Academic journal article Management International Review

Key Stakeholder Theory and State Owned versus Privatized Firm

Academic journal article Management International Review

Key Stakeholder Theory and State Owned versus Privatized Firm

Article excerpt


* Using key stakeholder theory, this study investigates how differences in ownership between state owned firms (SOEs) and privatized firms in transitional economies influence the firm's ability to (1) adapt to changes in the environment, (2) pursue aggressive competitive strategies, and (3) achieve better performance.

Key Results

* Our findings tend to indicate that, at least in transitional economies like Rumania, key stakeholder theory is a useful tool for explaining differences between SOEs and privatized firms. Specifically we found that privatized firms perform better than SOEs, privatized firms tend to pursue more aggressive/competitive strategies, but are only marginally more adaptable than SOEs. Implications for future research are discussed.

The ability of an organization to adapt to changes in the environment is a critical issue in strategic management, given that strategic management scholars (Lee/Miller 1996, Miller 1988, Naman/Slevin 1993, Tan/Litschert 1994) have found that when firms align their strategy and organizational structure with the level of environmental turbulence, performance is optimized. These scholars contend that the strategic "fit" between strategy, structure, and environment is a key determinant of organizational performance. Further, organizations that are more adaptable have been shown to have a greater capacity to achieve this strategic "fit" (Jennings/Seaman 1994). Adaptability means that the organization can make the changes needed to modify their organizational structure and processes when environmental demands change (Jennings/Seaman 1994).

No where is this ability to change more important than in the transitional economies of central and eastern Europe (CEE). Prior to the economic changes of the early 1990s, most CEE based firms were State owned (SOEs). Strategic decisions were taken by a central planning group and communicated directly to firm level managers (OECD 1992). These managers had no choice in the strategies they pursued. Now, with economic reforms in full swing, western advisors are encouraging these CEE based organizations to privatize and follow the western model of private ownership (Nellis 1994, OECD 1992). This policy of private ownership is premised upon the belief that through private ownership firms become more adaptable, gain control over their strategy choices and can more easily achieve strategic fit, which means they should perform better (Uhlenbruck/de Castro 1998). However, little empirical evidence exists to support this western contention (Andrews/Dowling 1998), especially in transitional environments (Uhlenbruck/de Castro 1998). Thus, one question that needs to be answered is whether privatized formerly State owned firms (herein called privatized SOEs), in transitional economies (1) are more adaptable, (2) have a greater ability to select their strategies, and (3) perform better than State owned organizations?

For some time now, scholars have explored the impact of ownership structure on a firm's ability to adapt strategy to meet changes in the environment (Gedajlovic 1993, Kroll/Wright/Toombs/Leavell 1997, Lane/Cannella/Lubatkin 1998, Li/Simerly 1998, Wright/Ferris 1997). However, most of these studies concentrate on the agency issue: the issue of whether non-owner managed firms pursue managerial strategies instead of maximizing owner value (Gedajlovic 1993, Lane et al. 1998, Li/Simerly 1998, Kroll et al. 1997). While these studies provide some insight into whether firms match their strategy with the demands of the environment, agency questions do not address the more important issue of whether ownership structure influences the ability of managers to achieve strategic fit and improved performance.

Several researchers have suggested that large blockholders, and other "key stakeholders" may be able to influence the decisions that managers make (Brouthers/Bamossy 1997, Wright/Ferris/Sarin/Awasthi 1996). …

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