Abstract

Topic: Impact of external regulatory actors on organizational strategy formation and structure

Chapter 1: Introduction

Competition within an industry and among related industries than fight for the superiority of substitutes has increased over the years since the birth of modern economics and macro-level financial policies. The effects of globalization and technological innovations have increased the competition and brought in comparative advantage of nations in which multinationals compete on a global arena aided by domestic economical strengths. Such struggle has prompted research in the areas of market forces, customer relationships, leadership and strategic management.

This paper focuses on strategic management by examining the influence of external forces on the firm and how the firm reacts to such external involvement through the internal resource economics. Its scope is on regulatory bodies as the external forces and internal resource allocation as the internal alignment of the firms to offset the external interference. This chapter addresses the background of the study in which core issue that prompted this research laid bare, problem statement is then articulated and nature of the study explained. The chapter also addresses the justification of the study in which the rationale for the study is expressed both in research and practice and the purpose statement addressed. Lastly, study questions and hypotheses are constructed to guide the subsequent chapters. After addressing a brief review of literature, a conceptual framework is constructed to guide the concept development and perspective of the study concerning the phenomena. The study limitations, assumptions and delimitations are also outlined.

Background of the Problem

Over the years, the issue of industry regulation and deregulation has developed into a complex moot point for corporate decision making and management. Many executive managers in the field of transport, telecommunications, energy, food and beverages among other have been citing the related risks and uncertainty associated with link between corporate and external regulatory actors (Havinga, 2005). To overcome these challenges, firms have started devising diverse strategies that attempt to integrate regulatory forces into the structure formation. For instance, the energy sector has witnessed corporate-centered efforts to manage external political environments and various lobbying attempts. The attachment between corporate and regulation, especially political control has been so strong in the energy sector.  From a survey conducted by Engelhardt (2015) on political movements within the corporate bound utilities, more than half of the 23 respondents considered policies within the corporate sphere to been given much attention than market strategies which indeed dictate revenue for the firms. Consultants within the management domain such as McKinsey have perennially included regulation topic in the business agendas (e.g. McKinsey, 2004). This demonstrates the weight and urgency of the regulatory management issues that forms the foundation of this study. It also indicates that the findings from this study will be significant to the top management in decision making.

According to a survey conducted by Havinga (2005), strategy integration of external regulatory factors has been neglected and the extent to which corporate management interacts or inter-depends on regulatory actors has been obscured. The study suggested a strategic management that examines the influence of external regulatory factors on corporate strategic management and structure. However, the impact of external regulatory forces on structure and strategy has received trivial treatment despite these bare realities about their influence. Therefore, there is need for profound research studies that examines how corporate management and strategy can proactively handle this kind of external forces.

Problem Statement

Regulatory actors in many industries have been perceived as impediments to liberal operations of companies under those industries because the firms feel restricted on how to carry out their business and interactions with the external environment. A study by Steensen and Sanchez (2007) revealed that firms feel  their profitability levels are heavily reduced by external regulatory forces especially the government. However, it is also true that many sectors such as energy, transport, banking and telecommunications have their business success anchored on external forces including regulation. Majority of the decisions affect a firm’s level of profitability in such sectors are anchored on the influence of regulatory forces on strategic choices that have to be made in corporate management. However, research studies on strategic management have been focusing traditionally on market strategies and associated questions on the kind of customers to attract, what type of products and service to engage in, how to position the company, and how to structure the firm so as to support these activities (Frankenberger, 2006).

The major challenge is how to integrate the seemingly detrimental external regulatory actors into the structure formation and corporate strategy construction. Issues on how to integrate regulatory actor into the market strategy formation and structure have been left unexplored in research studies on corporate political activities. This study seems to plug this research gap by integrating external regulatory forces into the strategy formulation process. In addition, the study intends to construct a theoretical framework on strategic management that integrates external factors especially regulatory actors and incorporates both market driven and non-market functions. Using the approach by Mintzberg and Lampel (1999), this study utilizes the neo-institutional theory as a fundamental theoretical background to base the arguments and understanding of the strategy formation process and structural construction in a company.

Purpose of the Study

The purpose of this study is to examine the impact of external regulatory actors on corporate strategy formation and structure. It also appraises the internal alignments in terms of resource allocation and their configuration to the regulatory involvement. The study uses a holistic approach to corporate strategy instead of its components like many previous cross-sectional studies on the same topic. This study utilizes a mixed methods approach to address the management of government and anti-trust authorities influence on the firm’s strategy formation and structure as well as the internal responses through resource allocation.

The research uses a convergent mixed methods design in which quantitative and qualitative data is gathered in a parallel separate manner and analyzed before being merged for discussion and comparison. In this research, company financial and resource data will be used to test the Neo-institutional theory that predicts that external regulatory forces (government and anti-trust authorities) positively influence the internal allocation of resources at the Arabian Petroleum Supply Company (APSCO). The interviews with key managers and employees of APSCO will explore strategy changes prompted by involvement of external regulatory actors and how the internal strategic responses configure with the regulations. The reason for gathering both qualitative and quantitative data is to develop a comprehensive understanding of the study phenomena by converging qualitative and quantitative data and comparing the two datasets (Creswell, 2014).

Nature of the Study

This research study utilizes a mixed research methodology that combines both qualitative and quantitative elements to come up with composite research findings. The study is divided into two phases for systematic analysis. The first phase comprises of resource allocation, data collection and digitalization so that it can be stored in a database. The stored data is coded in respect to its consistency with whole concept of corporate strategy. The coding assists in numerical synthesis of the strategic consistency of data for a period of time. This phase ends with the enrichment of refined code schemes and addition of more statistical features to the data.

In the second phase, grounded theory research strategy will be utilized in the analysis of qualitative data from interview transcripts and supplemented with the traditional creative process of theory construction using fundamental data measures. According to Creswell (2014), grounded theory involves the coding, memoiing, conceptualizing and interpretation of qualitative data collected. For this approach, direct quotations from the respondents are used to prove that the findings are empirical. Following this approach, quantitative elements are added to help in the calculation and comparison of density measures of the data categories and codes so as to enhance the objectivity of the study findings. According to Golafshani (2007), it is a perennial challenge to remain objective when dealing with qualitative data hence validity and reliability of the research instruments is a key determinant of objectivity. While the researcher agrees that density measures partially meet the criteria for quantitative analysis, they help in theory construction and add objective evidence to a seemingly qualitative data. Additionally, this study will analyze press articles so as to complement the resource based data and interview transcripts through data triangulation.

Significance of the Study

Over the recent two decades, two wide dimensions of literature have been dominating research studies on corporate strategy, the theory of the firm and organizational market structures and boundaries; transaction cost economics and firm capability-based literature. According to Santos and Eisenhardt (2005), since the transaction cost economics approach the phenomena from an organizational exchange efficiency view, it is criticized for giving little attention to organizational heterogeneity and sustainable diversity. On the other hand, capability literature has been criticized for its inability to tackle organizational governance and forms that generate capability differences (Jacobides & Winter, 2005). The study is intended to contribute to the body of knowledge about external actors through the use of Neo-institutional approach and explore the mutual interdependencies between corporate strategy formation and regulatory actors.

According to survey by Papadakis, et al (1998), external actors to a firm have been condensed to only abstract definitions about heterogeneity, hostility and dynamism. When external actors are approached directly in recent research studies, cross-sectional content study design is frequently used to measure their effect on various dependent variables such as innovativeness (Marcus, 1981; 1988), corporate strategy (Rugman & Verbeke, 1998; Ring & Perry, 1985; Zajac & Shortell, 1989) and organizational design (Dickie, 1884). However, there are limited studies with detailed analysis on the nature and extent to which external actors influence strategy formation within the corporate structure. Utilizing the neo-institutional perspective as derived by previous studies (Scott, 1987b; DiMaggio & Powell, 1991, 1983; Meyer & Rowan, 1977; Zucker, 1987), this research study intends to nourish this research deficiency by focusing on external regulatory actors including anti-trust authorities and government policies and their influence of corporate structure and strategy. Since the above neo-institutional perspective studies have been passed by time and technological advancements on corporate strategy, this study will seek to understand how contemporary corporations can manage such influence.

In addition to the contribution to literature, the findings from this study will contribute to stakeholders’ appreciation of the knowledge body about external actors and corporate strategy. Executive managers in various regulated industries will benefit from the findings of this study in decision making process about variables within the corporate strategy formation process. The management will use the framework developed in this study to evaluate their capabilities in managing regulatory actors within their corporate strategy formation and structure. For government policy makers and anti-trust authorities, the findings of this study and its analysis of literature will be helpful in reviewing their regulatory and corporate controls within their jurisdiction. This means that the findings from this study may help strike a balance between the regulatory policy makers and the managers of line industries by encouraging tolerant to challenges faced on both sides of the coin.  

Research Questions

To accomplish the study, research questions are important in guiding the scope and nature of investigation to be conducted. The research questions formulated to aid this study include;

Research Question 1: what are the impacts of external regulatory actors on resource distribution at the corporate level and the extent of their configuration to the idea of corporate strategy formation?

Research Question 2: what and to which extent are alignments to the elements and idea of corporate strategy formation and structure following the integration of regulatory actors?

Hypotheses

The following hypotheses were tested:

H₀₁: External regulatory actors have no significant influence on corporate resource distribution and are not configured to the concept of corporate strategy formation.

H_A1: External regulatory actors have significant impact on corporate resource distribution and are consistent with the extant idea of corporate strategy formation.

H₀₂: There are no significant internal alignments to corporate strategy and structure due to the involvement of external regulatory actors.

H_A2: There are significant internal alignments to corporate strategy formation and structure due to the involvement of external regulatory involvement.

Brief Review of the Literature

This section acts as an introductory part to the broad section of the literature review because it addresses central issues of the literature. The brief review examines the characteristics of the study area, contributions of this study to the body of knowledge about the phenomena and its contribution to the context of the problem in its natural setting. It also analyzes the existing similar or related studies in the area and then examines the gaps in literature left by the reviewed literature that might be bridged by this study.

Characteristic of the Research Area and Problem

This research is a longitudinal exploratory study which will utilize the energy utility as a case study with two research questions to examine. The first research question seeks to examine whether external regulatory actors influence corporate strategy formation through corporate resource allocation. Since resources are scarce within the organizational set up, the work of all executive management is to ensure careful allocation to maximize return on investment while reducing operational costs. Given that regulatory actors seem to restrict the allocation of resources, this research explores the influence both on the micro and macro levels. The second research question addresses the internal alignments, if any, in terms of corporate strategy formation and organizational structure following the integration. It is perceived that after the integration of regulatory actors, a firm needs to implement certain alignments to offset their impact on resource allocation.

The study utilized the neo-institutional approach on policy making and carried out a comparative analysis of the findings across 2 external regulatory initiatives, i.e. emission trading and market opening. Using the two analyzed sub-units, the research first creates certain suggestions which are identified with the two research questions. The new findings and discoveries are accumulated on a high theoretical ladder so as to contribute significantly to the literature on corporate strategy.

This study is based on the energy sector and regulatory actors are so profound here hence their effect, if any, should be pronounced. Since the energy sector is one of the heavily regulated sectors due to the nature of the relationship between the services/products traded and the human health and environment. Moreover, energy is the major drive of the economy due to it direct influence on inflation and government fiscal policies. In this highly regulated industry, the micro-economic perception is that if a regulatory factor or actor transforms from being a protector of the firm to an agent of change, the consistency of the resource allocation with the concept of corporate strategy formation following the regulatory integration seems to decrease.

The consistency decreases more if the regulatory seeks to enhance change that requires huge resource allocation without proportionate revenue accrues. Given that any internal alignments of the firm in terms of corporate structure and the extant concept of strategy formation depend on the structure and nature of the regulatory actor prompting the change, they seem so unpredictable and momentous. Therefore, the alignments are so challenging and dynamic that strategy formulation is a daunting task for the top management in the energy industry.

The problem addressed in this study as far as the regulatory actors, alignments and the concept of corporate strategy formation are concerned is comes in two-fold at micro level. When the regulators are perceived as a source of change, alignments to the concept of strategy formation and firm portfolio adjustments are dominant. When regulators are perceived as a threat to the resource allocation, internal alignments switch to management of organizational systems and operational design. In the energy industry, it is not a question as to whether the corporate strategy formation and organizational structures are affected by regulatory actors but how much is the effect in terms of nature, magnitude and consequences. The consequences are in form of the internal alignments affecting corporate strategy concept and structures to influence resource allocation (Burgelman & Grove, 1996).

At the corporate level, especially in the energy and banking industries, if regulatory policies are seen as an opportunity for growth, partnering, negotiation and consensus-driven strategies become dominant. However, when the same are perceived as a threat, the firm generates externally directed responses that promote resistance-driven strategies of evasion, manipulation and deferment. 

Contribution of the Study to the Literature

Studies on strategic management and leadership have traditionally been focusing on operational and market strategies seeking to understand the best ways to position the firm, what are the kinds of products/services to offer to the market so as to remain competitive, what customers to attract and the ways of designing the organizational structure to favor these strategies. The issues of external regulatory forces on the firm have remained elusive hence require a separate set of research studies on corporate strategy and structure. There are various models and frameworks touching exclusively on corporate strategy formation and structure but mostly focus on the internal forces within the firm – external actors have been conspicuous missing. These frameworks have been constructed with assumed ideal external actors in form of competitors and market forces.

Since the existing limited studies on this scope have only been considering selected few elements of the corporate strategy formation concept and structure such as organizational design (Joshi & Kashlak, 1994)  innovativeness (Marcus, 1981), diversification and innovativeness (Dickie, 1984); a wider understanding of the mutual interdependencies and complex influence of the exterior regulatory factors on corporate strategy is lacking. This study adds to the body of knowledge by taking a holistic and elaborate approach on the multifaceted influence of regulatory players on corporate structure and formulation of strategy. The contribution to literature will be centered on the investigation into the alignments that occur to six aspects of corporate strategy i.e. portfolio configuration, management systems, concept of corporate strategy, coordination, leadership and style, and the organizational design (Muller-Stewens & Schmidt, 2003). It adds to literature by examining the sequence and extent of the alignments as prompted by the regulatory involvement.

