examination of future changes in the legal and regulatory environment and the development of the appropriate strategy and managerial political capability readiness to support future political changes that optimize economic performance. Specifically, this paper attempts to investigate the correlation between the corporate political environment-organization fit and economic performance.
Theoretical Background
Relation of Strategic and Political Posturing: Baron (1995:47) postulated that “strategy formulation must integrate both market and nonmarket considerations.” Baron (1995) delineates the interrelateness of market and nonmarket posturing by displaying how market impacts nonmarket and vice versa. Although the field of Business and Society is dedicated in exploring this relationship and provide a better understanding, the practicing manager is dichotomized between the utility and the economic benefit of such relationship. Normatively, managers realize the need to contemplate societal issues that surround the corporation but the justification to engage in societal strategies is difficult to rationalize without the direct correlation between economic performance and utility of societal activities. Only when imminent danger is transparent (i.e. communications, tobacco industries), corporate management surrenders to political maneuvering with the compelling funds (reactive behavior). Nevertheless, there is an increased need of business involvement into the political arena (Vogel, 1996; Buchholz & Rosenthal 1995; Baysinger and Woodman 1982) and for management enlistment into the political strategies (Baysinger, Keim and Zeithaml, 1985; Keim and Zeithaml, 1986).
Empirical research by many scholars (Boddewyn and Brewer, 1994; Clawson, Neustadtl, and Scott, 1992; Epstein, 1969; Hillman and Keim, 1995; Keim and Zeithaml, 1986; Lenway and Rehbein, 1991; Mahon, 1989; Mahon & Murray, 1981; Marcus, Kaufman, and Beam, 1987; Mitnick, 1993; Mizruchi, 1992; Ryan, Swanson & Buchholz, 1987; Salamon and Siegfried, 1977; Schuler, 1996; Shipper and Jennings, 1984; Vogel, 1989; Wood, 1986) has rendered minimal indications that determine what type of political management capability is required at different levels of political turbulence. Firms experience different levels of political pressures (i.e. Tobacco industry vs. discount department stores) and therefore experience different levels of environmental turbulence. For example, what type of managerial behavior and capability will be appropriate to negotiate the position of the defense industry or the hospitality industry? Agency theory (Eisenhardt, 1989; Epstein, 1969; Keim & Baysinger, 1988; Mahon, 1989; Mitnick, 1993) addresses why corporations will use accomplished lobbyists or former politicians to assist their political goals. However, one could postulate the pros and cons between agents (hired professionals) versus developing internal political capability.
Scholars have recognized that different levels of environmental turbulence require different managerial behavior and capabilities (Ansoff and McDonnell, 1990; Cyert and March, 1963; Emery and Trist, 1965; March and Simon, 1958; Marcus, 1993; Moe, 1980; Post 1978; Sethi, 1987). Therefore, it is postulated that a firm will optimize its economic performance when the level of political turbulence is matched by appropriate strategic behavior and managerial political capability (Ansoff and McDonnell, 1990; Cyert and March, 1963; March and Simon, 1958; Moe, 1980).
Business organizations have well-established processes to develop and implement the profit making activities pro-actively (strategic management literature) while the nonmarket strategies are mostly reactive and intrusive for corporate managers. Moreover, corporate management success is measured by the accomplishments in the market side and therefore there is limited incentive to engage in the nonmarket side, which perhaps provides an explanation to the development of agency theories as a viable alternative to nonmarket corporate needs.
Theories Supporting Political Posturing
Theoretical and empirical support for our investigation is drawn from a variety of disciplines (organizational theory, strategic management, etc.). Exploring environmental political turbulence and managerial capability for political response strategy leads to the examination of the basic environment-organization relationship. Historically and empirically, the philosophical arguments have evolved around the degree and nature of the relationship between the organization (i.e. dependence, transactional, manipulative) and it’s environment. Table 1 summarized how various theories treat the relationship of organization and environment.
Table 1
Perspectives on the Environment-Organization Relationship
Selected Author(s) / Selected Theories / Adaptations - ModificationsAldrich & Pfeffer, 1976
March & Simon, 1958
Pfeffer, 1982
Pfeffer & Salancik, 1978 / Resource Dependence / Organizations actively engage in exchanges with the political (legal and regulatory) and economic environment in order to reduce uncertainty, to improve performance and to increase the chances of survival.
Meyer & Rowan, 1977; DiMaggio & Powell, 1991; Scott, 1987 / Institutional / Since (Political) Environmental Constituents determine the degree of success of an organization, therefore, it must conform to social norms.
