Academic journal article Journal of Business Strategies

The Engagement of Employees in the Strategy Process and Firm Performance: The Role of Strategic Goals and Environment

Academic journal article Journal of Business Strategies

The Engagement of Employees in the Strategy Process and Firm Performance: The Role of Strategic Goals and Environment

Article excerpt

Abstract

Despite the call to engage employees in strategy making processes, empirical evidence that ties this engagement to financial performance has not been forthcoming. This study fills this gap by investigating whether involving employees in the strategy making process leads to a higher achievement of strategic goals and subsequently increased financial performance. Our findings suggest that the link between strategy making processes and financial performance may be underestimated unless strategic goals are included as a mediator. We also find environmental dynamism moderates the relationships we investigate. Under conditions of low dynamism, there is a stronger relationship between the engagement of employees and strategic goals related to innovation than under conditions of high dynamism. Conversely, strategic goals related to quality have a stronger relationship with engagement of employees under conditions of high dynamism when compared to conditions of low dynamism.

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The importance of involving employees throughout an organization in the strategy making process has been recognized by traditional academic researchers (e.g. Burgelman, 1991; Floyd & Wooldridge, 2000; Hart, 1992), as well as consultants and practitioners (e.g. Hamel & Prahalad, 1994; Kaplan & Norton, 1996). One rationale behind the use of multi-level strategy processes is to provide employees with a better understanding of the company's strategy and build a stronger commitment to achieving the goals in the implementation of the strategy (Floyd & Wooldridge, 2000; Hamel & Prahalad, 1994; Kaplan & Norton, 1996). A company's strategy can also be facilitated by employee involvement because knowledge and information relevant to strategy making is dispersed throughout the organization (Miller & Monge, 1986). Cognitive model theorists (Anthony, 1978; Frost, Wakely & Ruh, 1974) propose that when employees have more complete knowledge about their jobs and operations they can provide better information. Involvement in strategy making also allows employees to know more about implementation of decisions. For example, ideas that support new innovations often come from those employees that are in direct contact with the customer (Von Hippel, 1988). In order for innovation to be a source of competitive advantage for a company, there must be organizational processes that allow these ideas to be brought forward and integrated into the activities of the company (Burgelman, 1983).

Despite the call for more investigations into the relationship between strategy making process and firm performance (Chakravarthy & Doz, 1992; Huff & Reger, 1987), there has been relatively little empirical research on this link, especially when strategy making processes involve multiple levels of the organization (Floyd & Wooldridge, 2000; Rajagopalan, Rasheed, & Datta, 1993). While the intensity and use of employee involvement practices is on the increase, the strategic impact of such practices has not been adequately investigated. This may be because most studies focus on narrow definitions of employee involvement (Ledford & Lawler, 1994). Our study uses a broad definition of employee involvement in strategy process to include information sharing, decision making, experimentation, understanding of company goals, and iterative strategy making that involves multiple levels of the organization. A broad definition captures the variety of involvement ranging from information sharing to actual decision making. We suggest that aspects of such involvement should relate to achievement of strategic goals.

The two types of strategic goals tested in this study are quality and innovation. It is suggested that both require employee involvement and empowerment to make decisions (Lawler, Mohrman, & Ledford, 1995; Burgelman, 1991). In addition, these goals often create a tension between striving to have organizational processes that ensure consistent quality and organizational processes that facilitate creativity and innovation (Brown & Eisenhardt, 1998; Jelinek & Schoonhoven, 1990; Miron, Erez, & Naveh, 2004). …

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