Contribution to the Context of the Problem

Since this study seeks to bridge the research gap by integrating external regulatory actors into the process of strategy formation and structure, it will help management practitioners and scholars in the understanding of the challenge posed by external forces especially anti-trust authorities and bodies charged with regulation policies in the energy sector. Using the neo-institutional model, this study intends to enhance human appreciation and development of propositions on the method and extent of influence presented by regulation forces on organizational policy formation, and the internal organizational reaction to the external regulation. The theoretical framework to be developed in this study will assist the interventions into the research problem by demonstrating the problem-solving methodologies and mutual interdependencies among the variables that include external anti-trust authorities, government policies, and market and non-market corporate strategy elements.

The chosen research methodology for this study as well as the analysis of inconsistency between resource allocation following the integration of regulatory forces and the extant of the concept of corporate strategy formation will help top management in firms within the energy sector to  better devise mechanisms of reducing the inconsistency and improve the internal responses to the involvement of external actors.

Similar and Related Studies

One of the studies that examined the influence of external forces on a firm’s strategic policies and resource allocation is Marcus’s (1988) study on the responses to externally induced innovation which examined the effect on organizational performance. Marcus thrived on the reality of the time that innovation can externally be induced, i.e. can originate from an external challenge or threat such as the unfortunate incident at Three Miles Island (TMI) nuclear energy firm that triggered the involvement of external regulatory bodies such as the nuclear regulatory commission (NRC) that instituted new guidelines to be adopted that strained organizational corporate resource allocations. The study demonstrates how external performance can influence corporate responses and hoe such responses can consequently affect resource performance. Although the study only focused on innovation, it revealed a vicious cycle in which poorly performing companies seem to react through rule-bound guideline, an internal response that perpetuates their below par performance.

Kishlak and Joshi (1994) conducted a survey on core business regulation and the presence of dual diversification patterns within the telecommunications sector. The study revealed that a company is often faced with distinct decisions on international and product diversification. It was found that the two are tied to external contingencies for organizations that face core business regulations such as those in the energy, banking and telecommunications industries. Kashlak and Josh developed a mechanism to explain the dual diversification patterns utilizing evidence got from the telecommunications sector that consists of the regional Bell operating companies (RBOCs).

A closely similar study to this one was the study conducted by Frankenberger (2006) from the University of St. Gallen, German on the management of regulation on the corporate structure and strategy. Unlike the previous studies that focused on chosen elements of the external involvement such as innovation, organizational design and diversification among other, this study utilized a holistic approach to the multifaceted impacts of regulatory forces on strategy formation and structure within the German energy industry. It examined the changes that takes place in the six dimensions of an organization’s strategy formation i.e. portfolio arrangement, organizational corporate design, management operational systems, concept of corporate strategy, coordination and design. The study also sought to extrapolate the scope of corporate strategy formation research towards externally-directed responses that are focused on influencing the firm’s internal environment.

Gap in the Literature

The above discussed literature are limited and all cover a given case study or exhibit geographical characteristics which calls for studies that are more holistic in approach and conducted in areas that have not been covered. This study will explore the research phenomena within the energy Saudi Arabian energy industry which has not been explored before. Furthermore, most of the existing literature tends to tackle a specific aspect of the corporate strategy that external regulatory influences. For instance, highlighted limited studies on this topic have only been considering selected few elements of the concept of corporate strategy formation and structure such as organizational design (Joshi & Kashlak, 1994) innovativeness (Marcus, 1981), diversification and innovativeness (Dickie, 1984). To bridge this gap, a wider understanding of the mutual interdependencies and complex influence of the regulatory forces on corporate strategy structure and formation is required. By incorporating all the aspects of the concept of corporate strategy, this study will plug the gap by examining the effects of regulatory actors on the corporate strategy and structure and look at the internal reactions of the firm towards such regulations using the neo-institutional theory.

Many of the existing studies do not build their arguments from contemporary corporate theories giving rising to the need to link theory and practice. Studies that link contemporary theories of firm and corporate strategy are required so as to update both the theoretical perspectives and practical situations of the influence of external regulatory actor on the corporate strategy. Frankenberger’s (2006) study tried to achieve this but applied the neo-institutional theory to the influence of regulatory actors in a limited context, few German companies and utilized only few elements of the concept of corporate strategy. More contemporary studies are required to combine theoretical propositions and reality about the phenomena under study so as to articulate the extent of the correlation between them.

The above discussed previous studies on this topic were conducted quite long before the advent of the internet and that many technological advancements that drive today’s corporate world and marketing strategies were either non-existence or not vibrant. Many things on the corporate have transformed, some of which renders the studies invalid. An updated literature is required, that is the motivation behind this study. This study will contribute toward the plugging of literature gap by taking a holistic and elaborate approach on the multifaceted influence of regulatory actors on corporate structure and formulation of strategy.

Conceptual Framework

For us to understand how the external regulatory forces affect corporate strategy formulation and structure as well as the internal alignments that may occur due to such influence, we need to conceptualize the strategy formation process. Strategy formation is a complex task that has received numerous theoretical models that attempts to establish the best ways to accomplish the process and make it dynamic to both internal and external actors. Many researchers have attempted to structure and classify models on corporate strategy formation process and have received accolades and criticism in equal measure (e.g. Huff and Reger, 1987, Lechner, 2003, Chakravarthy & White, 2001). For instance, Lechner (2003) classified the process on bargaining vs. rationalism. Huff and Reger (1987) structured the process under three aspects of descriptive vs. normative, political vs. synoptic and implementation vs. formulation.

Despite the presence of several models of the strategy formation process, this study opts to utilize the Harvard business school model. This model was deemed appropriate for this study given its simplicity, dynamism, and has received a lot of attention and acknowledgement by many scholars as being the “mother of all strategy process models.” This model is anchored on the notion that there is a fit between external possibilities and internal capabilities, and that there should be a match between needs of the external environment and the qualifications of the internal environment of a firm for it to formulation a formidable and versatile strategy. Given that this study centers on the interdependencies between the external regulatory actors and the internal alignments with the corporate strategy of the firm, the model was conceptually deemed suitable.

According to Mintzberg, et al., (1998), The Harvard Business School (HBS) strategy model is a prescriptive strategy framework that can be classified under the Design School. According to HBS model, the strategy process is categorized into 2 chronological phases i.e. the formulation and implementation phase following an analytical, rational approach to strategy formation. In the formulation stage, the model focus on decision making about key corporate elements while the implementation phase deals with how such decisions are transferred into activities. The executive management make decisions on corporate structure based on the appraisal of external forces, internal resource available for allocation, own values and corporate social responsibility to the community. In the implementation phase, made objectives need to be accomplished and the executives have to shape corporate relationships, organizational structures, behavior and processes as well as the leadership style to conform with the mechanisms of achieving the desired outcomes – a formidable and dynamic corporate strategy.

Although the HBS model supplies vital insights into the strategy formation process, it has been criticized because of its presumption that top management as the main architects of strategy formulation which is perceived as a top-down paradigm. This does not give operational and line managers a chance for their input for effective implementation. Moreover, the insistence on logical chronology means that actions should always follow reached decisions; this overlooks the fact the sometimes action can be taken without consultative decisions and be rationalized ex post.

Framework

Although the framework was developed at HBS, the parent Design School model was developed through the inspiration drawn from the works at Massachusetts Institute of Technology and the University of California, Berkeley (Muller-Stewens & Lechner, 2003). The strategy formation process framework of the HBS adopted for conceptual framework of this study is illustrated in figure B1.

Assumptions, Limitations, and Delimitations

This sections outlines all the major assumptions made, research limitations and delimitations. For the assumptions, the researcher explains some of the held views as facts that were used in the construction of the theoretical and conceptual frameworks, the research questions and general study approach. Limitations include the challenges facing the project, its inefficiencies and general research shortcomings that stifled the study undertaking. Delimitations outline the scope of the study and justification of the chosen study boundaries.

Assumptions

For any empirical and epidemiological study, both practical and theoretical assumptions need to be made so as to construct testable conceptual and theoretical frameworks. They also help in the construction of hypotheses and research objectives. They also indicate the assumed existing linkages between major research variables and how the human aspects of the research relate with such variables.

For this study, it is assumed that energy industry in Saudi Arabia is significantly regulated by external factors such as the government policies, OPEC guidelines, global energy and environmental treaties as well as economic guidelines through the world trade organization. Although the study will not go into details about these regulatory actors, it assumes that they have a profound influence on the chosen sector. It is also assumed that the some of the impacts of these regulatory actors are detrimental to the revenue of the firms within the sector as they tend to restrict profit maximization activities and reduce autonomy. On the same note, it is assumed that firms within the energy sector react to the influence of these bodies in a way that minimizes the adverse effects on internal resource allocations.

It is assumed that corporate strategy formation and resource allocation are purely organization’s internal processes that have no external restrictions whatsoever (Lechner, 2003). It is a company’s absolute autonomy to structure its corporate strategy in a way that maximizes returns from the allocation of internally available resources. Moreover, the research agrees with the micro-economic reality that resources are scarce hence need strategic allocation to satisfy human needs. This is the assumed reason why the firms react to external regulatory forces in a way that ensures optimum utilization of its resources. It is also assumed that Neo-institutional theory holds within the energy sector in Saudi Arabia; it is external forces not internal forces that dictate organizational changes. Institutionalized policies not management/leadership approaches prompt corporate strategy changes since the organizations are coerced to adopt given policies – any diversion from them is legally sanctioned.

Limitations

Every research study has its own and shared challenges. For this study, time was one of the major constraints identified as the research required in-depth data collection and analysis then produce a nice write up with appropriate illustrations and documentation (Lechner, 2003). However, the research had a time of three months which pose a crucial challenge to the researcher. Financial constraints also affected the research undertaking given that the researcher is a student with meager income and other financial needs. Collecting and analyzing data requires state-of-the art technology both hardware and software to ensure data manipulation is easier and brings out the intended outcomes. All these required financial expenditure. Due to financial expenditure, the researcher has to downsize the research scope and sample size to be within the comfort financial zones.

The mixed research method is deemed most appropriate for this study because the limitations of either quantitative or qualitative approaches are offset by the advantages of the other (Creswell, 2014). Nonetheless, it is difficult to effectively collect both qualitative and quantitative data from the same respondent. It requires highly skilled researcher and up-to-date tools to successfully analyze both sets of data collected. For secondary data collection and review of literature, it is so difficult to access of company files and government confidential documents. Some organizations may treat the researcher suspiciously for thinking that he is an espionage agent. Some may hide crucial research files for fear of victimization for some violation of the set government regulations. All these were great limitations for the data collection exercise. In addition, subjectivity associated with the qualitative aspect of the mixed methodology reduces the reliability and validity of findings (Golafshani, 2007)

Another research limitation came in the form of its scope. The research is enclosed to the energy sector in Saudi Arabia and deals with only regulatory actors for a wide range of external factors that may influence internal operations of a firm. This narrow scope limits the replicability and generalization of the findings from the study. Some of the findings may explicitly be associated with either the energy sector alone or be true to Saudi Arabia alone hence generalizing those findings lead to misleading conclusions. Comparative studies are required to further validate the findings from this study. Finally, the limitations associated with both the Harvard Business School model and the Neo-institutional theory will affect the research process, scope and interpretation of the findings from this study.

Delimitations

Delimitations for this study explain the boundaries set and choices made to leave out some aspects that may have been thought to be important but were overlooked. For this study, only anti-trust authorities and government policies were considered while other external factors such as competitors, market forces of demand and supply, availability of external resources, and natural risks were left out. This is because all these factors would not have been accommodated within a single study as they would make its scope too general. Moreover, they do not have a significant relationship with the concept of corporate strategy formation. Research studies have shown that it is regulatory actors that influence corporate strategy changes and internal alignments to maximize resource utilization (Frankenberger, 2006; Chakravarthy & White, 2001; Jacobides & Winter, 2005).

The literature concerning externally-directed responses by a firm following the involvement of the regulatory actors were not explored but only the internal alignments in terms of the elements of corporate strategy and structure. This is because this research was fundamentally concerned with the management of the influence that regulatory factors have on corporate strategy and not how the firm influences the regulations through externally-directed responses (Frankenberger, 2006). Again, other sectors such as the banking, insurance and medical among others which are seemingly affected by external regulatory actors were not considered in the literature because the study deemed it only necessary to narrow down the scope to cover only the energy sector. This was in an attempt to ensure in-depth revelations on the influence of external regulations on corporate strategy and structure.

The study only utilized firm managers and employees in the energy sector and not all players in the industry. This is because the researcher thought that these people, unlike customers, have firsthand experience of the influence of the external actors and directly participate in the corporate strategy formation. Other players such as the customers and the external regulatory actors only have vague knowledge about the corporate changes due to regulatory involvement. Therefore, the sample population had to consist of only the respondents with in-depth direct knowledge of the concept of corporate strategy, internal resource allocations and realignments that may occur due to external regulatory involvement.

 The research study did not utilize only the qualitative research approach because of the inevitable subjectivity associated with it (Creswell, 2014). It also did not solely utilize the quantitative research method given its overdependence on statistical manipulations to deduce findings on human behavior which sometimes may be misleading (Burney, 2008). Mixed research method was utilized given its ability to offset the above limitations of the two methods.

Definition of Terms

Strategy. A set of vital decisions made to achieve set objectives. In a business organization, it is a comprehensive master plan that outlines the ways through which a firm can meet set objectives and stay within its mission (Porter, 1996).

Corporate strategy. This is the general scope and direction of a firm, and the ways in which an organization’s various business operations work collaboratively to achieve set objectives (Business Dictionary, 2016)

Regulatory actor. A government body or anti-trust authority that is formed and mandated pursuant to the relevant legislative act or statute to ensure absolute compliance with the guidelines of the statute as far as the company operations are concerned (Frankenberger, 2006).

Anti-trust authority. This is a body mandated with the enforcement of the antitrust laws (Goetz, McChesney & Lambert, 2012). Antitrust laws are statutory laws that forbid business practices that restrain fair trade and competition such as monopolistic powers, price-fixation conspiracies, mergers aimed at killing competitiveness among others (Sullivan, Hovenkamp & Shlanski, 2009).

Elements of corporate strategy. According to Müller-Stewens and Schmidt (2003) These are aspects of the corporate strategy formation that enable a firm to enhance its competitive advantage and for this study they include; portfolio alignments, co-ordination, organizational design, leadership style and concept of corporate strategy.

Internal resource allocation. This is the corporate management process of identifying, prioritizing and managing internally available endowments such as systems, people, budgets, spaces and contracts to improve productivity, efficiency and delivery of strategic solutions.

