Proceedings of Applied International Business Conference 2008 THE ROLE OF SENIOR MANAGERS IN SETTING STRATEGIC AND TACTICAL OBJECTIVES OF QATARI SHAREHOLDING COMPANIES Wathek Shaker Ramez ψ University of Bahrain, Bahrain Abstract Setting objectives has a vital role in performing managerial functions--planning, implementing and evaluating- within an organization. Managers direct their subordinates toward achieving these objectives. Consequently, a manager can gauge the performance of his subordinates based on achieving specified objectives in a given period of time. This paper is concerned with the type and time span of strategic and tactical objectives that are adopted by senior managers for designing strategic and tactical plans in Qatari shareholding companies. It also aims to identify the leadership patterns of Qatari senior managers in setting the objectives. The study depends mainly on primary data that is collected through a questionnaire survey, covering managers in Qatari shareholding companies. The results support the study hypotheses. Senior managers give great attention to strategic financial objectives while junior managers tend to adopt sales objectives. In addition, Qatari companies apply centralized/decentralized approach for setting strategic/tactical objectives respectively. Keywords: Strategic planning; Objectives; Leadership approach. JEL Classification Codes: M1; M49. 1. Introduction Recent developments in the internal/ external business environment have made managers increasingly concerned about developing and formulating objectives, within their organizations during the last few decades. Managers set multiple and different types of objectives for the benefit of different entities inside/ outside the organization instead of maximizing the profit for the benefit of shareholders as in previous decades. In addition, managers adopt strategic objectives instead of short term objectives, to adapt their organizations to rapid and continuous environmental changes. To cope with these changes, managers apply the decentralized approach instead of the centralized approach for setting the objectives. If recent trends in developing and formulating objectives have taken place in many corporations of the developed nations, they will not be applicable to the organizations of Asian nations. The real situation of setting objectives reflects the nature of society, type of the organization and the managers' leadership pattern which, all play a major role in how managers set objectives. 2. Research purpose This research aims to provide answers to the following questions: What is the nature (type and length) of strategic/ tactical objectives adopted by senior managers of Qatari shareholding companies? What is the leadership pattern(s) applied by those managers for setting both types of objectives? 3. Importance of research Through reviewing the literature of strategic planning in Arabic countries, and in the state of Qatar in particular, the researcher finds a lack of empirical studies in the field of strategic planning. This research can be considered the first of its kind in the state of Qatar. ψ Corresponding author. Wathek Shaker Ramez. University of Bahrain. Email:[email protected] Proceedings of Applied International Business Conference 2008 4. Literature review Functional role of higher management Academic scholars of management science usually identify three management levels within the organization: a- Higher managerial level: Including board of directors, president (or CEO), vice(s) president, executives of strategic business units. In the case of small companies such as Qatari ones, which deal with only one product line, there is only one senior manager, the "General Manager", who is at the top of the management hierarchy, and he is responsible to the board of directors for managing the company. b- Middle managerial level: represented by functional managers, such as the marketing manager or director. c- Lower managerial level: such as product/ brand managers and operating units (e.g., sales, advertising and sales promotion department) (Foster, 1972). Regardless of the managers' position within the organization, they are responsible for performing the managerial functions. However, management scholars have given great attention to the functions of senior manager(s). Urwick identified these functions by: Forecasting, planning, organizing, directing, coordinating, controlling and communicating, (Hussey, 1982). Meanwhile, Newman and Logan (1955, p. 38) specified the managerial functions of the CEO by the following three groups: - Plan: setting objectives, developing strategies and policies, the long term ones in particular. - Administration: selecting employees, coordinating, leadership and control. - Other duties: representing the firm in formal ceremonies and communicating with