abstract: this paper presents a preliminary empirical investigation of
TRANSCRIPT
CORPORATE POLITICAL MANAGEMENT READINESS: THE RELATIONSHIP OF ENVIRONMENT-ORGANIZATION AND PERFORMANCE
Robert C. MoussetisNorth Central College30 N. Brainard StreetNaperville, IL 60566
George NakosClayton State College and University
Georgia, USA
Ali Abu-RahmaUnited States International University
California, USA
Athanassios KriemadisUniversity of Thessaly
Thessaly, Greece
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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
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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
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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 1Perspectives on the Environment-Organization Relationship
Selected Author(s) Selected Theories Adaptations - Modifications
Aldrich & Pfeffer, 1976March & Simon, 1958Pfeffer, 1982Pfeffer & 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
Contingency Optimal performance is the result of appropriate alignment between the environmental (political ) turbulence and managerial (political ) behavior and
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Lawrence & Lorsch, 1967; Mintzeberg, 1973
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 decision-makers 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;
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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 2Environmental 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)
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which facilitates the goal of this research to associate environmental turbulence and strategic behavior-orientation to performance.
Table 3Modes of Strategic/Political Responses
Selected Authors, Year Levels of Strategic - Political Responses
1 2 3 4 5Post, 1978, 1980, Buchholz, 1995, Frederick, Post and Davis, 1992
Inactive Reactive Proactive Interactive
Miles & Snow, 1978 Reactor Defender Analyzer ProspectorAnsoff and McDonnell, 1990 Stable Reactive Anticipatory Entrepreneurial CreativeSethi and Falbe, 1987 Exploitative,
defensive adaptation.Reactive
adaptationProactive
adaptation.
Sitkin and Bies, 1994 Standardization Formalization
Internalization Adoption Enhancing
Exploratory Creative
Marcus, 1993 Defender Reactor ProspectorVernon-Wortzel, 1994 Reactive ProactiveCarroll, 1979 Defensive Reactive ProactiveLorange, 1994 Reorient and/or
DominateRapidly 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).
Until the 1940’s, society did not have any grand demands from corporations and management functioned without any interference from society (Galambos, 1975). However, this sheltered arrangement period ended and the corporate management entered the socialization period where corporate management was affected by society (Post, 1978) and the gap between organization’s performance and society’s expectations was broadened (Mahon & Post, 1987). In the socio-political environment of the firm, management needs to devise different responses for different levels of turbulence (Post, 1978).
Management should possess capabilities of rethinking traditional beliefs and understanding the political process and skills in political behavior. Moreover, management should develop a political infrastructure capable of recognizing the political market domain of the firm, which will facilitate necessary political networking and relations critical to the profit making activities (Ansoff & McDonnell, 1990). This type of managerial capability can claim success in the political arena only before issues become laws and regulations by facilitating the formulation and implementation of social goals (Vernon-Wortzel, 1994) with a clear
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understanding of the legislative process and the power of stakeholders affecting the firm (Useem, 1985). Managers must understand the legal structure and political process to provide a contributing social strategy to the overall corporate strategy (Vernon-Wortzel, 1994).
Baron (1995) suggested that since nonmarket issues are critical to the performance of the firm, managers are responsible for developing, formulating and implementing political strategies to facilitate the creation of favorable rules to the firm. Baron (1993) provided an extensive analysis of the managerial capability domains when engaging in political strategies. Several authors have suggested the need for managerial political capabilities that include lobbying, grassroots activities, coalition building, testimony, political entrepreneurship, electoral support, communication and public advocacy and judicial strategies (Ansoff & McDonnell, 1990; Baron, 1993; Epstein, 1969; Holcomb, 1981; Sethi, 1977; Sethi, 1982; Vernon-Wortzel, 1994).
In summary, there is a demand of a socio-political capability by the business manager. However, we must also identify how this capability is manifested. For example, managers display different propensities towards change (from resisting most/all changes to constantly seeking novel changes).
Table 4Managerial Approach towards Change
Level of Turbulence 1 2 3 4 5
Managerial Capability for Political Response
Evades Changes
Conforms to changes
Pursues familiar changes
Pursues new alternatives
Searches for novel changes
Model of Political PostureSubscribing to the theoretical postulations and empirical suggestions, it is suggested that the firm optimize its performance when the corresponding strategic behavior and managerial capability match the level of turbulence. Utilizing the environment-organization alignment as an indicator of performance, the research model is facilitating the operationalization of the research. Since different firms experience different levels of environmental turbulence, display different strategic behaviors and possess different managerial capabilities for political response, the gaps between environmental turbulence and historical behavior and capability will serve as moderating variables to indicate performance levels. Furthermore, to facilitate the operationalization of the research, we defined political events and issues as the laws and regulations relating the firm according to the perception of the managers responding to the questionnaire.