Conclusion

This chapter included an outline of this study, background of the problem, and research questions.  It also examined the conceptual framework and the limitations of the study as well as its delimitations. A miniature literature review is also addressed but an in-depth review of the literature follows in Chapter 2, which will expound upon the development and significance of the study and its literature.  Chapter 3 includes a discussion on the methodology of the data collection.  In Chapter 4, the results and analysis of the study will be presented.  Finally, Chapter 5 consists of commenting on the study combined with suggestions for future studies stemming from this research effort.

Chapter 2: Literature Review

This chapter will address the relevant literature as far as the influence of external regulatory actors on corporate strategy formation and structure are concerned. The chapter will have sections that address the historical and contemporary development of both the topic and theory under study. Various theoretical models are reviewed for their suitability for adoption as well as various scholarly perspectives on the topic explored. The contributions of the study to the literature and practice will be one of the most important sections of this chapter as well as future directions for research.

Historical Development of the Topic

The topic on the influence of external actors on a company’s internal affairs to trigger change has gained popularity over the past five decades. Many research studies have documented the influence of external forces on the company’s strategy formation and how the firm’s management reacts in order to offset the adverse effects of the change. This section deals with the development of the strategy formation content and process, the growth of different perspectives on strategy formation models that trigger changes in an organization’s structure and internal resource allocation decisions over time.

Corporate Strategy Process and Content Research

It was during the 1960s that strategy process research surfaced as a discipline residing in the wider domain of strategic management; it immediately got sustained approval from management practitioners and researchers in the subsequent decades (Burgelman, 1996; Huff & Reger, 1987; Garvin, 1998). However, given that corporate strategy process research within strategic management has been termed “empirically complex and paradigmatically diverse,” it is hard to give a detailed overview within the scope of a single research study (Pettigrew, 1992, p.5). The strategy process research undertaking was in an attempt to bring forth the conceptual framework and the practical foundations of strategic management to enable subsequent research works and enhance gathering of knowledge about reality (Hart & Bradbury, 1994; Van de Ven, 1992). Since its initiation in the 1950s, content research utilizes a macro-perspective on corporate strategy thus concentrating on the interactions that exist between a company and the external environmental forces and takes the company as a black-box.

On the other hand, research on strategy process attempts to crack open the black-box and appreciates associations among individuals and teams inside the company. This means that process research has been utilizing a highly behavioral approach throughout its development while strategy content research has been focusing on a rather rational, analytical perspective. As Chakravarthy and Doz (1992) summarized, content research is generally associated with the strategic position of a company which leads to maximized performance under changing environments and strategy process research deals with ‘how‘ a company’s administration, as well as decision-making procedures, impact its strategic position. Given the above challenging distinctions, studies that combine both process and content are rare but a strong strategic argument requires the integration of both.

According to Huff and Reger (1987), unlike content research which is concerned with the strategic variations, strategy process research deals fundamentally with the activities that result into and guide strategy. This means that strategy process focuses on how, while strategy content is all about what of strategic management.  Moreover, while strategy content handles the relationship between the company and its external forces, strategy process fundamentally focuses on activities and events within the firm (Chakravarthy and White, 2001).

Development of Principles of Strategy Formation Research

The development of the good principles for research in the area of strategy process can be perceived from two angles of methodology and content i.e. how can be properly researched and what can be termed as good strategy formation research. Over time, a number of authors have based their conclusion and recommendations on the research content (e.g. Bower, 1970; Burgelman, 1983b; Van de Ven, 1992; Lechner, 2003), other researchers focused on the methodology (e.g. Pettigrew and Whipp, 1991; Baum and Singh, 1994; Huff and Reger, 1987; Bower, 1997). Some of these authors development a bit stringent principles while others try to formulate more relaxed ones. The synthesis of these developments over time has yielded some vital requirements for the principles of a commendable Strategy Process Research (SPR) as demonstrated in the following outline.

Contemporary studies need to meet all these requirements for the research to be deemed good. However, there are allowed minor adjustments to the principle requirements such as the attempt to give room for explicit consideration of a phenomenon with the functional units of a firm such as restricting the exterior environment to a single contingency actor as done in this study.  In our study, we argue that the integration of external actors with the internal environment within the strategy formation research benefits from the consideration of boundary activities among the firm and its surrounding. This principle approach offers good opportunities for enriching our appreciation of an organization’s strategy formation process. The principles required for a good strategy formation research as accumulated over time are outlined here in terms of content and methodology perspectives.

Complete and accurate strategy process research is important because according to Lechner (2003), the ingredients of a desirable strategy process research are:

• “SPR is interested in the factors that significantly impact the actual formation of strategies (’Becoming’ instead of ‘being.’)” (p. 78)
• “SPR investigates phenomena within organizational units: environmental influences are considered only in terms of their consequences on intra-organizational events.” (p.78)
• “SPR needs to be related to strategy-relevant outcomes; otherwise it is pure ‘process’ research.” (p.79)

Development of Strategic Process Models

Even though a tedious task, some researchers over time have attempted to construct and categorize existing models in the field of strategy formation and change (Lechner, 2003; Mintzberg et al., 1998; Huff & Reger, 1987; Chakravarthy & White, 2001). Over time, these scholars have classified different models along 3 distinct areas, i.e. normative versus descriptive, formulation versus implementation and synoptic versus incremental. In the recent times, researchers such as Lechner (2003) have increased the distinctions to five by adding models on rational versus bargaining (to show the degree of rationality), and generic patterns of strategy formation. Mintzberg et al. (1998) categorized these schools of thought into three approaches; descriptive, prescriptive and integrative. Chakravarthy and White (2001) classified all schools of thought on the models on strategy formation into four approaches; political, evolutionary, rational and administrative. The table below demonstrates the development of the classifications of the different schools of thought on strategy formation models

            From the classification schemes found in Table A1, several models have emerged concerning the strategy formation process. Two of those models are so relevant to this study i.e. one is analytical, very rational and top down while the other is deterministic, more political and bottom-up. These models are the Harvard Business School (HBS) and Bower Model. As explained earlier in the conceptual framework of this dissertation, the HBS model is historically considered the mother of all strategic models and has been receiving overwhelming acceptance and application in modern research and strategic practice (Andrew, 1987; Burgelman, 1983a, 1991; Lechner, 2003).

As discussed in the conceptual framework of this paper and the given the objectives of this dissertation, the HBS model has been adopted for this study.  This is because the HBS model is anchored on the notion of profound fit between requirements of the external environment and the internal qualifications in terms of strategy alignments and resource allocations (Andrew, 1987). It also centers on the perceived fit among external possibilities and internal capabilities of a firm. The main weak point of this celebrated model is its focus on top management as the cardinal players in the formulation and implementation of strategies. This top-down approach lowers the role of middle and operational managers in the effective implementation.

The second relevant model of Bower, first established in 1970 within the field strategic management introduces the notion that strategic process is a product of autonomous bottom-up arrangements (Andrew, 1987). As for the Bower Model as introduced by Burgelman (1983a), it is based entirely on bottom-up initiatives to drive strategic changes. Critics such as Chakravarthy and White (2001) have argued that this approach reduces the power and role of executive management who are pushed to the periphery and only indirectly participate in it. Moreover, internal strategic choices are not supported by analogous retention and choices from the external environment. This means that the inner selection techniques are expected to show the needs of the external environment without the latter’s participation.

It also incorporates the concept of internal resource allocations as a vital ingredient in the strategy formation process, hence relevant to our study. It is vital to note here that there is an integrated framework proposed by Müller-Stewens and Lechner (2003) which captures the provisions of this topic in a holistic approach but received huge criticism hence little adoption. This integrated framework is less specific that the HBS and the Bower models but place the strategic process at its core by defining it as decisions and actions that result in a given innovative and competitive position with the deployment of unique competencies. It is obvious advantage lies in the integrative and holistic approach to strategic management as it combines aspects of content with those of process (Müller-Stewens & Lechner, 2003a). However, its main weaknesses have been in its broad scope that misses vital specificity lowering its forecasting power. As a result, it can only supply vital insights of orientation, management thinking, and direct future studies but requires much refinement before it can receive a wide application.

The Environment and Corporate Strategy Formation

Scholars in the area of strategic management have been concerned about the environment-organization relationships over time. Many of their studies have emphasized the significance of examining the environment within a firm for opportunities and threats as well as using it to position the firm for competitive advantage (Porter, 1980; Ansoff, 1965; Andrews; 1987). Studies such as Mintzberg et al. (1998) have been focusing more on the environment as the central factor in the strategy formation process. Despite the multifaceted nature of the topic with varied views, many researchers have avoided the whole environment issue and focused on the firm itself as a source of strategy formation and changes. For instance, some have been interested in the role of the executives and staff members in strategy change trying to distinguish between ‘sponsors and ‘commanders’ of the top management (Mintzberg et al., 1978; Bourgeois & Brown, 1984) or the difference between ‘good soldiers’ and ‘entrepreneurs’ at the operation management level (Hart & Bandbury, 1994; Guth & MacMillan, 1986; Burgelman, 1983a)

Even the ten schools of strategy formation proposed by Mintzberg and Lampel (1999) are not clear as to whether they denote different methods of approaching strategy formation or they are just dimensions of one process. Nonetheless, the proponents argued that some of the ten schools are more often than not likely to coexist within a single organization depending on the context such as the consolidating stage, break-even phase or the turnabout time among others.

Summary

This section examined the historical development of the strategy process research and compared it with the strategy content research to demonstrate their unearthed distinctions over time and acknowledge the challenges of integrating the two within a single research study. The section further explores the strategy formation model perspectives over time and the challenges throughout the development of such schools of thought over time. This gives the insights into how the approach for the model used in this dissertation (Harvard Business School model) was deemed suitable and flexible. These schools of thought also demonstrate the tussle researchers and scholars have had over time on the issue of strategy formation and change so as to shape future research debates on the topic. The section also explored the link between the firm and its environment and how studies have been shaping the relationship over time.

Contemporary Perspectives

The whole domain of strategy formation and influence of external actors on the process and structure has been shaped over to the contemporary viewpoints. This section looks at the contemporary perspectives on the influence of external factors, especially regulatory actors in the strategy formation process and currently adopted models.

Strategy Formation and the Environment Perspectives

Over time, several perspectives have emerged on the influence of the external environment of the firm. In the contemporary discourse, two schools have emerged i.e. the environmental school and the power school which both directly focus on the firm’s environment. As first demonstrated by Mintzberg and Lampel (1999) the power school can either be macro or micro. A micro power school deals with politically-driven processes with the firm. On the other hand, a macro power school perceives the firm as an entity that utilizes political strategies anchored on its superiority over network relationships to construct ‘collective strategies within its interests’ (p.25). Therefore, macro power school focuses on our appreciation of strategy formation as dictated by negotiation processes between the diverse players of the given sector.

For the environmental school, the strategy is perceived as a reactive process that steers the organization through its external environment. Furrer et al. (2004) argued that due to the restrictions by the environment contingencies, the executive management adopts given strategies, processes, and structures so as to obtain a fit within the environment. Significant contemporary research studies in this area relate to the raging debate on the limited role of management, population ecology and the need for strategic choice. However, critics of environmental perspective have termed it too deterministic and overly reactive despite its profound focus on the environment which is indeed the core of this research paper. Marx and Brettel (2015) have tried to incorporate a more proactive viewpoint which points to the significance of enacting the firm’s environment so as to boost change processes at the organizational level. Despite this proactive perspective focusing on the interdependence between the firm and the environment being suitable for our understanding of strategy formation and the environment, there seems to be missing, the creative power of strategy formation in influencing the firm’s environment (Furrer et al., 2004).

Other than the two power school above, contemporary discourse on the interactions between the environment and the firm there is an integrated framework for strategy formation process. First constructed by Hart (1992) and Hart and Bandbury (1994), the integrative framework is based on the dissimilar functions of the executive management and the workforce. The framework outlines five modes of strategy formation i.e. transactive, command, symbolic, generative and rational as shown in Table A2.

From the integrative framework, the command mode takes top management as crucial actors who formulate the strategy that middle-level management and the ground workforce should implement (commanders and soldiers). For the symbolic mode, the top management gives direction via mission statement and vision for the future while other members of the organization rise to the occasion by transferring the vision and mission statements into concrete actions (coaches and players). The rational model is built on the official planning systems and the hierarchical relationships in which the top manager’s supplies strategic direction following extensive analysis and greatly structured participation of the workforce (Bosses and subordinates). For the transactive model, the strategy is developed based on ongoing discussions among key stakeholders. Top managers facilitate the interaction process among the major stakeholders – the interaction is basically started and driven by the workforce (facilitators and participants). Lastly, the generative model perceives the executive managers as sponsors of organizational initiatives and strategies that are generated at lower management levels. According to Hart (1992), this mode, therefore, takes the ‘pattern of innovations which are generated from below’ (p.334). 

Many scholars and practitioners have embraced the transactive model as the one closest to the contemporary understanding of strategy making process because this model is developed on interactions of the firm with external stakeholders such as customers, suppliers, governments and other regulatory agents. This study appreciates this model in its approach to strategy formation through external regulatory influence on the firm. This is because learning outcomes and feedbacks are vital facets of the transactive strategic mode. Richardson (2012) argued that this mode is common in comprehensive circumstances with multiple stakeholders such as large corporations and mature industries such as the energy and banking industries.

The above modes and power schools try to give us a general overview of the contemporary strategy formation processes that emphasize the importance of external forces. However, two general weaknesses exist within these perspectives in the contemporary discourse. First, the mechanisms that are employed by external actors to influence the internal activities of the firm are appearing throughout the existing literature (Furrer, et al., 2015). Furthermore, when these mechanisms are assigned to specific environments, they appear condensed through abstract dimensions of dynamism, heterogeneity or hostility. Moreover, previous cross-sectional studies have frequently measured their effect on various dependent variables such as innovativeness (Marcus, 1988), corporate strategy (Rugman & Verbeke, 19998) and organizational design (Ring & Perry, 1985). The second weakness is that designing of those mechanisms is rarely dealt with. The influencing mechanisms are perceived as God-given hence the participation of a single firm in their design is hardly discussed. Due to these realities, contemporary studies can conclude that previous research has supplied vital insights but understanding and conceptualization of the link between the firm and the environment as well as their interdependencies is required.

External actors and impact on corporate strategy formation and structure

A firm’s internal actors in strategy formation and change have received considerable research attention while the role of external actors in strategic management has received few to no elaborate research especially the strategy making process. Despite the profound significance of sociopolitical factors to the firm, much of the published studies have focused on the firm exchange with market-related environment factors such as competitors, customers and suppliers but research studies on the firm’s internal response to government and anti-trust authorities’ influence (Davies and Walters, 2004).