Freeman, 1984;
Wood, 1991 / Stakeholder / (Political) Environment is constituted by stakeholders seeking influence and/or power.
Hannan & Freeman, 1989 / Organizational Ecology / Effects of political environments on the structure, functioning and effectiveness of the firm.
Ansoff, 1979; Ansoff & McDonnell, 1990; Child, 1972
Lawrence & Lorsch, 1967;
Mintzeberg, 1973 / Contingency / Optimal performance is the result of appropriate alignment between the environmental (political ) turbulence and managerial (political ) behavior and capability. Resource allocations must be consistent with firms’ environment
The literature indicated that the prevailing meta-issue in the strategic behavior displayed by the firm is the relationship between the organization and the environment. Accurate environmental scanning does not necessarily lead to comparable organizational response because corporate managers exercise strategic choice (Child, 1972; Miles & Cameron, 1982; Miles & Snow, 1978; Mintzberg, 1983; Murray, 1978) often choosing what environmental factors to consider (Ryan, Swanson & Buchholz, 1987) and therefore respond differently (volatility of strategic behavior) to external factors. Strategy decisionmakers often will select a single option and robustly justify it as the only viable path (Schwenk, 1985). For example, an environmental diagnosis may produce a technologically intensive industry with a highly innovative future (a fast rate of change, very complex, high degree of novelty etc.) while corporate management’s preferred strategic behavior is reactive (“We will respond aggressively to any visible threats”). Subsequently, the firm may fail to develop/integrate the required entrepreneurial/creative strategic behavioral posture to respond effectively. Some industries though where the rate of change is slow (hence, time to develop necessary capability) could employ a defensive/reactive behavioral posture and achieve success. Potentially, as the gap increases between the environmental requirements and organizational capability and/or between the environmental requirements and applied strategic behavior, organizations will diminish their effective response capability.
The changing environmental conditions (i.e. rate of change, novelty) indicate a seemly corresponding managerial behavior, which will optimize the organization’s economic performance. The predominant research question is given the environmental conditions (independent variable) what type of political capability and political behavior that produce optimal political performance that contributes positively into the economic performance (dependent variable) of the organization. In general, the contingency approach suggested that there is a relationship between the alignment of organization and it’s environment and that the environment-organization fit produces better performance (Ansoff & Sullivan et al. 1993; Burns & Stalker, 1961; Lamont, Marlin & Hoffman, 1993; Lawrence & Lorsch, 1967; Miles & Snow, 1978; Mintzberg, 1979; Miller & Friesen, 1994; Thwaites & Glaister; 1992). Ansoff (1979) postulated that the performance of an organization is optimized when the strategic behavior and organizational capability match the environmental conditions (complexity, rate of change etc.). Ansoff and Sullivan et. al (1993) showed empirical results with multiple industries in different countries that supported the basic postulation. Certainly, there is theoretical and empirical evidence to further support the exploration of a political posture and economic performance. The general hypothesis then that will facilitate operationalizing this investigation will be as follows:
Hypothesis: Political performance generates greater economic performance when the firm’s political turbulence (legal and regulatory) matches its strategic behavioral approach and core managerial capability (modified from Ansoff & Sullivan et al, 1993).
Consequently, we must explore the degree alignment of the corresponding variables as indicators of performance.
Environmental Turbulence: Upon management’s subscription to open-systems models of organization, scholars have postulated the dependence and influence upon the environment (Aldrich & Pfeffer, 1976; Child, 1972; Hannan & Freeman, 1989; Lawrence & Lorsch, 1967; Pfeffer & Salancik, 1978; Thompson, 1967). Furthermore, the research typology has depicted environments primarily as stable, uncertain, complex, static, dynamic, discontinuous, and turbulent (Ansoff, 1979; Emery & Trist, 1965; Duncan, 1972, Lawrence & Lorsch, 1967; Post 1978) and the variability is known as environmental turbulence. Furthermore, strategy is often determined as a result of environmental turbulence (Ansoff and McDonnell, 1990; Buchholz & Rosenthal, 1995; Carroll, 1996; Drucker, 1980; Marcus, 1993; Peery, 1995; Post, 1978; Vernon-Wortzel, 1994; and Wood, 1990). We have summarized the levels of environmental turbulence based on the literature descriptions and typology of environmental conditions in Table 2.