Table 5Environment-Strategic Behavior-Managerial Capability Fit
Level of Turbulence
1 2 3 4 5
Environmental - Political Turbulence
Laws and Regulations seldom change. Firms have ample time to respond
Laws and Regulations change slowly. Firms have time to respond
Laws and Regulations are changing fast. Firms can only keep up
Laws and regulations are discontinuous but predictable.
Laws and Regulations are unpredictable.
Strategic Behavior-Political Orientation
Stability. Decision is based on past events
Reactive. Decisions are based on experience
Forecast. Decisions are based on projections
Political Entrepreneurship. Decisions are based on expected futures
Inventive. Decisions are based on novelty
Managerial Capability for Political
Evades Changes Conforms to changes
Pursues familiar changes
Pursues new alternatives
Searches for novel changes
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Response
Table 5 represents a combination of table 2, 3 and 4. It provides the foundation to operationalize this research. It offers different levels of environmental turbulence, strategic orientation and managerial capability. According to Table 5, previous research on environment-organization fit and empirical support (Ansoff & Sullivan, 1993), the optimal posture of the firm is when all three variables (Environmental - Political Turbulence, Strategic Behavior-Political Orientation, and Managerial Capability for Political Response) are at the same level of turbulence.
Hypotheses
The environment-organization fit-alignment theory provides a foundation to explore political posturing as a contributor to economic performance. Furthermore, the fit-alignment between the exogenous factors (environmental turbulence) and the endogenous factors (strategic behavior and managerial capability) optimizes performance. In order to investigate the original hypothesis, it is divided into five sub-hypotheses to facilitate the establishment of the environment-organization alignment (present strategic posture), establish the gaps between present political posture and desired political posture, and, finally correlate the gaps between desired and present posture to the impact of the rules of the game to the firm and the perceived the economic performance of the firm
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).
This general hypothesis was divided into five sub-hypothesis.
H1: There is an inverse relationship between the strategic-political behavior gap and the impact of the rules of the game.H2: There is an inverse relationship between the managerial political capability gap and the impact of the rules of the game.H3: There is an inverse relationship between the strategic-political behavior gap and the performance of the firm.H4: There is an inverse relationship between the managerial political capability gap and the performance of the firm.H5: There is a direct relationship between the impact of the rules of the game and the performance of the firm.
*****************Insert Graph 1 here
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Research DesignThis was a descriptive correctional study. This research project investigated the
relationship of the corporate political manager's perception of the political turbulence and the corporate manager's present political behavior and present political capability to influence the maintenance and/or creation of favorable rules (control variable) for the firm. It was also the
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purpose of this investigation to examine the relationship of the corporate political posture (degree of alignment between environmental turbulence, strategic behavior and political capability) and the performance (dependent variable) of the firm. The data collection method selected for this study was a questionnaire. A preliminary telephone survey of 17 Fortune 500 firms was conducted to investigate the receptiveness for such a study. Results indicated that firms would be receptive to a study of such value. Questionnaires were then delivered to the company managers responsible for legislative and regulatory affairs. Instrumentation: Data were collected through a mailed questionnaire. The first section of the questionnaire included structured questions that targeted the assessment of the managerial perception of the legal and regulatory turbulence. The second group of questions targeted the assessment of the managerial aggressiveness. The third group of questions targeted the managerial capability. Finally, the last two groups assessed the impact of the rules of the game and the performance of the firm. The questions were solely based on the theoretical propositions by Ansoff (1979) and previous findings (Ansoff, Sullivan et al., 1993).Questionnaire: Questions 1-4 were establishing the turbulence of the environment. Questions 5-7 the strategic behavior. Questions 8-17 were referring to the organizational responsiveness of the firm. Questions 18-19 were refereeing to the managerial perception of the impact of the rules of the game and the performance of the firm. All questions were constructed on a five-point scale to maintain a general consistency with the theory (Ansoff, 1979; Ansoff & McDonnell, 1990) and the empirical support (Ansoff, Sullivan et al., 1993) original research, which was based on a five-point scale. The scoring for all questions 1-19 was from 1-5.Criteria for Selecting Data Sources: Typically, Fortune 500 companies are routinely involved in significant corporate political activity and therefore the corporate political directors or vice presidents were selected to answer the questionnaire. Fortune 500 firms maintain some degree of corporate political activity. The majority of Fortune 500 firms maintain an office in Washington D.C. Fortune 500 companies maintain the resources to influence the corporate political activities. The company had to be a Fortune 500 and had to be listed in the National Directory of Corporate Public Affairs. Finally, if the company maintain a large contingency of corporate political activity, the authors of the article made a judgment and sent the questionnaire to the highest possible officer. Each company received two questionnaires, which were mailed to the highest-ranking VPs of government and/or public affairs. When more that two were observed, then the researchers arbitrarily chose the one who he thought was higher ranking.