Studies on non-regulatory external forces such as shareholders and the capital markets have shown homogeneous results i.e. most of them have been cross-sectional and focused on the impacts of ownership structure on various facets of strategy formation, behavior, and structure (Ramaswamy et al., 2002). The findings have revealed that ownership structure is construed basically as a share of institutional owners, ownership concentration, and insider holdings or management.

Government and regulation

The literature that tackles contemporary perspectives on the government involvement and regulation of the firm can be classified into five categories as shown in Table A3.

Table A3 is  the examination of the contemporary views on government and regulation influence on the firm showing those studies tackling internal results of government influence on strategy formation and structure, those examining the external effects in terms of externally-directed corporate strategy responses, those studies dealing with pro-active political mechanisms to influence the regulation and legislative process, those that handles the interactive strategies concerning multiple actors, and the macro-level research studies touching on diffusion, formation and effectiveness of regulatory bodies (McKay, 2001). The table also gives their similarities and differences based on the participants used, the level and complexity of analysis, the type of action (proactive, reactive or interactive), the methodology employed, the field and scope of the study, and the content or process (orientation).

Summary

The review of the current research studies in relation to the purpose and objectives of this dissertation has revealed the research gaps that were implied at the start of the study. In regard to internal alignments prompted by external regulatory involvement, the studies in cluster 1 of table A1 supplies helpful insights of the effect of external on various aspects of corporate strategy. However, the majority of the studies were cross-sectional and quantitative calling for longitudinal and qualitative aspects of the phenomena. It has been noted that a holistic approach like the one utilized in this thesis that incorporates a dynamic aspect showing the sequence of alignment is underrepresented.

Historical Development of the Theory

This section deals with the historical development of the organizational theories of strategy formation process and the contemporary theory of strategic responses of firms to external regulatory involvement. According to Scherer (2002), an organization can be perceived a system of explicit and implicit guidelines designed to coordinate and drive actions of participating persons. Therefore, organizational theory focuses on the appreciation and explanation of the creation, presence and working mechanisms of the organizations. Given that organizations are highly complicated social-economic constructs that give a huge range of possible situations for analysis (Morgan, 2002), and the fact that possible theoretical viewpoints together with their aims vary, there are several theories which can be used to explain the multifaceted phenomena of organizations.

Development of organizational theory of strategy formation process

For the research findings to be credible in a deductive research approach, a research project needs to select a theoretical foundation to be used for analysis which takes into account efficiency and effectiveness. This ensures that underlying theoretical constructs, research assumptions and explanatory power of selected perfectly match the provisions of the subject under study. Give the significance of selecting a theoretical basis; researchers have developed many theoretical lenses for the study of the corporate strategy process. Since this research study focuses on the influence of external regulatory forces on corporate strategy and structure, the theory development will focus on historical knowledge lines through which the organization’s executive management has been aligning the corporate strategy. This alignment is conceptualized holistically via six elements of strategy process i.e. organizational design, configuration, corporate concept, management systems, coordination and culture (see Figure B2) (Berger & Bernhardt-Mehlich, 2002). The theories try to focus on internal alignments which aim at regaining external fit with the environment as well as the internal fit following the changes occasioned by the regulatory actors. Such theoretical lenses have been developed to try and give room for the differentiated and exclusive conceptualization of the regulatory actors and their influential powers over organizations (Scherer, 2002). The following organizational theory lenses have been developed over time to try and explicitly lay a theoretical basis for strategic changes due to external influence.

The evolutionary theory

According to Chakravarthy et al. (2003), the evolutionary theory is one of the theories that are fully accepted and vital theory in explaining the strategy formation and over time has been readjusted and applied implicitly and explicitly in studies (e.g. Burgelman, 2002a; Lovas & Ghoshal, 2000; Burgelman, 1991; Bower, 1970; Burgelman, 1983a; Quinn, 1980; Mintzberg, 1978). First developed in the mid-nineteenth century, the theory is a product of the population ecology theory which holds that firms and their leadership have so scarce possibilities of intentionally leading the change that is occasioned by changing circumstances in the outside environment (Caroll, 1988; Hannan & Freeman, 1988). According to evolutionary theory, the strategy formation is emergent and non-teleological hence a firm’s action most results from random processes (Cohen, 1972). Given the complexity of organizational environments, management sets only broad goals and its strategies are often post-rationalized – constructed after implementation.

Using this theory, Marx (2004) argued that the external environment is the absolute determinant of the extent of failure or success a strategic initiative and that the management only tries to internalize spontaneous evolutionary process by designing the cultural selection and administrative mechanisms. Using Darwin’s natural selection notion, evolutionary theory supposes that those firms that best ‘fits’ the external environment needs and possess the desired ‘gene’ pool survive (Lechner, 2003, p.91). Critiques such as Marx (2004), and Kieser and Woywode (2002) have questioned the practicability of the theory by wondering how can ‘fit’ be quantified and measured, and what can exactly be termed ‘appropriate’ gene pool. Given this vagueness, the theory is unable to demonstrate how the strategy process can best be executed after external involvement. Moreover, the theory has methodological weaknesses in respect to the appropriate unit of analysis i.e. is it the entire firm as suggested by Hannan and Freeman (1977) or the ‘genes’ and competencies as demonstrated by McKelvey and Aldrich (1983).

The Stakeholder theory

Developed in the 1980s, this theory is fast gaining acceptance in the area of strategic management due to its focus on expressing and forecasting how firm functions in regard to influences from its external environment (Rowley, 1997). Since Freeman (1984) formulated it, the theory has received overwhelming development over time and utilized in strategic management research studies (e.g. Friedman & Miles, 2002; Caroll, 1989; Jones & Wicks, 1999; Brenner & Cochran, 1991). The theory is conscious of the cardinal challenge of strategic change which is to balance the interests of all stakeholders of a firm (Freeman, 1984). Stakeholders are people who contribute to the daily operations of the organization and who place their own ‘something’ at risk for the sake of the organization.

The management is frequently faced with the challenge of handling multiple stakeholders with some expectations which can sometimes be antagonistic to company’s strategic objectives. Although the theory addresses all stakeholders including external regulatory actors, the broad scope of the concept of stakeholders ranging from contractual shareholders to the general public who share the environment with the firm makes it hard to explicitly deal with regulatory actors. Moreover, most studies utilizing the stakeholder’s theory are cross-sectional focusing on the dyadic ties among stakeholders and the firm yet stakeholders are linked through a series of bilateral and multifaceted contracts which determines the behavior of each stakeholder. On the same note, Mitchell, et al. (1997) argued that the continued use of stakeholder theory for instrumental, descriptive and normative purposes increased the ‘blurred character’ of the concept of stakeholders.

Neo-institutional theory

This is the theoretical perspective adopted for this dissertation because it shifts the ability and capability to enhance strategic change from the internal to external players. Dimaggio and Powell (1991) argued that for the neo-institutional theory, institutionalized guidelines not management cause organizational adaptation to change. Scott (1987b) added that by institutionalization, actions and social relations are never subject to socio-economic retrospectives but part of a taken-for-granted truth that dictates how issues are and how anything new should be done. According to this theory, compliance and adherence to the present institutions ensure operational legitimacy of a firm and gives unlimited access to vital resources. Fligstein (2001) argues that institutions are products of interactions among critical supply chain partners, professional bodies, regulatory bodies and any other relevant stakeholder of interest within the firm’s environment.

According to Scott (2001), there are three kinds of institutions; normative, regulative and cultural-cognitive which he linked to three techniques that denote institutional isomorphic change ways i.e. normative, coercive and mimetic. This means that regulative institutions comprise of laws and guidelines which relate to sanctioning and monitoring mechanisms – firms are coerced to obey because the contrary is legally forbidden. For normative institutions, they are anchored on norms and principle values that are shared within the societal lifestyles and predict the community’s expectations of a firm – such institutions symbolize appropriate, morally driven procedures of doing business. The cultural-cognitive institutions are anchored on commonly shared understanding and obvious guidelines on how business should be done – shared beliefs and chronology of actions that result to mimetic isomorphic.

These three types of institutions simply highlight the mechanisms by which external environments impact an organization’s activities. Walgenbach (2002) summarized this by arguing that regulative institutions represent the policies and laws established by the government, anti-trust bodies and international organizations of regulation that have a direct impact on organizations. Normative institutions can be thought to represent accepted values and norms that legalize given organizational behaviors. On the same theory, Walgenbach (2002) argues that cultural-cognitive institutions represent universal beliefs and convictions formulated by both normative and regulative institutions to guide organizational practices and behaviors.

Evaluation of the theories

Although every theory has its own strengths and weakness in terms of logic, rationale, and context, we can use five criteria to examine the above selected relevant theories of the interdependency between the external environment and the firm. The five dimensions for the evaluation of this theory for their suitability for adoption as the general perspective of this dissertation to analyze the influence of the environment on a firm’s internal alignments (see Table A4).

From Table A4, the neo-institutional theory has scored impressively in all the five dimensions of evaluation while the evolutionary theory has been rated lowly on the balance between strategic and deterministic (shows limited capability of managers to dictate the direction of the firm activities) and on integration of external forces and the conceptualization of the firm’s surrounding. Another strong positive point about the neo-institutional theory is the perceived hope that theory is ‘fresher’ hence more rewarding to adopt than the fancied evolutionary theory in the field of corporate strategy formation and research (Klement, 2011). The weaker rating of the stakeholder theory comes in the over-emphasis on strategic aspects against the deterministic aspect on the continuum between environmental determinism and the strategic choices. Even though the stakeholder theory rates highly in its consideration of the environment and external forces, a major weakness lies in its weakly established theoretical foundation that may push it into the hand-maid role in this dissertation.

Rationale for the selection of the neo-institutional theory lens

According to Aldrich (1992), neo-institutional theory is not a self-contained, homogeneous theory. A common fundamental perspective of researchers relates to the significance they attach to normative, regulative and cognitive values and norms that drive organizational behavior which results to homogeneous organizational methods or result to isomorphism (Scott, 2001). Early studies on the institutional theory perceived institutionalization as a process of imparting values and fuse values beyond operational and technical needs (Selznick, 2009; Scott, 1987b). This over-simplification of institutionalization to be a method of instilling norms and values, as well as an action sequence that follows the taken-for-granted laws, has since been replaced in the neo-institutional theory.

Neo-institutional theory considers the complexity of the organization’s environment and the continued multiplication of stakeholders, their contributions, and interests. Due to these, the neo-institutional theory has introduced a state-of-the-art differentiated perspective of the community spheres under which firms are active and recognized right from their creation, diffusion, and transformation. According to Scott (2001) and Klement (2011), the dichotomous and monolithic concepts of the initial institutional views have given way to the new and much balanced neo-institutional theory after transforming from the troubled adolescent time to the strongly promising early adulthood (see Table A5)

 The initial fundamental institutional thinking insinuated that a firm’s operational activities were dominated by automatic, unreflective and stern compliance to the prevailing laws, morals and standard procedures within the firm’s environment (Oliver, 2007). However, contemporary streams of ‘neo-institutional’ theory have deviated from this rigid assumption because now the adherence to the taken-for-granted guidelines is complemented by reflective and highly rational decision-making and strategy selection criteria that give organizational elites more capacity to act (Fligstein, 2001).

Hensmans (2003) made a direct link between the neo-institutional theory and the strategy formation process by arguing that strategy emerges from the combined recipe of institutional and political processes which legitimize or illegalize the old and new approaches of doing business. Therefore, the strategy forming process is illustrated as a product of multi-level integration of institutional and external actors. The intriguing aspect of Hensmans (2003) concept is the consideration of external forces and the significance of field-level bodies guiding organizational behavior. Rather than using the internally generated selection criteria, the external environment is portrayed as the playing field upon which organizational behavior patterns and alternative strategy formulations fight it out for support. Philips, et al. (2000) argued that the consideration of institutional strategy formation contexts might increase the clarity of the appreciation of strategy formation process.

Given that integration of external actors and strategy selection mechanisms as well as the formulation of a theory of strategy formation with interests in the internal processes of an organization are core to this theory, it is well suited for this dissertation. Through this theory, we intend to close or narrow the already identified gap in research within this field, that is, the integration of external regulatory actors on the strategy formation process and research.

Summary

This section has comprehensively covered the journey towards the establishment of the underlying theory for this thesis ranging from the relevant theories that were considered to the rationale for the selected Neo-institutional theory. To develop the organizational theory lenses, three theories of significant relationship to the research topic were selected, reviewed and evaluated for relevance. After careful and rigorous evaluation, the neo-institutional theory was emerged best placed to base the theoretical argument for the research phenomena. After its justification, all the knowledge about the reality of strategic management within the domain of the study will be based on the propositions of this theory.

Importance of the Study and Implication for Practice

Given that this study utilizes a holistic approach to the impact of external actors on corporate strategy formation and structure, it addresses all the six elements of corporate strategy. This paper presents manifold typologies and conceptualizations of the various elements of corporate strategy which tries to supply a coherent and a comprehensive picture as to how and where an organization competes. Previous research studies have mostly been addressing either one or two of these elements of corporate strategy as explained but this study will address all the possible components of the corporate strategy. The elements of corporate strategy include (see Figure B2);

Corporate concept. According to Odefey (2004), this is a concept that illustrates the specific company-wide actions that should be taken to obtain the declared state in the corporate vision. Therefore, the corporate vision can be taken as a component within the corporate concept to give a realistic and desired direction for the future of the firm. (Markides, 2001) summarized that the corporate concept is conceived as a map illustrating strategic initiatives that will be planned and executed at the corporate level and stents of intent on how the firm intends to configure, coordinate and operate its business.

Configuration. This element of the corporate strategy involves the optimization of the vertical, horizontal, lateral and geographical diversification of a multiple-business company. It calls for an active management of the enterprise resources for the achievement of a better risk diversification and mitigation than can be reached by investors through capital markets. It includes focusing, consolidation and extension of functional units of the business.

Coordination. This element calls for the amalgamation of multiple business units through optimized coordination. This is achieved through transfer, sharing, exploitation and recombination of the organizational resources. Building synergies across business units can help multiple business organizations to create and preserve values. 

Organizational design. This element refers to the core processes, organization structures and governance techniques in place. Organizational structures can be described according to their extent of formalization, centralization of authority, complexity, and integration of the aspects of the business units (Grant, 2001). Core processes refer to formalized and established processes which are both vertical and horizontal. Corporate governance addresses the supervision of the firm’s executive management by the board of directors.

