Managerial Strategic Behavior in State-Owned Enterprises—Business and Political Orientations

Abstract

Two different functions, managing the business in the product or service markets and managing public support in the political markets, must be performed by managers of state-owned enterprises (SOEs). Each organization has to strike a strategic balance between these two functions. The way this is done is indicative of the organizational orientation and behavior. The greater the relative emphasis on managing public support, the stronger is the political orientation in our terminology. The greater the relative emphasis on managing the business, the stronger is the business orientation. This paper proposes that explanation of behavior of SOEs can be improved by taking into account the orientation of management toward the mix of business and politics. Although the combination of business and political goals of SOE has long been recognized, the mix of business and political activities as a strategic variable was rarely distinguished. This strategic variable is operationally defined, measured and explained. An insight into the purposes of business and political activities is gained through an analysis of the external and internal orientation of management. The organization may concentrate internally, on its own needs and goals, or externally, on the needs and goals of the outside publics. This distinction can be useful in descriptive as well as normative research. Management orientation, whether business or political, is associated with a specific set of behavioral tendencies or implications. These implications are expressed in propositions which state that an increase in the political and external orientation of management are related to an increased likelihood that: 1. Sales rather than profit goals would be emphasized. 2. Low prices relative to costs would be charged. 3. Goals would be relatively unstable. 4. Goals would be stated in unclear or vague terms. 5. Performance evaluation would be carried out on an irregular basis. 6. Public support would be sought prior to action. 7. Top management would be recruited from the public sector. An exploratory survey of 50 executives of SOEs in fourteen Latin American, Asian and African countries was used to test the propositions. With few exceptions, the empirical results support the above propositions. Further research, which will include additional variables and a larger sample, can increase the reliability of the findings and improve our understanding of the factors which influence management orientation.