the representatives of the government and competitive companies and others. Based on these functions, some managerial scholars consider that the higher management level and the CEO in particular, play two roles within the organization, namely: entrepreneur and administrative roles. The entrepreneurial role covers all strategic planning processes starting with outlining the organization's mission and ending by selecting the optimal strategic alternatives. Meanwhile, the administrative role concentrates on the implementation of strategy that requires creating the organization’s culture, directing employees and motivating them, developing policies and procedures and controlling performance (Thompson and Strickland, 1984). To accomplish both roles, senior managers have to be aware of the change in the environment for matching the organization’s resources with the opportunities in the external environment (SWOT analysis). In addition, senior managers must compromise between their long term decisions and short term decisions that are focusing on daily activities of all functional units within the organization, (DuBrin et al., 1989). Regarding long term decisions, strategic scholars have identified three interrelated strategies within most organizations, in particular large corporations with multiproduct /market, which are: corporate strategy, business unit strategy and functional strategy (Walker et al., 2006). In spite of restricting the responsibility of designing the corporate and business units strategies to senior management level, strategic scholars have considered the responsibility of formulating the functional strategies (i.e., marketing) which are tactical plans in nature, to be that of the directors of specialized operational departments (Roger, 1975). Table 1 summarizes the responsibility of managers for setting various strategies and objectives within the organization. Performing entrepreneurial role Strategic authors gave great deal of explanation to how the higher management level performs their entrepreneurial role. Some authors (e.g., Drucker, 1964; Ansoff, 1968) referred to the complete responsibility of the CEO in designing and approving corporate strategy, while others (e.g., Foster, 1972) considered it as a joint responsibility between all parties of the higher management level; board of director, the CEO and executives of SBU(s). Regardless of the nature of responsibility, one main question may be asked: to what extent does the higher management, the CEO in particular, become involved in the formulation process of corporate strategy? The answer to this question depends on the following factors: (1) the firm's experience in adopting strategic planning; (2) firm's size, and (3) leadership pattern of the higher management level (Andrews, 1983; DuBrin, 1989). 37 Proceedings of Applied International Business Conference 2008 Table 1: Managers' responsibility for setting different objectives and strategies within the the organization* Objectives and strategies Mission Corporate strategy & objectives SBU strategy & short-term objectives Tactical plan & functional objectives Board of directors Managers' levels Higher management Presidents of level SBU //** / Directors of functional department // // / // / // // / // Note: * Pearce and Robinson, 1991, 7. ** (//) refers to the main responsibility. (/) refers to the secondary responsibility of managers. Senior managers may apply two main leadership patterns to perform their entrepreneurial role: (1) a centralized leadership approach (Up-Down planning approach); senior mangers are fully responsible for setting objectives for corporate strategy and other plans within the organization. (2) decentralized leadership approach (Bottom-Top planning approach), middle and junior managers and employees have the authority to set the strategic and tactical objectives for the organization. Senior managers have a limited participation in strategic planning, which is mainly restricted to reviewing and approving the objectives. Chandler (1961) mentioned in his book "Strategy and Structure" that the centralized approach is mostly applicable small companies, while the latter approach is mainly valid for large corporations with a multiproduct/ market. In addition, the third approach has been developed to combine the previous two approaches. This approach (Top-Down/Bottom-Up planning approach) concentrates on the initiative of senior managers in setting corporate strategic objectives and allowing junior managers to set the objectives for their departments. Consequently, all strategic/ tactical objectives are submitted to the senior managers for coordination and approval (Smith, 1991). In general, regardless of the leadership approach adopted within the organization, senior managers, the CEO in particular, remains completely responsible for the