Management systems. This component refers to budgeting/planning, and monitoring, control and appraisal systems within an organization’s ranks. The budgeting and planning process is the set of workplace interactions whether formal or informal that takes place in the process of generating a strategic plan. Management monitoring and control systems are the formalized procedures and routine works that utilize information to alter or sustain patterns of organizational activities. Appraisal and payment systems involve the official evaluation of employee output and the corresponding rewards both monetary and non-monetary.

Leadership and style. This component includes intangibles within an organization such as leadership styles, organizational culture, unifying firm values, artifacts and symbols of the firm. They have moral and ethical considerations which can be found in the organization’s code of conduct.

The decision to address all the above-highlighted elements of corporate strategy in the context and approach explained above is the core significance of this study in an attempt to plug the research gap. This will help practitioners and top management in incorporating all the six elements in strategy formation and resource allocation in a regulated industry. Moreover, this study will use consistency analysis as a suitable indicator in identifying starting and end points of the alignment processes so as to legitimize further research studies.

The criteria for evaluating the selected theories can be a vital tool for future studies to compare and evaluate more theories and adjust some of the theoretical propositions. Since the selection of the neo-institutional theory was through an empirical and critical process, practitioners and managers involved in the strategy decisions can utilize it with a little uncertainty in the allocation of resources at organizational levels. Given the superiority of its concepts on deterministic versus strategic elements as well as the integration of external actors, practitioners can use neo-institutional theory in conceptualizing and operationalizing the external environment and its influence on the strategy formation.

Contribution to the Literature

Since the existing limited studies on this scope have only been considering selected few elements of the concept of corporate strategy formation and structure such as innovativeness (Marcus, 1981), diversification (Joshi & Kashlak, 1994) and organizational design (Dickie, 1984), a wider understanding of the mutual interdependencies and complex influence of the external regulatory actors on corporate strategy is lacking. This study will contribute to this body of knowledge by taking a holistic and elaborate approach on the multifaceted influence of regulatory actors on corporate structure and formulation of strategy. The contribution to literature will be centered on the investigation into the alignments that occur to six aspects of corporate strategy i.e. portfolio configuration, management systems, the concept of corporate strategy, coordination, leadership and style, and the organizational design (see Figure B2) (Muller-Stewens & Schmidt, 2003). It adds to the literature by examining the sequence and extent of the alignments as prompted by the regulatory involvement.

Studies on strategic management and leadership have traditionally been focusing on operational and market strategies seeking to understand the best ways to position the firm, what are the kinds of products/services to offer to the market so as to remain competitive, what customers to attract and the ways of designing the organizational structure to favor these strategies. The issues of external regulatory forces on the firm have remained elusive hence require a separate set of research studies on corporate strategy and structure. There are various models and frameworks touching exclusively on corporate strategy formation and structure but mostly focus on the internal forces within the firm – external actors have been conspicuously missing. These frameworks have been constructed with assumed ideal external actors in form of competitors and market forces. This study utilizes an internal corporate strategy formation framework, the HBS model, with the influence of the external regulatory factors in mind. This is a new approach towards the corporate strategy concept.

Contribution to the Practice

Unlike economic theories that focus on financial performance outcomes of strategies, the neo-institutional theory gives a sociological approach for addressing this in an analytical socio-political viewpoint. According to Lechner (2003), the increased conformity to the firm’s environment through a sociological approach to the theory improves legitimacy and enhances critical access to corporate-level resources – this boosts the survival changes of the firm even in turbulent times. This external legitimization increases the firm’s status in the society and deflects practitioners’ questions about an organization’s actual competence in producing various services and products. Figure B3 shows that the neo-institutional theory does not intend to replace economic theory arguments but makes managers consider an analytical, socio-political approach so as to increase the competitive advantage and/or survival chances.

Business practitioners and entrepreneurs working in regulated industries can use the concepts and propositions made in this paper concerning the use of neo-institutional theory and the HBS Model to understand the impacts of external regulatory forces the firm’s decisions. The HBS Model will help practitioners understand the strategy formation process and research which is core to the management of change. Using the HBS strategic model, managers can predict the new desired state of operations and strategy and help stabilize the new equilibrium. According to Burnes and Cooke (2012), the Lewin’s force field analysis involves the examining of the driving forces and restraining forces for the change desired to arrive at a new equilibrium. Practitioners can use the HBS model proposed here to trace the stages of strategic change so as to attain the new state.

The detailed discussions on the internal alignments as a response to the regulatory involvement gives the foundation under which to provide normative guidelines on strategy even the performance aspect of these alignments is not included in this study. The successful integration of the study alignments by our case study firm in Saudi Arabia over the recent years gives practitioners an indication of potential success upon implementation of such alignments. These are internally-formulated but externally-directed for regulatory influence is perceived as an opportunity and relatively internally-generated protective strategies if the influence is perceived as a threat.

The addressed issue of strategic consistency in this dissertation can be utilized as a mechanism for corporate governance. When there are profound concerns about the appropriateness and suitability of the action taken by top management, tools that control their behaviors becomes paramount. Given that strategic consistency, as will be addressed in this dissertation, measures the correlation between top management actions – resource allocations, and defined elements of corporate strategy, it reveals whether the management is doing the right things to keep its strategic promises. According to Shaw, et al. 92007), the establishment of strategic consistency over time is a crucial indicator of the effectiveness of the corporate management of a firm. Moreover, the management itself can be utilized a powerful mechanism for the evaluation of the actual strategic consistency of its activities as will be demonstrated in this study later on. Just like a doctor’s thermometer, it informs the managers whether there is any problem that seems to rise. For instance, according to Horn and Alexander (2013), when the consistency declines, the top management must look for the reasons behind such behavior and implement counter actions.

Directions for Future Research

The limitations addressed earlier for this study can be perceived as part of the possible future directions of research. In fact, there is a need for future empirical as well as theoretical studies to establish the insights developed for this study into full-fledged theories. In terms of methodological and empirical approach, a single case research strategy used for this paper need additional proof from comparative qualitative or quantitative case studies across different industries. This will deepen the appreciation of the phenomena under study through additional empirical evidence. Moreover, further studies that use larger sample sizes can help test the various parts of the theory developed in this study.

Future research studies that add a performance link can add more empirical value to this study by allowing a thorough economic analysis of the effectiveness of various kinds of internal alignments and strategies directed externally to the regulatory involvement. In the area of consistency between strategic action and intent, we think that further studies with more differentiated perspectives which take account the various causes of inconsistency can be helpful. Such studies should judge consistency levels by considering whether the management behaviors that enhanced the strategic changes were the cause of the intermittent inconsistency, or whether the external forces prompted the declining consistency levels, or whether it is mismanagement that is the inconsistency in resource allocations. This means that such studies should reflect on the probable time lags between formally communicated and actual shifts in the corporate strategy formation.

This study addressed regulatory actors as the only external forces on the firm with a general overview of various stakeholder groups and their interests on the firm. The study also outlined the existing ambiguities among various stakeholders and their relationship with the regulatory actors. Further studies may take a holistic approach to encompass a wider spectrum of external factors such as suppliers, community members, competitors and customers. Moreover, future studies may attempt to use other theoretical models apart from the Harvard Business School Model and the Neo-Institutional theory as their basis for propositions and then compare the outcomes with those from this study. Such studies may expose the weaknesses of the approach and assumptions of the theoretical models used in this study which may result in the review and editing of the generalizations made for the wider application.

Summary

The review of the literature has addressed the available literature concerning the topic under study by first addressing the historical development of the phenomena empirically. This section addressed the development of strategic management branch of strategic process research under which the study lies since the 1960s. This is followed by the contemporary perspectives on the topic in which developments of the topic since the dawn of this millennium are traced. The contemporary theoretical perspectives for the establishment of corporate strategy are critically analyzed and evaluated here to demonstrate the current discussions on the topic.

The development of the theory is then addressed in which relevant theories such as the evolutionary theory, stakeholders’ theory, and neo-institutional theory are evaluated and the rationale for the selection of the neo-institutional theory given. The contributions of this study both the literature and practice are reflected followed by the possible directions for future research studies. Various gaps in research that are not fully addressed by this study including methodology, empirical and theoretical different approaches are recommended for further studies. These studies may help increase the credibility, reliability, and generalization of this study and similar studies. The following chapter addressed the methodology adopted for this study including the research design, sampling techniques, participants and the ethical considerations among others.

Chapter 3: Research Methods

This chapter analyzes and outlines the methodology adapted right from the design and its appropriateness to the procedure, sampling, participants, research questions and hypotheses. The role of the researcher in this study is also addressed to demonstrate the level of subjectivity and influence on the participants from the researcher to understand how such influence affects the reliability and validity of the findings. Data collection tools and methods are also outlined and their suitability assessed so as to ensure only relevant data is collected from the field. Research methods chapter outlines the strategy, design, philosophy and approaches used to carry out the research together with the implications of such choices. The sample choices for a research methodology selection can be summarized by a research onion (see Figure B3) (Saunders et al., 2009)

Research Design

The research design demonstrates the concept, strategy, questions of whom or what shall be studied as well as the techniques for data collection (Creswell, 2014). Since the general strategy is that a researcher selects to integrate various components of the research in a logical and coherent manner, the strategy should ensure that the research problem is effectively addressed. According to De Vaus (2006), in social sciences studies, gathering data relevant to the study problem involves specifying the nature of empirical evidence required to test a theory or to analyze a project, or to rigorously describe and evaluate meaning attached to an observed phenomenon. Given that the use of either qualitative or quantitative in entirety has severe limitations for multifaceted studies such as this study, scholars have come up with the mixed research method.  Over a long debated time, researchers felt that the study inefficiencies and biasness associated with the use of either qualitative or quantitative design can be neutralized by the strengths of the other hence the mixed method design (Lawrence, 2000). Using such approach, the researcher based knowledge claims about reality on a pragmatic perspective, that is, dealing with the research phenomenon in a practical and realistic approach which is consequence-focus and problem oriented. The following sections will analyze the strengths and weaknesses of both qualitative and quantitative designs to justify their combination.

Qualitative methodology

Qualitative research design focuses on capturing authentic experiences to build knowledge about reality. Qualitative research approach endeavors to paint a holistic picture about the phenomena and focuses on developing propositions along the study process hence it is iterative and open. According Burch and Heinrich (2006), qualitative data gathering and analysis are interlinked and seemingly overlap. Qualitative research studies utilize inductive approach that is anchored on soft methodologies such as case studies and interviews as well as interpretive philosophy. Soft methodologies produce rich narrative findings with the main aim of extracting meaning and theories a small amount of data.

The advantages of qualitative research methodology include its focus on the phenomena in its natural setting, produce rich holistic findings, and suited for studies that need long observation time like longitudinal studies. Miles and Huberman (1994) added that qualitative research is suitable for the exploration and discovery of new study areas. According to Creswell (2013) and Hesse-Biber (2010), the disadvantages of this methodology are that it lacks flexibility, has no fixed research design, and has limited replicability of findings and generalization of its propositions. Qualitative methodology is also vulnerable to subjective interpretation of the findings by the researcher which affects the credibility and reproducibility of such findings in different settings.

Quantitative methodology

Quantitative studies aim at analyzing causal relationships among pre-determined dependent and independent variables. Onwuegbuzie and Leech (2006) argued that in quantitative design, cross-sectional data and variance examination are frequently employed so that variations in the dependent variables (resulting criteria) are statistically expressed via the independent variables (input factors). This methodology employs hard methods focused on standard statistical methods with a large sample size. It relies on the explicit definition of underlying study frameworks and hypotheses on study variables while the actual analysis of data is indeed a technical procedure.

The advantages of quantitative research include its clear unambiguous findings since the hypotheses are either accepted or discarded, and allows comparison across diverse studies due to its use of hard data methods and standard analysis allowing for accumulative study. Since the subjectivity of the researcher is eliminated through clear measures and analytical procedure, this method has greater objectivity and reliability hence allows for wider generalizations and enhanced validity given its huge statistical sample (Marx, 2004; Tashakorri & Creswell, 2007; Zhanga, 2014). Despite these strengths, the setbacks of this research design include the fact that quantitative tools have been known to be unable to account for context and situational meanings – have little ability to observe social qualitative activities (Tashakorri & Creswell, 2007). Moreover, there is a possibility of false interpretation stemming from pre-determined hypotheses and the phenomena internal to the study group are normally ignored due to the stern focus on those external to it (perceived reality) (Hart and Bandbury, 1994; Onwuegbuzie & Leech, 2006, De Vaus, 2001).

Selected design

Given that this research study has to distinct empirical phases, we intend to present the design along the same phases. Although they should be considered to be progressing sequentially, it is prudent to separate them since they are approached using different mechanisms. Phase I is based on the question as to whether external regulatory involvement influence corporate strategy formation and resource allocation, to what extent is such influence? Phase II is based on the question as to how and which sequence is corporate strategy aligned after the regulatory involvement. The overall research strategy is anchored on a longitudinal case study that is retrospectively approached within the Saudi Arabian energy sector.

Data collection is effected through diverse sources ranging from industrial journals, official publications from the company under focus, general research databases and direct interview schedules with corporate respondents. Data analysis is based on both computerized assessment of codified allocation of resources and on the narration of the case study, and theory construction using grounded theory strategy. At the end, we formulate propositions in relation the research questions addressed in each phase. All these are accomplished using the mixed research design that combines the strengths of the qualitative and quantitative aspects of the research while offsetting their weaknesses for best results. However, it should be clear here that our design is more qualitative with only complementing aspects of the quantitative methodologies so as to capture all the areas of this study given its multifaceted nature. So much of the design adopts qualitative design and quantitative elements come only where necessary.

Appropriateness of Design

Examining the strategy formation process requires longitudinal research observations and a qualitative research method seems most fulfilling (Scandura & Williams, 2000). This is also prompted by the fact that this study is interested in the multilevel interactions among various actors within the firm and that of its surroundings, especially the regulatory actors. The qualitative research method chosen for the majority of this study allows us to consider particular contexts so as to expand on the interactions existing among the several actors – this involves soft issues that are best handled through a qualitative research design. To address our research problem, external regulatory activities are difficult to describe though statistical methods because the policies are dynamic and sporadic, outcomes unpredictable and hard to express succinctly. This is because of the several areas that the regulatory forces address that have profound effects on the firm but are transient and complex to dissect (Shaffer, 1995). Moreover, the broad and holistic approach of this study to the research phenomena encourages the use of qualitative design.