Independent Variables
Environmental Turbulence was operationalized on a five-point scale using four dimensions: Complexity of Political Events and issues, Familiarity of Events and IssuesRate of Change of Events and IssuesVisibility of Events and Issues
Strategic Behavior-Orientation was operationalized on a five point scale based on the discontinuity of successive strategic-political moves and the time perspective used for selection of the strategic-political moves using the following dimensions: Stakeholder Aspirations for laws and regulations, stakeholder power and influence over laws and regulations.Managerial Capability was also operationalized on a five-point scale. It included General Management's Mindset, Knowledge, Leadership Style, Problem Solving Skills, Information Systems Used, Managerial Systems Used, Rewards, Management's Perception of a Model of Success, Managerial Capacity and finally, Risk Propensity towards laws and regulations.
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Strategic-Political Behavior Gap: This is measured by the absolute difference between the firm's observed strategic behavior of the political strategy of the firm and the suggested strategic behavior of the political strategy.Managerial Political Capability Gap: This is measured by the absolute difference between the firm's observed political strategy capability and the suggested political capability.
Independent/Dependent Variable
Impact of the rules of the game: It is the measure of the perceived managerial assessment of the impact of the rules of the game to the firm.
Dependent Variables
Performance: It is measured by the managerial perception of the success of the firm as a result of the impact of the Rules of the Game.
Validity
The instrument was pretested for construct validity through questioning 17 managers who were able to indicate the correlation between political posturing and economic performance. Then, the questionnaire was reviewed and revised by strategic management experts. Lastly, the validity of the instrument and the process has been established by similar studies in over 420 firms in a diversity of environmental conditions in several countries United States (210), United Arab Emirates (25), Algeria (Total 34), Indonesia (Total 97) and Ethiopia (Total 54).
Reliability
The reliability was established using Cronbach's Alpha () coefficient. Typically, a value of 0.7 is considered adequate to conclude internal consistency (Nunnally, 1978:245). The Cronbach's Alpha coefficients were sufficiently strong to measure the relationships needed for this study. There were 702 questionnaires with 133 respondents (19% response rate).
Table 6Cronbach's Alpha Coefficients
Variable Number of Items
Cronbach's Alpha
Turbulence 4 0.744Strategy 3 0.8766
Capability 10 0.9502Note: Some companies maintain a strict policy of NOT responding to questionnaires for various reasons while other companies maintain low ranking officials regarding legal and regulatory affairs. Of all Fortune 500 firms, questionnaires were mailed to those who maintained a high ranking official (usually VP of Government/Public Affairs
Data Analysis Methodology and Scoring: Pearson r's were used to find the directions, strengths and significance of the relationships between pairs of variables. Multiple regression was used to
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measure the combined effect of the selected independent variables on selected dependent variable. The participants were asked to respond to their perception of the turbulence of the environment. Based on that answer and the previous research (Ansoff, Sullivan et al., 1993) the required strategic orientation and required capability was established. Then the participants were asked to establish their perceptions of strategic orientation and managerial capability. The differences between the required and observed determined the respective gaps. Those gaps then were correlated to the impact of the rules of the game and the performance of the firm. All answers ranged from one to five. The absolute arithmetic difference established the gaps.Limitations of the Study and Assumptions: The study concentrated only on establishing the direction and strength of the relationships. Participants were only expressing their managerial perception without any input from any other source. The consistency of the answers within the same company was not examined. The study treated all answers the same. Finally, researchers assumed that participants were truthful and were expressing their opinions
RESEARCH FINDINGSThe following Tables (7,8) present the quantitative strength of the relationships.