efficiency of planning, particularly strategic planning, within the organization. Types of objectives Maximizing profits for the owner's benefit does not exist any more in modern organizations, as they are operating in an open system. Therefore, Drucker (1958) advised managers to adopt multiple objectives instead of one, such as: productivity, competitive position, employee development and social responsibility besides achieving the optimal level of profits. In addition, Pearce and Robinson (1997) identified the corporate strategic objectives as follows: profitability (measured by ROI or other terms), productivity, competitive position (market share), employee development, labor relationship, innovative superiority and public responsibility. Although these objectives are outlined for the corporate strategy level, middle and junior managers will use them as a base for deriving the objectives of their SBUs and consequently their functional departments. Granger (1964) proposed the "hierarchy of objectives" model for clarifying such a process of setting the objectives for all planning levels within the organization. Based on that, Jain (2000, pp. 199-200) listed these groups at the SBU’s objectives: • Measurement (financial) objectives: such as profitability and cash flow. • Growth/ Survival objectives such as market standing, productivity and innovation. 38 Proceedings of Applied International Business Conference 2008 • Constraint objectives such as to capitalize on research in certain technologies, avoid style business with seasonal obsolescence, avoid antitrust problems and assume responsibility to the public. Chevalier and Catry (1974) had illustrated that senior managers adopt financial objectives (ex: ROI) more than other objectives, such as market share. However, such managers' tendencies for adopting objectives may be reversed at junior manager level, since they are concerned with achieving objectives regardless of the financial cost. Traditional financial measurement, such as profits and return on investment, are considered insufficient for planning and controlling operations in current unstable environment, because they are a short-term rather than long- term focus, reflecting past performance rather than future prospects and tending to be obsolete and easily manipulated by managers. To overcome the weaknesses of the traditional measurement system, Kaplan and Norton (1992, 1996) have introduced the "balances scorecard" (BSC) which is a combination of non-financial and financial measures. Consequently, the strategic performance measurement system (SPMS) has been developed to provide managers with means of translating strategy into a coherent set of performance measurements (financial and non- financial measures) (Chenhall, 2005). The empirical research Strategic management researchers have performed many scientific studies regarding the entrepreneurial and administrative roles of senior managers, particularly the CEO's role, during the last five decades. In this regard, McNichols (1983) referred to the studies of (March and Simon, 1958; Lindblom, 1968; Wrapp, 1967) which have declared that the CEO is forced to devote most of his time and effort to making short time decisions (tactical) instead of strategic decisions. The reasons behind such trends were the excessive functional duties of the CEO and avoidance of uncertainty in the decision making process. In addition, Quinn (1980) concluded that in spite of not making strategic decisions, the majority of senior mangers announced little of the general objectives of their organizations, (McNichols, 1983). On the other hand, based on the survey of large industrial corporations in USA and western Europe, Harvard Business School (1971) supported Chandler's opinion (1962) which states that senior managers in one product line organizations, adopt the centralized approach for setting objectives and formulating plans, whereas multi- product organizations prefer the decentralized approach (Taylor, 1976). Through conducting personal interviews with the CEOs and marketing managers in foreign subsidiaries operating in Brazil, Hulbert et al (1980) concluded that those managers had full responsibility in formulating their annual marketing plan. However, executives at the corporation headquarters differ in their roles in reviewing and approving these plans according to the corporation nationalities. A limited role had been observed in the European corporations and vice versa in the American ones, while it was not clear in the Japanese corporation. On the other hand, Picard (1980) found that executives of European subsidiaries operating in USA, have a high degree of autonomy in the process of setting objectives and making decisions. Regarding Arabic studies, Hamimi and Al Shiegh (1995) concluded that senior mangers of Jordanian Shareholding companies