From the epistemological and ontological perspective, this study utilized a post-positivistic approach that is widely shared by a significant amount of organizational and management scholars (Prasad & Prasad, 2002). Using this approach, we appreciate knowledge about reality as pre-given and only probabilistically and imperfectly apprehensible. This means that we can only approximate reality because we cannot fully understand it (Denzin & Lincoln, 2009). The post-positivist angle permits us to integrate multiple data gathering and analysis techniques and collect as much diverse data as possible so as to capture various facets of the underlying reality as possible (Guba, 1990). That is why we were able to collect and analyze both secondary and primary interview data from the organization under study as well as external regulatory actors.

Qualitative approach required structured and computer-aided analysis of the formation and resource allocation data but as themes are coded, some of the data is transformed into numeric outcomes – to quantitative demonstrations. This coupled with the integration of statistical secondary data with qualitative primary data ensured that our mixed methods approach combines distinct qualitative and quantitative investigations in one broad study. This design, therefore, corresponds to the argument by many scholars who have pointed out the superiority of a synergistic combination of numerical and non-numerical data types which successfully deals with the complexities of the phenomena under study. The choice of the above research design, mainly qualitative with some aspects of quantitative methods, ensures that our research is geared towards the establishment of testable propositions and generalized theories.

Procedure

The ultimate goal of this research is to formulate theories and propositions about strategy formation especially the influence of regulatory actors on the corporate level strategies and how the firm reacts to such involvement. The objective of the whole study is to improve the management and integration of such regulatory actors onto the strategy formation process. Since the successful research intervention requires an iterative procedure that supplies queries which help generate propositions, a two-phased research process is preferable. As mentioned earlier, phase I involves the use of resource-based research approach while phase II involves the use of grounded theory strategy to analyze the transcripts from insightful interview schedules with key corporate respondents within the case study firm. Phase I answers the first question of this study using resource-based (secondary) data while phase II answers the second question using primary data from interview schedules. Figure 3.1 below illustrates the research procedure to be used by the two phase including the focus points, major activities, unit of analysis, analytical strategies and data sources.

The two-phased research process

            In phase I, the research process focuses on the impact of external regulatory actors on corporate strategy process as demonstrated through internal resource allocations. The process seeks to understand if and to what degree corporate strategy process is influenced by external regulatory involvement. Resource allocations act as the unit of analysis. Major activities include the general evaluation of strategy formation over time, collection of secondary data, build-up of a structure database on resource allocation, critical appraisal of the consistency between the concept of corporate strategy and resource allocation. Through the appraisal of inconsistent resource allocation, the process seeks to establish the most profound regulatory initiatives that influence corporate strategy decisions (Burney 2008). Data will be collected from publicly available information from Arabian Petroleum Supply Company (APSCO) including annual and quarterly financial and status reports. Data has been collected from external sources such as academic journal and relevant newspapers so as to supplement the data received from the APSCO.

            In phase II, the research process focuses on how the whole strategy formation process is influenced particularly how the internal alignments occur via which the six aspects of corporate strategy transform as a result of regulatory influence. The firm is used as a unit of analysis. The research process in this phase focuses on these six corporate strategy elements i.e. portfolio configuration, organizational design, concept of corporate strategy, leadership style and management systems which are used to identify and interpret the alignment routes. The analytical strategy for this phase involves grounded theory and case study narrations (Miles and Huberman, 1994; Creswell, 2014). Before analyzing the internal alignments, we identify and describe crucial regulatory initiatives that are used to trigger change and contextual variables.

            The secondary data from weekly press and APSCO reports are used in the triangulation of the findings obtained from interview transcripts. The study covered a period of 10 years from 2005 to 2015. Even though this implies that to a large extent this study process is carried out in retrospective, there is a window for real-time research observations through interview schedules with key informants. This is an opportunity to ‘catch reality in flight’ and is aimed at increasing the validity because we are better placed to track the research-based cause-effect relations of the variables (Golafshani, 2007). However, the study is largely a longitudinal retrospective case study design. This helps elaborate the intermittent sequence through which discrete set of actions take place based on a historical narration (Pettigrew, 1990).

The Role of the Researcher

Since this research study utilizes a mixed methods design with much qualitative research complemented with some quantitative research, the research takes the role of a research instrument for collecting data. According to Denzin and Lincoln (2003), qualitatively, the data is mediated via this ‘human instrument’ instead of other instruments such as questionnaires, inventories and machines. The researcher for this study undertakes the basic research procedure such as prepare, set up, conduct and document the findings from the field work. The researcher constructed the closed and open interview questions for the key respondents and conducted the interviews in an endeavor to collect primary data collection. For the secondary data, the researcher conducted literature-based information gathering from public and company publications and resource databases such as Google scholar.

 Since using the post-positivism philosophy knowledge about reality as pre-given and only probabilistically and imperfectly apprehensible, during the data collection the researcher will have subjective view of the internal alignments following regulatory involvement using pre-determined theories and models – the Neo-institutional theory and the HBS model. Using these pre-given perspectives the researcher will update the body of knowledge and develop skills from the data gathered from both the field and secondary sources to contribute to the knowledge about the regulatory influence on strategy formation and structure.

An administrative and documentation, the researcher is responsible for the write-up report of the whole research with the ethical considerations well acknowledged. While doing this, the researcher liaises with other research assistants and the supervisor on routine basis so as to develop knowledge and appreciation of the phenomena under study so as to verify the cause relationships under investigation. In the management of human participants in the research, the researcher is responsible for the maintenance of the confidentiality, secrecy and respect to the highest level as expected both by the University and the society. The researcher is also responsible for the planning and execution of cost and time schedules through an elaborate budget and strict timelines.

Research Questions

To accomplish the study, research questions are important in guiding the scope and nature of investigation to be conducted. The research questions formulated to aid this study include;

Research Question 1: what are the impacts of external regulatory actors on resource distribution at the corporate level and the extent of their configuration to the idea of corporate strategy formation?

Research Question 2: what and to which extent are alignments to the elements and idea of corporate strategy formation and structure following the integration of regulatory actors?

Hypotheses

The following hypotheses were tested:

H₀₁: External regulatory actors have no significant influence on corporate resource distribution and are not configured to the concept of corporate strategy formation.

H_A1: External regulatory actors have significant impact on corporate resource distribution and are consistent with the extant idea of corporate strategy formation.

H₀₂: There are no significant internal alignments to corporate strategy and structure due to the involvement of external regulatory actors.

H_A2: There are significant internal alignments to corporate strategy formation and structure due to the involvement of external regulatory involvement.

Quantifying variables for hypothesis testing

Quantifying ‘influence’ in phase 1: This Phase seeks to understand if and to what degree, corporate strategy process is influenced by external regulatory actors. Resource allocations act as the unit of analysis. Pre-defined tracks will be used to code resource allocation data so as to understand how and to which extent the external regulatory actors influence the corporate strategy formation process. The tracks will be narrowed down to specific and easily applicable themes. The tracks will be documented in the resource allocation database that contains all the information required to duplicate the data gathering process in a different environment. The coding structure to be used for the instrumentation in phase I will serve as a meta-analytical framework for research which is contrary to the grounded theory perspective that is why it was not used in this phase.

Borrowing from Van de Ven and Poole (1995) research, indicators will be utilized in the transformation of tracks recorded into dichotomous variables. The indicators will be derived from the tracks employed in the coding of incidents of APSCO from 2005 to 2014. The variables with value 1 in the database represent the presence of a specific indicator and when the value is 0, it represents its absence. This unique quantification of even qualitative data allows us to perform statistical analysis of all variable including qualitative relationships. For instance, regression analysis and frequency distributions can be employed to assess the relationship between variables as observed during the secondary data gathering exercise.

Quantifying ‘involvement’ in phase II: In phase II, the research process focuses on how the whole strategy formation process is influenced particularly how the internal alignments occur via which the six aspects of corporate strategy transform as a result of regulatory involvement. The firm is used as a unit of analysis. Various regulatory initiatives will be selected to measure their involvement in internal alignments. The analytical strategy for this phase involves grounded theory and case study narrations. The interview transcripts were coded through the open coding system which acted as free codes representing concepts whose properties have been isolated from the raw data and assigned to particular quotations. The quotations from the interview transcripts denoting the internal alignments to the six elements of corporate strategy formation will be coded into selected themes with numerical value that denote the level of ‘involvement’ from the external actors. The ‘involvement’ will be measured and analyzed using the density of the codes as shown by the quotations from the interview script using the empirical grounding theory.

Population and Sample

For this section, we will address the research population and sampling procedures used for collecting primary data which was from in-depth interviews with key organizational informants. Before selecting the participants for this study, an interview guideline was established derived from chosen expert information and secondary research. In choosing the interview respondents, we used theoretical sampling instead of statistical sampling which has received heightened criticism in the recent past for its lack of qualitative aspects (Brown & Eisenhardt, 1997; Strauss & Corbin, 1998). The criteria for the selection of the respondents was based on the person’s expected level of knowledge on the subject matter and the anticipated validity of the data to be supplied as well as the degree of cooperation for the study (Anderson, 2010).

In order to ensure that the data collection reaches saturation, 18 respondents were selected as the study sample. These were at the senior management level of Arabian Petroleum Supply Company and cut across all management levels and business functional units (See Table A6).

The respondents will be senior managers with those classified as high-level informants who had a holistic approach to the issue of integrating regulatory influence on corporate strategy and those classified as low-level informants who had a specific perspective on the identified regulatory initiative under investigation, such respondents include the project manager for gas emission business units (Brown and Eisenhardt, 1997). Given that our study addresses the corporate strategy formation, corporate level mangers formed 50% of the sample and the corporate development and strategy functions took about 67% of the participants (see table A1)

Geographic or Virtual Location

The geographic location of the respondents and the study setting is the Saudi Arabian energy sector – this was chosen because it has been characterized with profound regulatory involvement via government authorities and regional agents such as the OPEC regulatory protocols, kingdom policies, anti-trust authorities and regional policies. The energy sector is mainly dominated by the production, exportation and consumption of petroleum products and some aspects of electricity production. The Kingdom is the global chief producer and exporter of oil and its economy is anchored on petroleum i.e. oil accounts for over 90% of the kingdom exports and about 75% of the government revenues (see Figure B4). This is because the country has world’s largest crude oil reserves accounting for 18% of the world proven reserves, 260 trillion barrels. This makes the oil economy to account for about 45% of Saudi’s GDP which is a high dependence despite attempts to diversify the economy (see table A7). This is part of the reasons why the kingdom and its energy sector have been selected for this study.

After years of government protection under which the regulative measures provided a buffer against market competition, this has transformed in the last two decades with the introduction of other foreign market players and removal of some protective measures. The main role of regulative actors has changed from buffering to change advocacy. Before the crucial reorganization of the sector through various energy law enactments and amendments, the Kingdom’s energy sector was replete with monopolistic supply of electricity and heavily controlled oil & gas providers with consumer areas contractually defined according to the providers. Cushioned by the demarcation treaties and explicit concession contractions based on the royal decree against restraints of competition in 1954, oil companies prospered through the buffer from competition.

Apart from increasing competition through market liberalization, environmental conservation issues have found their way into the energy policy. According to the Basic Law of Saudi Arabia 1999, the country’s gas and oil resources belong to the state; article 14 of this law outlines the goals of mitigating and preventing environmental pollution through the Ministry of Oil. The energy regulatory initiatives include the exploitation of nuclear power, reducing the emission of greenhouse gases by establishing a trading scheme for rights of emission and the encouraging the use of renewable energy resources. These regulatory measures on environment have led to drastic changes in many energy companies especially the big multinational and regional firms such as Arabian Petroleum Supply Company (APSCO). In addition to the Basic Law of Saudi, other regulatory actors that influence the corporate strategy formation include the Saudi Energy Efficiency Center (SEEC) established in 2010 with the responsibility of ensuring the development of energy conservation and efficiency policies.

Established in 1961, Arabian Petroleum Supply Company (APSCO) is regional distributing and marketing company for petroleum products, lubricants, aviation fuels and marine bunkers. APSCO is considered for this study because of its dominance in the energy sector being the leading private company in Saudi Arabia and the fact that it deals with huge array of products and services that are under the profound influence of external regulatory factors. APSCO was established as a joint venture between ExxonMobil and HAACO companies with the aim of supplying lubricants and petroleum products within the kingdom as well as fueling airplanes at Jeddah international airport. The company has grown to be the region’s leading private petroleum company.

Other than serving the local market, APSCO is present in countries such as like Yemen, Lebanon, Oman and UAE. For the aviation fuels, the company serves 21 international and national airports in the region and is the official supplier of aviation fuel for the Kingdom’s carrier, the Saudi Arabian Airlines. Given it dominance and strategic partnership with ExxonMobil, an Oil and Gas Company, the company is best suited as a case study for this study. Senior managers of this company will be interviewed through either a physical schedule or an online interview through appropriate online tools such as Skype, Vibe and IMO applications.

Instrumentation

The instrumentation for this study involves two separate processes for the two phases. For phase I, pre-defined tracks have been utilized to code resource allocation data so as to understand how and to which extent the external regulatory actors affect the corporate strategy formation process. The tracks are narrowed down to specific and easily applicable themes. The tracks are documented in the resource allocation database that contains all the information required to duplicate the data gathering process in a different environment. The coding structure used for the instrumentation in phase I served as a meta-analytical framework for research which is contrary to the grounded theory perspective that is why it was not used in this phase. Borrowing from Van de Ven and Poole (1995) research, indicators were utilized in the transformation of tracks recorded into dichotomous variables. The indicators were derived from the tracks employed in the coding of incidents of APSCO from 2005 to 2014. The variables with value 1 in the database represent the presence of a specific indicator and when the value is 0, it represents its absence. This unique quantification of even qualitative data allows us to perform statistical analysis of all variable including qualitative relationships. For instance, regression analysis and frequency distributions can be employed to assess the relationship between variables as observed during the secondary data gathering exercise (Schmidt, 2000).

Interview schedules will be used to collect data for Phase II of the research study. Before designing the interview questions, an interview guideline was established based on selected expert contribution and secondary research. Following an introductory interview with two key individuals within the corporate development of APSCO, semi-structured interview schedules will be held with 18 senior level managers from all the relevant business units within APSCO, that is, corporate development, regulatory management and political strategy, market management and M&A. these key departmental informants helped us acquire knowledge on the impact of regulatory actors on corporate level strategy process and the internal responses of the firm to such regulations.