Table 7Means and Standard Deviations of Research Variables
Variable Cases Mean Std. Deviation
Impact 133 2.4436 1.4218
Performance 133 2.96224 1.2697
Behavior Gap 133 1.3559 .9925
Capability Gap 133 1.2278 1.0023Table 8
Summary of Research Results(H-1)The Relationship between Strategic-Political Behavior Gap and the Impact of the Rules of the Game
Number of Cases (N) R P133 -0.6626 <.001
(H-2)The Relationship Between Strategic-Political Behavior Gap and the Performance of the FirmNumber of Cases (N) R p133 -0.7167 <0.001
(H-3)The Relationship Between Responsiveness Gap and the Impact of the Rules of the GameNumber of Cases (N) R p133 -0.6331 <.001
(H-4)The Relationship Between Responsiveness Gap and the Performance of the Firm Number of Cases (N) R p133 -0.6909 <.001
(H-5)The Relationship Between Impact of the Rules of the Game and Performance of the Firm.Number of Cases (N) R p133 0.7059 <.001
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The above table summarizes all findings. All hypotheses were supported at p<.001
Discussion
Assessment of the Turbulence of the Political Environment: Most managers that experience negative effects from the legal and regulatory environment perceived the regulatory environment as "Very Complex." This could indicate a lack of time invested in unraveling the complexity of the political environment and/or managerial incompetence to determine the complexity of the environment. In contrast, successful companies experiencing positive impact of the political environment perceived the turbulence of the environment less complex and more familiar. This was a possible indication of better knowledge and/or time invested to determine the political turbulence.
In this study, most firms perceived high turbulence of the political environment. This is an indication that firms at least have recognized that their political environment is unpredictable and changing. The results also have suggested that the opinions of turbulence of the political environment are consistent across the spectrum for all respondents. Most managers generally detect similar turbulence of the political environment. However, there is a wide spread of opinions on strategic orientation and managerial capability utilized to respond effectively.
It is also evident that the environment plays a leading role (Ansoff, 1979; Drucker, 1980; Greening & Gray, 1994) in determining the behavior that will lead to better performance (Ansoff and McDonnell, 1990) and the impact of public policy on the firm (Berkey and Hensel, 1993). The findings are consistent with the theoretical propositions (Ansoff & McDonnell, 1990; Baron, 1995; Vernon-Wortzel, 1990) suggesting that managers must study the environment.
Stakeholder Analysis: Firms that reported negative impact of the constraints imposed on the firm, were neither assessing stakeholders nor stakeholder power. In addition, management perceived the stakeholder environment to be stable.
On the other hand, managers that perceived the stakeholders as a dynamic and continuously changing environment were able to better match their stakeholder analysis to the turbulence of the political environment and reported a positive impact of the constraints and better performance. Those findings are consistent with the theoretical propositions of stakeholder analysis as a strategic decision tool (Freeman, 1984), and the recognition of diverse stakeholders groups that management must attempt to respond to them (Donaldson & Preston, 1995).
Within the firms that have experienced suboptimal impact of the rules and performance, managers generally recognized the importance of stakeholder analysis but did not engage in determining possible new coalitions (Ansoff & McDonnell, 1990; Vernon-Wortzel, 1994; Baron, 1993) that might affect their firms. Managers also did not display, fundamental lobbying activities (Ansoff and McDonnell, 1990; Sethi, 1982; Epstein, 1969; and, Baron 1993), and political entrepreneurship (Baron, 1993) were not evident. Stakeholder analysis was confined only to existing stakeholders which suggested a static model of stakeholder analysis.
The findings are also consistent with theoretical propositions (Ansoff and McDonnell, 1990) that indicated a wide variety of societal aspirations and power motives exhibited by managers. Those traits transcended into the managerial environment and translate into a diverse display of strategic orientation/behavior. This is also consistent with the emergence of the society of institutions (Drucker, 1980) or the transformation of business institutions into socio-economic institutions (Ansoff and McDonnell, 1990).
It also suggested that interactions with regulatory bodies and various interests groups (stakeholder analysis) is critical to performance which would be consistent with theoretical
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suggestions (Lippitt, 1985). If we accept the theoretical proposition that firms do not only pursue the profit seeking
activities, then, we must also accept the increased socio-political nature of the managerial work which would explain the variety of opinions when attempting to assess the strategic orientation towards the political environment. This would also be consistent with modern managerial theory that has the manager's aspirations being different form the owner's aspirations (Ansoff and McDonnell, 1990).
Managerial Capabilities for Socio-Political Response: There is wide spread of opinions when the intensity of the political strategy is examined. Perceptions of stakeholder importance, stakeholder power and political managerial capability varied widely. This may indicate that managers have an accurate perception of the political turbulence but have diverse methods of addressing the implications of the political turbulence.