are mainly applying the centralized management approach in setting strategic objectives. Meanwhile, Aueob (1997) found that a limited number of Saudi corporations (25 per cent) practiced the strategic management concept in their operations intensively, while (58.3 per cent) of these corporations applied this concept partially and the remainder (16.7 per cent) adopted it weakly. In relation to Asian studies, Jusoh, Ibrahim and Zainuddin (2008) investigated the usage of the BSC framework and its effect on the performance of Malaysian manufacturers. The study revealed that many Malaysian companies still depend heavily on the use of financial measures relative to non-financial measures. However, non- financial measures are gaining momentum, particularly with the customer perspective. The findings reflect that when companies use all four perspectives of BSC measurement (financial, customer, internal business process and learning and growth) their performance will be better than relying only on an individual perspective. 39 Proceedings of Applied International Business Conference 2008 5. Research methodology Research hypotheses To achieve the purpose of this study, the following hypotheses were formulated: H1: Senior mangers of Qatari shareholding companies adopt the financial objectives (e.g. profitability) more than growth/ survival objectives for designing company strategy. H2: Junior mangers of Qatari shareholding companies adopt growth/ survival objectives (e.g. sales volume and market share) more than financial objectives for designing the tactical plans of their functional units. H3: Senior managers of Qatari shareholding companies apply the centralized leadership approach for setting a company’s strategic objectives. H4: Senior managers of Qatari shareholding companies apply the decentralized leadership approach for setting the tactical objectives within their companies. Data collection and analysis This study depends mainly on primary data which were collected through questionnaire survey. Therefore, the questionnaire was designed and distributed personally to the managers of Qatari share holding companies. According to the nature of this study and its data, which are nominal or ordinal type, nonparametric statistics were used to analyze the data and test the hypotheses, namely the frequencies and chi- square technique. Study population and sampling units Thirty three Qatari shareholding companies registered by the Ministry of Finance, Economic and Commerce are covered in this study. Because of the limited number of these companies, the three management levels (senior, middle and junior) within each company are included in the survey, and thus 99 managers represent the total population of this study. The Census method is applied to collect the data, and all 99 managers received the questionnaire. Fifty eight managers responded successfully to the survey and they represent 58.6 % of the total population (Table 2). Table 2: Demographic Characteristics of Respondents Characteristics Nationality Qatari Arabian Foreign Management level High management Middle management Low management Period of experience Less than 5 years 5-10 years More than 10 years No response Education Secondary School & Lower Diploma University Graduate Postgraduate Total Frequency % 22 34 02 37.9 58.6 03.5 16 20 22 27.6 34.5 37.9 03 14 40 01 05.2 24.1 69.0 01.7 02 08 39 09 58 03.5 13.8 67.2 15.5 100 6. Findings and discussion Demographic characteristics of the respondents Table 2 shows that 58.6 % of the respondents out of the total study sample of 58 were Arabian citizens working in the state of Qatar, while 37.9 % of the respondents were Qatari citizens. They occupied different managerial positions, 37.9 % were junior managers, 34.5 % were middle managers and the rest were senior managers. Thus, we expect that the findings of this study will be more representative of the opinions of middle and junior managers than the opinions of senior managers. The majority of the participants were highly educated people. 67.2 % of them hold a university degree (B. Sc) and 15.5 % have a postgraduate degree. In addition, they have a long period of experience in their jobs. 69 % of them have 40 Proceedings of Applied International Business Conference 2008 more than 10 years and 24.1 % have 5 to 10 years of experience. Such a long period of experience can enable the respondents to provide accurate and reliable data about the practical situation of their companies, which may enhance the quality of this research. Testing the hypotheses First hypothesis Respondents were allowed to select more than one alternative of strategic objectives for their companies. Consequently, the data of this study show that Qatari shareholding companies adopt multiple objectives for their strategies instead of one objective, as the total score of