The interviews will contain inquiries that required short straightforward answers and were designed to take about one hour conducted on each individual respondent. The respondents will be given the interview scripts prior to the interview schedule and acknowledged of having received them and ready for the interview at the agreed time through a call or an e-mail message. The respondents were also requested to raise a red flag over questions they think are inappropriate to be asked to them or seem ambiguous and need clarification during the interview. Each interview was conducted according to the convenience of the individual respondent with amendments where possible. Consequently, vital information on the evolution of key regulatory initiatives, their influence of the firm’s corporate strategy formation as well as the firm’s reaction to such involvement through alignments to its elements of corporate strategy.

Data Collection

Upon receipt of IRB approval number 14-03-10-0337442, the data collection process commenced using the

Phase I: Outside-in resource-based analysis

The data collection focused on the activities that influence tangible resources which can easily be coded, accessed, measured and recorded from an outside-in approach. There are five dimensions of tangible resources that are included in this database for coding are; physical, financial, human, technological and organizational resources. On the other hand, intangible resources including skills, images and brands were not part of the developed database for coding but will be part of the subject matter for the in-depth interviews with key informants at organizational level in the second phase. To make the outside-in approach successful, valuable information is retrieved from multiple sources including APSCO documents – official reports and roadshows – business media articles and other external empirical sources. This multiple source approach enabled us to collect secondary data that is unobtrusive, stable, broad in scope and rigorous about firm-level resource allocations. To increase validity and reliability of the data collected, analyzed data from phase II has been cross compared with and incorporated into the data triangulation – an effort into systematic data collection.

For the case study, APSCO, 450 relevant research incidents have been established from the 2005 to 2014 and entered into the developed database. In addition to the annual and quarterly reports, press release and roadshows, intensive research in professional journal articles and newspapers has been done using the Fastiva database. First, the gathered data is sorted out and transferred into records with all the 450 chosen observations from APSCO consequently being entered as unique incidents identified as strings of phrases containing the fundamental elements of data collected. In order to ensure data triangulation for easy analysis, these records were coded. According to Van de Ven (1999), pre-determined tracks have been employed for the coding process of resource allocation data and all the tracks been narrowed down to be particular and easy to use. The constructed coding structure served as a framework for meta-analytical approach which concur with the strategy research process methodologies employed by other previous researchers and scholars (e.g. Van de Ven and Poole, 1995; Hart, 1995; Pettigrew, 1995; Eisenhardt, 1995). Indicators have been derived from the established tracks utilized for the coding of observations. Indicators are used to change every record into distinct dichotomous variable.

Phase II: In-depth interview-based data

Since phase I of this dissertation collected data that tries to determine whether and to what extent external factors influence corporate strategy formation, phase II attempts to collect data that deals with how the firm reacts to such involvement through its strategy formation process using the alignments of the six aspects of the corporate strategy as well as the sequence in which they are aligned. This phase is anchored on the interview schedules with key informants from corporate world and the inductive analysis of the resultant transcripts. First, we need to establish the regulatory initiatives and determine the ones that are closely tied to this study. The regulatory initiatives were established from the industry conferences, literature review and informal focused discussions with experts in the energy sector.

After every interview, field notes are taken to so as to note any significant observations that cannot be obtained through the responses (Mayring, 1996). Where it was deemed necessary, company’s internal reports, memos and presentations were sought to either complete or cross-check the information supplied by the interviewees (Jupp, 1996).

Data Analysis

Phase I

To generate findings that are as objective as possible, a conservative consistency rating approach was utilized. For instance, if a clear negative or positive relationship between resource allocation decisions and corporate strategy concept could not be ascertained, such case is excluded from the data analysis. Since the influence of external regulatory forces on the corporate is determined, in this study, through the internal resource allocations, all the internal allocations in the past 10 years and those critical ones done earlier have been examined and double-verified. This way, original sources that demonstrated APSCO’s resource allocations have been visited and complemented by the new sources. That is why the findings from this outside-in analysis formed the foundation for the interview schedules with key informants from APSCO which was further cross-validated via corporate strategy management. The records of secondary data obtained from published company materials were checked for factual correctness and level of reliability. Later on, remarks, anecdotes and comments from the interviews will be used to revise, confirm and comment this phase I data entries well as verify whether hypotheses and assumptions made on the link between incidents and variables is plausible (Punch, 1998).

After validating all data entries, the whole data set is transferred to spreadsheet so as to graph the data. Data graphing helps establish and compare data structure patterns such as data cycles, time-sequence, breakpoints and turning points. The main goal of this analysis approach is to identify data streams and significant phases within the domain of resource allocation process over the set time period and to enable interpretation of the allocation patterns. For instance, how and why some incidents appeared in specific chronological order with socially meaningful time cycles (Van de Ven & Poole, 1995). The analysis also intends to establish the reasons behind divergence or convergence of consistency links. To achieve this, sub-samples are analyzed in relation to their particular consistency links, for instance, only reports from a given functional unit could be analyzed or only incidents triggered by the board of management are analyzed. For such analysis to be effective, we utilize chosen regulatory initiatives as triggers of internal corporate realignments in the 6 aspects of corporate strategy and as contextual variables.

We analyze the inconsistent resource allocations so as to establish developments in the outside world that triggered the resource inconsistency by directly influencing corporate decisions on resource allocations. With this approach, we gain primary insights into the most significant regulatory initiatives that affect strategy formation. We analyze each regulatory initiative separately and then consolidate them all to form a general theory.

Phase II

The general methodology for this phase is grounded theory strategy involving analytical induction (Punch, 1998). This involves concepts being constructed inductively from the data gathered and then raised to a higher degree of abstraction in which the links between constructs are traceable. In summary, this approach of data analysis follows the stages of; data collection, data reduction, display, drawing conclusions and their verification (Creswell, 2014).

Data display involves the organization and compression of data for presentation using charts, graphs and diagrams. Data reduction consisted of choosing, focusing and simplification of the collected data. It includes data segmentation, editing, coding, summarizing, conceptualization and memoing (Punch, 1998). Coding means systematically inserting names, tags and labels to given sections of the data collected. Drawing conclusions and verification of data involves the comparison, abstraction and the integration of codes and memos into a consistent and coherent picture that explicitly guides the formulation and derivation of propositions.

The data from interview transcripts was split into many sub-sets and used to supply context-specific results which were interpreted in relation to the Neo-institutional theory. To enable data reduction and structuring of the huge volumes of data from the 18 interview transcripts with senior APSCO officials, the standard guidelines were followed i.e. axial, open and selective coding (Corbin & Strauss, 2008). The main aim of this exploratory and inductive analysis is to assign meaningful code to a particular quotation with the transcript and to integrate these codes into a higher degree, more abstract sub-categories. It should be noted that we distinguished the responses from market business functions (e.g. M&A, corporate strategy, and corporate development) and the non-market business units (regulatory management and politics).

For the purpose of this research study, neo-institutional theory provides a platform for the analysis of the strategy formation process and all data results are interpreted in respect to this theory. By this we mean that we are explaining the influence of regulatory actors on the corporate strategy formation process using the normative, regulatory and cognitive institutions (Hensmans, 2003). We will extend this to include the analysis of how the selected external institutions are perceived within the organization by the 6 dimensions of corporate strategy. We are banking on the neo-institutional theory to develop findings and then draw propositions.

Human Participants and Ethics Precautions

Each study is done in a general public where there are moral rules. Field ethics makes a study reliable and streamlined into societal standards. This study considered the major ethical and moral issues as far as human participants are concerned. These ethical issues can be categorized along three principal dimensions i.e. justice, respect for people and beneficence (CTRFP, 2013). The key informants who participated in the interviews were given official invitation to voluntarily participate in this study. These informants were asked to give consent of their cooperation and they were allowed to recommend the suitable time for the interviews. The security of the subjects was guaranteed using anecdotal names and serialized codes to represent to a respondent rather than their real names. The researcher swore to keep any classified data confidentially and that the data given will be used for academic purposes only – nobody will be victimized based on the information disclosed or the data be used as evidence in a legal process against them.

The secrecy and confidentiality of the data given will be upheld by the researcher by shredding all the interview scripts used just a month after the study is completed so as to ensure that they do not fall into bad hands any time in the future (Resnik, 2010).  A copy of the completed study findings will be availed to the informants in soft copy upon request as pledged by the researcher to the respondents and key research participants as a show of appreciation for their participation. This study process acknowledged all the secondary data sources through correct citation and referencing to evade copyright and plagiarism matters. The researcher sought permission from the local authorities within Saudi Arabia to carry out the study as well as from the relevant department of the California Intercontinental University. 

Validity and Reliability

According to Denzin and Lincoln (2003), validity and reliability of a study can be ensured based on four dimensions that tries to establish the quality level of the research study i.e. internal validity, construct validity, external validity and reliability. Although many researchers perceive these dimensions for validity and reliability as constructs for quantitative research studies, they are suited for any type of study design that combine systematic process with dynamic research strategies because they aid the analysis of the risk of systematic mistakes.

Arzubiaga et al. (2008) argued that construct validity deals with the conceptualization and measurement of constructs under study. When not achieved, the study may end up investigating concepts that are not with the scope of the study, otherwise, a rigorous observation of the subject under investigation is achieved. To ensure construct validity for this study, we need to ensure that alignments for the six aspects of corporate strategy are indeed triggered by external regulatory involvement – not by any other external actors. To accomplish this, we collected data from multiple credible sources such as annual and quarterly company reports, newspapers, press releases, key informant interviews and academic journals. Moreover, the findings from the interview transcripts were validated through extensive analysis of the journal articles and those appearing on the weekly press release so as to triangulate the findings. We also seek to establish a clear series of evidence from the questions asked, the gathered data and findings established. This is done through the tracing of actual regulative initiatives, their influence on strategy formation and the reaction of the firm to such involvement.

Denzin and Lincoln (1994) argued that internal validity address the ambiguousness of the interpretation attached to the research findings. This means that the researcher needs to ensure that the interpretation given to the findings from the observation of the phenomena is indeed true. For the quantitative part of this study, we employ statistical methods so as to ensure internal validity while in the qualitative part; we used careful case study narration and the account of chronological order of activities. Anchoring of our findings on the previous research studies helped avoid making wrong interpretation and the findings cross-checked and discussed with key informants and the research team.

According to Golafshani (2007), external validity addresses the generalizability of the research findings. Although there is considerable criticism of qualitative research study, particularly where a single case study is used, on this validity parameter due to the subjectivity and narrow scope associated with such study, we accept that that may be the price for establishing new theories and agree that measures need to be in place so as to increase the external validity. Generalization aspects of this study can occur through the reproduction of the case study findings in different settings. To increase generalization, the study considers two business units one of which had been an independent company until 2006 and compares our findings across various kinds of regulatory initiatives. In addition, ad-hoc interviews are conducted with employees from one of APSCO’s greatest competitor, Saudi Arabian Oil Company, so as to develop a more generalizable theory.

Reliability addresses the replication of the study findings to an extent that if another researcher carries out the same study in a different environment but with the same conditions, comes up with the same findings (Yin, 1994). In phase I, a standardized database is established with clear concise guidelines for rating and coding formulated and documented to achieve reliability. In phase II, reliability is hard to achieve given that grounded theory approach is used but the basic statistics on the codes’ density increases reliability. The memos and case study protocols taken after every interview and during the whole research process increases the reliability of this study. To increase the reliability of the research instruments, a pilot test is conducted on 10% of the key informants and adjustments made to best collect only relevant and accurate data (Burney, 2000). A T-test and post-test analysis of the instruments used helps test the reliability of the instruments to test the hypotheses and generate theories.

Contribution to Social, Practice, or Organizational Change

The selected research methodology especially the research design can be adopted as a crucial tool in studying and understanding socio-political changes and external forces that influence corporate level resources and decisions. Business practitioners and entrepreneurs working in regulated industries can use the concepts and propositions made in this paper concerning the use of neo-institutional theory and the HBS Model to understand the impacts of external regulatory forces the firm’s decisions. The HBS Model will help practitioners understand the strategy formation process and research which is core to the management of change. Using the HBS strategic model, managers can predict the new desired state of operations and strategy and help stabilize the new equilibrium. According to Burnes and Cooke (2012), the Lewin’s force field analysis involves the examining of the driving forces and restraining forces for the change required to arrive at a new equilibrium. Practitioners can use the HBS model proposed here to trace the stages of strategic change so as to attain the new state.

The detailed discussions on the internal alignments as a response to the regulatory involvement gives the foundation under which to provide normative guidelines on strategy even the performance aspect of these alignments is not included in this study. The successful integration of the study alignments by our case study firm in Saudi Arabia over the recent years gives practitioners an indication of potential success upon implementation of such alignments. These are internally-formulated but externally-directed for regulatory influence is perceived as an opportunity and relatively internally-generated protective strategies if the influence is perceived as a threat.

The addressed issue of strategic consistency in this dissertation can be utilized as a mechanism for corporate governance. When there are profound concerns on the appropriateness and suitability of the action taken by top management, tools that control their behaviors becomes paramount. Given that strategic consistency, as will be addressed in this dissertation, measures the correlation between top management actions – resource allocations, and defined elements of corporate strategy, it reveals whether the management is doing the right things to keep its strategic promises. According to Shaw, et al. 92007), the establishment of strategic consistency over time is a crucial indicator of the effectiveness of the corporate management of a firm. Moreover, the management itself can be utilized a powerful mechanism for the evaluation of the actual strategic consistency of its activities as will be demonstrated in this study later on. Just like a doctor’s thermometer, it informs the managers whether there is any problem that seems to rise. For instance, according to Horn and Alexander (2013), when the consistency declines, the top management must look for the reasons behind such behavior and implement counter actions.

Summary

This chapter addresses the methodology employed for this study including the research design, data instrumentation, data collection, data analysis plan and the geographical location of the participants. The study will utilize a mixed research design; mainly qualitative with some quantitative aspects. The data collection and analysis is carried out in in two phases, resource-based first phase and the interview-based second phase. The chapter also explores the role of the researcher, the sampling technique used to arrive at 18 interview participants and the data collection procedure that was followed. Justification for the chosen methodology, case study and sample size is also provided to demonstrate the suitability of the research methodology adopted. Validity and reliability issues are addressed to increase the credibility and generalizability of the findings from this study as well as verify the suitability of the chosen data collection instruments.

Chapter 4: Results

The results chapter deals with the presentation of the findings from the field, their validity and themes emerging from the data collected as well as those themes that concur with literature reviewed. The results are presented in sequence of the research questions; the data collection was in two phases. The hypothesis testing is done to support or reject the null hypotheses and the reliability and validity of the findings examined.