Table 2
Environmental Turbulence Descriptions
Stable Repetitive / Static-Slow Change / Dynamic - Changes Fast but predictable / Discontinuous but Changes Are Foreseen / UnpredictableUnanticipated
Level of Turbulence / 1 / 2 / 3 / 4 / 5
Modified from Ansoff and McDonnell, 1990
Environmental turbulence was defined as the rate of change of the environment (Jurkovitch, 1974; Ansoff, 1979) and degree of complexity (Ansoff, 1979; Emery, 1985; Thompson, 1967). However, there is a lack of distinction in the literature of whether environmental turbulence measurements are for business strategies and/or corporate strategies. Some environmental turbulence measurement tools are future oriented (Ansoff & Sullivan, 1993) while others are past oriented (Tan and Litschert, 1994) and a third group maintains no clear distinction (Naman and Slevin, 1993). Typically, strategic management is associated with future developments and issues that may impact the firm (Ansoff & McDonnell, 1990; Armostrong, 1982; Hamel & Prahald, 1994) while competitive management (Porter, 1980) is primarily involved with present and near-future (depending on the industry) strategy. Therefore, a distinction is required when using instruments that measure environmental turbulence. Finally, several theoretical and empirical postulations have suggested that performance is optimized when organizations undertake a careful diagnosis of the environment to assess the levels of turbulence and then decide to respond with the appropriate mode of strategic behavior (Ansoff & Sullivan, 1993; Morrison & Kendall, 1992; Post, 1978; Thwaites & Glaister 1992; Vernon-Wortzel, 1994).
Strategic Orientation-Behavior: Strategic behavior leads to different levels of performance (Morrison & Kendall, 1992). However, what type of strategic behavior produces optimal performance? The typology developed by Miles & Snow (1978) provided a foundation for other scholars of organizational behavior interested in the relationships between strategy, structure and process. The validity and reliability have also been affirmed as usable to explore organizations and their strategies (Shortell & Zarac, 1990). The typology is also consistent theoretical and empirical studies over the last fifteen years (Ansoff, 1979; Ansoff & Sullivan et al. 1993, Hambrick, 1983; McDaniel & Kolari, 1987; Tan & Litschert, 1993; Ramaswamy, Thomas & Litschert, 1994).
Porter’s (1980) typology focuses on concentrated industries (Segev, 1989) and represents an excellent tool for an existing industry (therefore addressing the primary premise of low cost, differentiation) but offers little guidance for industries in highly entrepreneurial, creative and innovative settings which are still in a pre-infancy stage. Table 3 summarizes the types of strategic-political responses employed by an array of researchers and practicing managers. The suggestion is that organizations employ a different organizational response (endogenous driven behavior) depending on the environmental (exogenous driven process) conditions (contingency) which facilitates the goal of this research to associate environmental turbulence and strategic behavior-orientation to performance.
Table 3
Modes of Strategic/Political Responses
Selected Authors, Year / Levels of Strategic - Political Responses1 / 2 / 3 / 4 / 5
Post, 1978, 1980, Buchholz, 1995, Frederick, Post and Davis, 1992 / Inactive / Reactive / Proactive / Interactive
Miles & Snow, 1978 / Reactor / Defender / Analyzer / Prospector
Ansoff and McDonnell, 1990 / Stable / Reactive / Anticipatory / Entrepreneurial / Creative
Sethi and Falbe, 1987 / Exploitative, defensive adaptation. / Reactive adaptation / Proactive adaptation.
Sitkin and Bies, 1994 / Standardization Formalization / Internalization / Adoption Enhancing / Exploratory / Creative
Marcus, 1993 / Defender / Reactor / Prospector
Vernon-Wortzel, 1994 / Reactive / Proactive
Carroll, 1979 / Defensive / Reactive / Proactive
Lorange, 1994 / Reorient and/or Dominate / Rapidly Expand / Pioneer
Note: The above variability of strategic-political responses is not based on absolute values but rather loosely representations of authors perceptions on the strategic response orientation. The table is utilized only as an instrument to show contingency approaches for strategic-political responses.
Managerial Capability for Political Response: As the environment changes, there is not only the need to manage the social and political environment but also the need of developing managerial skills and capabilities for corporate political response (Baron, 1995; Pfeffer, 1992; Post 1978; Sethi, 1982; Vernon-Wortzel, 1994). Managers are responsible for the formulation and implementation of strategies regarding corporate political activity that produces public policy outcomes that are favorable to the firm's economic success (Ansoff & McDonnell, 1990; Keim & Baysinger, 1988). An extensive body of literature explores the Corporate Political Activities (CPAs) (Baysinger, Keim & Zeithaml, 1987; Keim & Baysinger, 1988; Keim & Zeithaml, 1986; Keim & Zeithaml & Baysinger, 1984; Mahon, 1989; Mahon & Waddock 1991).