Diverse methods of addressing the turbulence of the political environment might be attributed to diverse managerial aspirations and the socio-political nature of the modern firm. As we observed from this study and the previous studies (Ansoff, Sullivan et al., 1993), it is critical to match the strategic orientation and managerial capability to the appropriate turbulence of the political environment to generate success.
The findings also suggest that the operationalization of the strategic orientation and managerial capability for political affairs is consistent with the theoretical propositions of states and/or levels of behavior (Sethi, 1975; Post, 1978; and Ansoff, 1979; Brummer, 1991) as a mechanism of studying corporate political behavior. In addition, firms must develop a societal response capability (Ansoff and McDonnell, 1990) that will be consistent with the intensity of the environment.
Evaluation of the Study: The strengths of the study are the empirical support between the political strategy-posture of the firm and performance. It also provided a foundation to further examine the strategic orientation characteristics of the political strategy. On the other hand, the limitations include the characteristics of the stakeholder analysis must be expanded to discuss in detail power and aspirations of stakeholders and the study was not industry specific.
Suggestions by the Findings
This study successfully established empirical support for a relationship between political strategy, impact of the rules of the game and performance. With the theoretical propositions (Ansoff, 1979) and the previous findings (Ansoff, Sullivan et al., 1993), this study further strengthened the previous findings. This study provided additional empirical validation to the environment-organization alignment theory. The implications are that firms must include a political strategy into the overall strategy of the firm. Practitioners and academic researchers must include a political analysis of stakeholders (Freeman, 1984; Ansoff, 1979) in their analysis of corporate strategic plans (Carroll, 1989) as it relates to the environmental turbulence.
This study provided the underpinning to further research the relationship of market and non-market environments (Baron, 1993). This exploratory study established that political posture is a strategic issue that has direct effects on a firm's performance. The process of influencing the rules making activities and their relationship with performance require further examination. Specific recommendations for future academic research include:
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Diagnosis of the Political Turbulence of the Firm: Firms must recognize the degree of complexity and unpredictability that surrounds the firm. This study has suggested that most firms perceived the political environment as very complex. Methodologies and instruments are required to help those managers unravel the complexity of the political environment. Research is needed in the systematic strategic study of the political market of the firm. When strategic management research investigates monitoring and scanning of the environment, the research must expand to include the political environment. The study of the strategic posture with political posture requires an investigation.Analysis of Stakeholder Power and Aspiration: The diversity of stakeholder aspirations and power was attributed partly to the difference between owners and manager's aspirations. The examination of the strategic behavior needs to be expanded to include attributes such as lobbying, grassroots activities, coalition building, testimony, political entrepreneurship, electoral support, communication and public advocacy and judicial strategies. An examination of those attributes will further augment the degree of legitimacy intensity displayed by the management. This will establish a comprehensive list of behavioral characteristics to determine how corporate political activities relate to performance. In addition, the examination of those characteristics might establish the degree of significance. Such observations might allow firms to concentrate their political activities on the characteristics with higher significance/importance and therefore customize their design of political strategy. The stakeholder power exerted on the political posture of the organization dictates an investigation. The degree of power intensity applied on the firm may have an effect on strategic choices and therefore on the selection of power posture. The role of top management's power in political choices also requires an investigation.Managerial Capabilities to Support a Political Posture: Additional studies may provide a better understanding about the manager's ideological orientation regarding the influence of broader societal issues on the firm. Research may be directed towards the examination of how the top management receives and interprets societal information or identification of the political market place. Lastly, the reward system for societal activities must be examined.
Conclusions
All organizations are subject to some degree of regulation and/or political influence by the state and/or a variety of stakeholders. The makeup and degree of political efforts vary widely across societies and industry sectors. While recognizing the importance of the political environment in constituting and constraining organizations, it is important that we also recognize the power of actors to shape institutional rules. The complexity of the political environment is often left open for interpretation and challenges, which causes diverse organizational responses to deter action against negative political impact (i.e. Regulations). However, the actors of the political environment have space to maneuver and engage in shaping strategic behavior. This dictates the development of a comprehensive political posture to provide management with the mechanisms to shape the political environment and influence the contents of regulations, laws and societal expectations by all stakeholders. Increasing environmental turbulence will make political posture even more important to assist counter the effects of political activities. Shaping the strategic behavior of political actors to create favorable rules for the firm must be institutionalized by the organizations. Political posture is also a critical component of the overall strategic posture of the firm.
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