respondents' selections exceeds actual respondents' number (Table 3). Nevertheless, these objectives differ in their priority, in the adoption process. ROI objective has the highest score of 29.7 %, social responsibility objective comes in the second order with 23.4 %, while survival and market share objectives are the third and forth positions of priority respectively. In addition, it is so clear that Qatari shareholding companies give little attention to achieve profit in the short term 5.7 %. Accordingly, the study findings support the opinions of some authors such as (Drucker, 1958; Pearce and Robinson, 1997; Kaplan and Norton, 1996). Regarding the test of hypothesis, X2 test indicates a non significant relationship between respondents' managerial profiles and the strategic objectives of Qatari shareholding companies, while a highly significant result is found based on the total score. These findings mean that all managers confirm the adoption of long term objectives by Qatari shareholding companies, and thus the first hypothesis is accepted. Table 3: Respondents' managerial level and strategic objectives Mgt Llvel Hi mgt level Middle mgt Low mgt Total Strategic Objectives Cash Survival flow 03 06 ROI1 Profits 13 5 Mkt share 8 27.7% 18 10.6% 03 17% 07 06.4% 06 12.8% 13 25.5% 14 29.5% 16 32.0% 47 29.7% 04.9% 01 02.0% 09 05.7% 11.5% 09 18.0% 24 15.2% 09.8% 06 12.0% 15 09.5% 21.3% 07 14.0% 26 16.5% 23.0% 11.0 22.0% 37.0 23.4% Social Res 12 Others2 Total 03 47 100% 61 03 06 100% 50 100% 158 100% Note: X2 = 3.572, D.f = 8, significant at 0.05 level . X2 (Total) = 37.085, D.f = 5, significant at 0.05 level. 1- ROI cells are merged with profits cells for collecting X2. 2- This column is dropped from the analysis. Second hypothesis Table 4 indicates that Qatari shareholding companies tend to achieve more tactical objectives than strategic ones since the total score of former objectives exceeds the total score of latter ones (193 compared with 158, Tables 4 and 3). Workers' development objective is the most important objective of all 20.7%, and sales volume objective comes shortly behind the former one with 19.7%, while increase gross profit and production volume get the third priority with 18.1% for each one. In addition, Table 4 reflects no significant differences in the opinions of respondents' management levels and tactical objectives which Qatari shareholding companies aim to achieve in the future (X2= 4.106), while a significant result was found based on total score. Based on that, respondents, regardless of their managerial position, agreed that their companies apply multiple short term objectives for designing tactical plans, and thus the second hypothesis is accepted. Such findings confirm what other strategic authors clarified before, (e.g., Chevalier and Catry, 1974) regarding the importance of adoption of growth / survival objectives (sales volume) rather than the financial objectives at the tactical planning level. 41 Proceedings of Applied International Business Conference 2008 Table 4: Respondents' managerial level and tactical objectives Mgt Level High Middle Low Total Sales Vol 13 23.6% 11 15.9% 14 20.3% 38 19.7% Gross Profit 10 18.2% 12 17.5% 13 18.8% 35 18.1% Production Vol 12 21.8% 13 18.8% 10 14.5% 35 18.1% Tactical Objectives Cash Workers flow Dev 03 11 05.5% 20.0% 07 15 10.2% 21.7% 05 14 07.3% 20.3% 15 40 07.8% 20.7% Mkt share 06 10.9% 11 15.9% 13 18.8% 30 15.6% Others1 Total 04 55 100% 69 100% 69 100% 193 100% 01 02 07 Note: X2 = 4.106, D.f = 10, significant at 0.05 level. X2 (Total) =12.77, D.f = 5, significant at 0.05 level. 1- This column is not included in the analysis of X2. Third hypothesis Total responses were scattered across the alternatives of employees' participation in setting strategic objectives, always 12.3%; frequently 26.3% and not at all 14.1%. Consequently, there is no unified leadership pattern practiced by senior managers that can be generalized in all cases of Qatari shareholding companies, Table 5. In addition, the highest score of responses was given to "sometimes" 29.8% followed by frequently 26.3%, which means that senior managers permit the employees (managers or workers) to express their opinions frequently or whenever there is a need for that (sometimes). However, nonsignificant relationships were found between respondents' managerial level (whether between respondents' subgroups or their total score) and employees' participation in setting strategic objectives, and thus this hypothesis is accepted. The findings of this study agree with the remarks of some strategic scholars (e.g., Chandler, 1963 and Taylor, 1976) regarding the adoption of a centralized leadership approach by senior managers for setting strategic objectives. Table 5: Respondents' managerial level and employees' participation in setting strategic objectives Mgt level1 Always Frequently Sometimes Rarely Hi mgt level 04 04 04 02 Not at all 02 %25 03 25.0% 03 25.0% 08 12.5% 01 12.5% 04 %15.8 15.8% 08 36.4% 15 26.3% 42.1% 05 22.7% 17 29.8% 05.3% 07 31.8% 10 17.5% 21.0% 02 09.1% 08 14.1% Middle mgt Low mgt Total 07 %12.3 No response2 Total 16 01 01 100% 19 100% 22 100% 57 100% Note: X2 = 3.247, D.f = 4, significant at 0.05 level. X2 (Total) = 6.772, D.f = 4, significant at 0.05 level. 1- (Always) is merged with (Frequently) and (Rarely) is merged with (Not at all). 2 - It is not included in the analysis. Fourth hypothesis A non-significant relationship was found between respondents' managerial levels and employees' participation in setting tactical objectives, while a highly significant result was found based on the total score, Table 6. Managers responses were in favor of employees' participation ("Always" 32.8% and "Frequently" 34.4%), and thus this hypothesis is accepted. Based on that, the findings of this study are consistent with the suggestion that a decentralized leadership approach is adopted for setting tactical objectives (Steiner, 1969). 42 Proceedings of Applied International Business Conference 2008 Mgt level1 Hi mgt level Middle mgt Low mgt Total Table 6: Respondents' managerial level and employees' participation in setting tactical objectives Always 07 43.75% 06 30.0% 06 27.3% 19 32.8% Frequently 07 43.75% 08 40.0% 05 22.7% 20 34.4% Sometimes 01 06.25% 03 15.0% 08 36.4% 12 20.7% Rarely 01 06.25% 01 05.0% 02 9.1% 04 06.9% Not at all 02 10.0% 01 4.5% 03 05.2% Total 16 100% 20 100% 22 100% 58 100% Note: X2 = 6.359, D.f = 4, significant at 0.05 level. X2 (Total) = 22.173, D.f = 4, significant at 0.05 level. 1- (Sometimes), (rarely) and (not at all) are merged together for collecting X2. 7. Conclusion and recommendation This study indicates that Qatari shareholding companies adopt multiple objectives for designing the company's strategy. Qatari Senior managers apply the strategic orientation in setting these objectives. Thus, ROI and social responsibility objectives get overall first priority, while achieving profit in the short term comes at the end. In addition, all Qatari managers agree that financial objectives are more preferable than growth/ survival ones in formulating a company's strategy. At the functional unit level, Qatari shareholding companies select a greater number of objectives, relative to strategic ones, at the tactical planning level. Mainly, employee development objectives comes in the first order followed by sales volume and then gross profit and production capacity. Selecting such objectives reflects the actual nature of Qatar. In general, the state of Qatar is characterized by its small population size and the highest income per capita in the world. Therefore, national companies face difficulties in recruiting qualified citizens for holding professional and non managerial jobs. In addition, senior managers adopt the centralized leadership approach to set the strategic objectives, while the decentralized approach was mainly applied to set the tactical objectives of the Qatari shareholding companies. Such results can be justified on the bases: (1) The majority of the Qatari companies can be categorized as a family company type that is owned by members of selected families. (2) Beside the limited number of qualified managers, the Qatari citizens are willing to hold the senior positions within the management hierarchy of their companies and letting the managers from other nationalities occupy the middle and junior positions. To cope with the instability and dynamicity of the global environment and to increase the efficiency of strategic planning process, it becomes crucial for Qatari senior managers to get the opinions of other managers and employees about the type of strategic objectives that they pursue in the future. The participation of all members of the Qatari company may enhance the rationality of the objectives selection process and later on the efficiency of implementation activities. In addition, senior managers have to give more attention to the market share objective, in particular at the tactical planning level. The globalization movement across the world has gradually reduced the barriers between the national markets. Consequently, the small companies (e.g., Qatari companies) are facing severe competition from the multinational companies. To survive this emerging situation, the small national companies have to sustain their market positions otherwise they will be diminished in the future. This study provides an opportunity to researchers who are interested in the field of strategic management in the Arabic and Asian countries. This is especially true if we know that a limited number of empirical studies have been carried out up to now. References Andrews, K. R. 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