General Description of the Participants

The participants of this study include those who undertook the interview, 18 senior management officials from the APSCO Company ranging from the market functions (corporate development and strategy departments) to the non-market functions (political and regulatory affairs department).  The criteria for the selection of the respondents was based on the person’s expected level of knowledge on the subject matter and the anticipated validity of the data to be supplied as well as the degree of cooperation for the study (Anderson, 2010). In order to ensure that the data collection reaches saturation, 18 respondents were selected as the study sample. These were at the senior management level of APSCO and spread across all management levels and business functional units. The table below reveals the departmental distribution of the participants within various departments of the company.

The above respondents were senior managers with some classified as high-level informants who had a holistic approach to the issue of integrating regulatory influence on corporate strategy and those classified as low-level informants who had a specific perspective on the identified regulatory initiative under investigation such respondent are like the project manager for gas emission business unit (Brown & Eisenhardt, 1997). In terms of gender, the study carefully sampled the participants with gender parity consciousness. In the end the disparity was eliminated by interviewing 10 men representing 56% of the participants and 8 female senior managers within the aforementioned departments, representing 44% (see Figure B5)

Research Questions

To accomplish the study, research questions are important in guiding the scope and nature of investigation to be conducted. The research questions formulated to aid this study include;

Research Question 1: what are the impacts of external regulatory actors on resource distribution at the corporate level and the extent of their configuration to the idea of corporate strategy formation?

Research Question 2: what and to which extent are alignments to the elements and idea of corporate strategy formation and structure following the integration of regulatory actors?

Sample Size

Ideally, a rigorous research study should be conducted using every member of the study population but in practice such endeavor is tedious and consumes a lot of time and financial resources. Study findings from a sample representation of the entire population have given accurate manifestation of the phenomena under study in the same level those using entire populations have reached. Before selecting the participants for this study, an interview guideline was established derived from chosen expert information and secondary research. In choosing the interview respondents, we used theoretical sampling instead of statistical sampling which has received heightened criticism in the recent past for its lack of qualitative aspects (Brown & Eisenhardt, 1997; Strauss & Corbin, 1998). The criteria for the selection of the respondents was based on the person’s expected level of knowledge on the subject matter and the anticipated validity of the data to be supplied as well as the degree of cooperation for the study (Anderson, 2010).

Since obtaining an appropriate sample for qualitative study that ensures data saturation is reached is important, Slovene’s Formula was utilized to obtain the optimum sample size for the given study population i.e.

n=N/ {1+N (e) ²}   where;

n= the optimum sample size desired for the study from a given study population,

N= the entire study population from which the optimum sample is derived, and

e=the estimated margin error which is set at 10% for this study.

Since the total number of senior managers within the target departments was 30, the entire study population for this study is set at was set 30 and substituting in the slovene’s Formula;

n= 30/ {1+30(0.1)²} = 23 participants

Given that the confidence level (level of significance) for this study was at 95%, the actual sample was computed as; 23*0.95 = 21 participants. However, from the collected data, only 18 participants committed to attend the interview schedules and give satisfactory responses to the question. This translated to a response rate of about 85% which is acceptable for a good qualitative study hence there was no need of replacing respondents because the response rate ensured data saturation.

Pilot Tests

A pilot test is a pre-research study carried out by the researcher to ensure that the study tools are well designed and fully applicable in the practice and that there is no aspect of ambiguity and contradiction. A good and formidable research need to undergo a successful pilot test not only to enhance the applicability of its findings but also to boost its credibility, reliability and validity. For this study, the formulated interview questions were tested for clarity and ambiguousness by first scheduling interviews with about 10% of the sample population. According to Anderson (2010), a pilot study enables the researcher to be familiar with the geographical challenges of the actual field study, profile the participants, make field improvisations where necessary and adjust the content or structure of the research instruments so that they collect rigorous data. After carrying out the pilot test on the research instruments, necessary adjustments were done on the content and structure of the questions to be asked during the interview including grammar, time span and language to fit the understanding of interviewees.

Data Collection

Upon receipt of IRB approval number 08061717666, the data collection process commenced using interview schedules and resource-based secondary data collection from press release, company journals and financial reports within the premises of APSCO in Saudi Arabia.

In phase I, the research process focused on the impact of external regulatory actors on corporate strategy process as demonstrated through internal resource allocations. The process seeks to understand if and to what degree corporate strategy process is influenced by external regulatory involvement. Resource allocations act as the unit of analysis. Major activities include the general evaluation of strategy formation over time, collection of secondary data, build-up of a structure database on resource allocation, critical appraisal of the consistency between the concept of corporate strategy and resource allocation. Through the appraisal of inconsistent resource allocation, the process seeks to establish the most profound regulatory initiatives that influence corporate strategy decisions (Burney, 2008). Data will be collected from publicly available information from Arabian Petroleum Supply Company (APSCO) including annual and quarterly financial and status reports. Data has been collected from external sources such as academic journal and relevant newspapers so as to supplement the data received from the APSCO.

            In phase II, the research process focused on how the whole strategy formation process is influenced particularly how the internal alignments occur via which the six aspects of corporate strategy transform as a result of regulatory influence. The firm is used as a unit of analysis. The research process in this phase focuses on these six corporate strategy elements i.e. portfolio configuration, organizational design, concept of corporate strategy, leadership style and management systems which are used to identify and interpret the alignment routes. The analytical strategy for this phase involves grounded theory and coding (Miles & Huberman, 1994; Creswell, 2013). Before analyzing the internal alignments, we identified and described crucial regulatory initiatives that are used to trigger change and contextual variables.

            The secondary data from weekly press and APSCO reports are used in the triangulation of the findings obtained from interview transcripts. The study covered a period of 10 years from 2005 to 2013. Even though this implies that to a large extent this study process is carried out in retrospective, there is a window for real-time research observations through interview schedules with key informants. This is an opportunity to ‘catch reality in flight’ and is aimed at increasing the validity because we are better placed to track the research-based cause-effect relations of the variables (Golafshani, 2007). However, the study is largely a longitudinal retrospective case study design. This helps elaborate the intermittent sequence through which discrete set of actions take place based on a historical narration (Pettigrew, 1990).

Unit of Analysis and Measurement

The units of analysis for this study are designed in two separate processes for the two phases. For phase I, pre-defined tracks have been utilized to code resource allocation data so as to understand how and to which extent the external regulatory actors affect the corporate strategy formation process. The tracks are narrowed down to specific and easily applicable themes. The tracks are documented in the resource allocation database that contains all the information required to duplicate the data gathering process in a different environment. The coding structure used for the instrumentation in phase I served as a meta-analytical framework for research which is contrary to the grounded theory perspective that is why it was not used in this phase. Borrowing from Van de Ven and Poole (1995) research, indicators were utilized in the transformation of tracks recorded into dichotomous variables. The indicators were derived from the tracks employed in the coding of incidents of APSCO from 2005 to 2013. The variables with value 1 in the database represent the presence of a specific indicator and when the value is 0, it represents its absence.

This unique quantification of even qualitative data allows us to perform statistical analysis of all variable including qualitative relationships. For instance, regression analysis and frequency distributions can be employed to assess the relationship between variables as observed during the secondary data gathering exercise (Schmidt, 2000). The interview transcripts were coded through the open coding system which has free codes representing concepts whose properties have been isolated from the raw data and assigned to particular quotations.

Data Analysis

Before the collected data could be analyzed, it had to be coded to quantifiable variables that can statistically be manipulated and interpreted. The codebook was generated from the 460 incidents that were established from phase I and the 22 codes from the interview schedules in phase II grounded into the isolated quotations from the field. The unit of analysis for phase I is the resource allocation while that for the second phase is the firm’s internal alignments. For each phase, the neo-institutional theory is used to contextualize the findings into institutions of influence. Moreover, two regulative initiatives are used to as comparative measures for the findings and empirically grounded. This section gives the results as analyzed and presented to achieve the study objectives. 

Coding and Codebook Generation

The raw data gathered from the resource-based sources and interview schedules first had to be sorted out and transformed into coded records. All the chosen 400 incidents were consequently entered on the codebook as unique observations in form of parenthesized string of words that capture the fundamental elements of research information gathered. Given that the original data gathered from the publicly accessible resources such as press releases and articles were generally too long to be recorded directly in the codebook, their wordings were adjusted to include only the key words and streamed into the research objectives.

To guarantee systematic data collection and successful data analysis, all the 400 incidents were coded. To achieve effective coding, pre-determined tracks are used to code resource allocation data gathered (Van de Ven, 1999). According to Weber (2009), all the identified tracks have to be narrowed to a very specific and easily applicable form. The coding rules used for this study have been discussed with key resource informants and colleagues as well as being tested for validity and reliability by independent research experts. Figure B6 gives the overview of chosen coding tracks with the incidents in brackets (Frankenberger, 2006).

Generally, we insist that the coding process has to focus on indicators and sub-categories that are of profound significance to this study and that the incidents chosen tend to influence either directly or indirectly two or more of them. Müller-Stewens and Schmidt (2003) argued that a well-structured coding process serves as a good meta-analytical framework for the researcher to analyze the data collected. Since the indicators are derived from the selected tracks that are used to code incidents, they are used to transform every record into perfectly dichotomous variable (Van de Ven & Poole, 1995). The interview transcripts were coded through the open coding system which has free codes representing concepts whose properties have been isolated from the raw data and assigned to particular quotations. For instance, figure B6 demonstrates some examples of the field quotations together with their assigned codes (Frankenberger, 2006).

Since the impact of the external regulatory actors on corporate structure and formation is exhibited through the APSCO’s internal alignments, 20 codes were conceptualized for the internal alignments and grounded on empirical observations from the 18 interview scripts. Consequently, a total of 449 quotations such as the above examples were linked to the 20 codes. From the codebook, the code with the highest density is scenario planning that has been grounded 61 times while the least dense code is expert hiring that has one grounded empirical data. All the codes are categorized into four more abstract and higher order groups with 7 sub-categories. The 4 C’s of internal alignments can best explain the four categories i.e. (a) coordination and control, (b) context screening and setting, (c) communication and (d) corporate parenting and competence bundling.

For the seven sub-categories, the 7C’s of internal alignment were generated into the codebook i.e. context screening and setting is further sub-divided into (1) context screening (external) and (2) context setting (internal); since coordination and control are closely tied to each other, they are conceptually separated to (3) control and (4) coordination; (5) competence bundling, (6) corporate parenting; and (7) communication. Figure B7 illustrates the coding network that has been generated during our study process. The density measures indicated as numbers in the right corners along with the structure of the categories and codes help establish the significance of various codes and categories. For instance, the density measure of 101 placed at the context screening sub-category means that it has been grounded in empirical data in about 101 times as opposed to corporate parenting which has been grounded in empirical data only 15 times, thus context screening appear to have received much attention by the corporate top managers. Müller-Stewens (2003c) argued that while density measures do not actually provide statistical evidence, they indeed support and objectify the findings of any qualitative study.

Figure B7. The generated codes on internal corporate alignments (Frankenberger, 2006)

Qualitative Results

This section presents the qualitative results from both phase I and phase II of the data collection and analysis. Since this study is majorly qualitative, the results presented in this section cover almost the all data collected from both the outside-in resource based data and the interview transcripts. There are both themes that confirmed the earlier addressed literature and those that emerge from the study.

Themes Confirming the Literature

Most of these themes confirmed the propositions from existing literature on the influence of regulatory actors on corporate strategy formation and structure as well their consistency with the concepts of corporate strategy. Most of these themes come from the literature-based phase I of the data collection that was outside-in analyzed. The themes are based on 460 resource allocation items identified at APSCO which we used to analyze the establishment of consistency between strategic action (actual resource allocation) and the strategic intent (concept of corporate strategy) over a period of time.

Impacts of Regulatory Forces on Corporate Resource Allocation

Given that strategy formation can be conceptualized in terms of corporate resource allocation (Noda & Bower, 1996), this study, consequently, looked at the impact of regulatory actors on resource allocation together with the extent of their consistency with the formal concept of corporate strategy. The examination of the consistency levels over a given period of time is important because of it helps use indicate periods of dissonance between strategic action and strategic intent and shows us the possible misfits between the firm and its environment.

Establishment of consistency levels over time

For this study, the consistency between concept of corporate strategy (strategic intent) and the actual internal resource allocation (strategic action) for the period 2005 to 2013 was considered. The level of consistency has been analyzed from the 460 incidents accumulated from the period 2005 to 2013. However, from the total, 40 incidents revealed no reliable judgment as they did not show any influence on the concepts of corporate strategy. The consistency rating revealed the degrees of high and low consistency with respect to whether resource allocations were consistency with the official concept of corporate strategy as shown in the table A9;

Table A8: The number of collected incidents (resource allocations) and their level of consistency per Half Year (HY)

Consistency rates	2005	2006	2007	2008	2009	2010	2011	2012	2013	Total
No effect	4	3	2	3	1	4	2	1	3	4	2	3	0	1	3	2	2	0	40
+ve high	15	11	24	9	23	15	6	6	10	5	11	6	10	13	6	16	5	14	205
+ve low	7	8	13	3	15	6	19	9	10	8	27	6	9	5	9	6	2	3	165
-ve high	0	0	0	8	0	0	10	0	6	1	2	2	0	0	0	1	1	5	36
-ve low	2	0	1	0	3	0	0	3	1	0	3	1	0	0	1	0	0	0	14
TOTAL	26	22	38	23	41	25	40	19	30	18	45	18	19	19	19	23	10	22	460

From table A9, there are profound inconsistencies and maligned resource allocations with many reasons suspected to be responsible for the fluctuating levels of consistency. The inconsistencies can be categorized into three phases (see Figure B8) and a consistency line be plotted.

Figure B8. Phases of inconsistency and the consistency line

From literature, for phase I of the inconsistency, divestment or investment decisions which were thought to be core and non-core activities respectively are responsible. In phase II, reasons for the inconsistency included challenges regarding the right portfolio strategies, i.e., determining which business undertakings are core activities, and commitments APSCO made to comply with state laws especially phasing out high lead-content products.  Inconsistencies in phase III are mainly due to the resultants of market opening that required more divestment actions due to the product diversification and expansion.

Influence of regulatory involvements

From literature, regulatory involvement is significantly responsible the present inconsistencies between the extant concept of corporate strategy and resource allocations (Burgelman & Grove (1996). In general, the impact of external regulatory involvement progressively increased after privatization problems in FY2005/2006 (see figure B9). Majority of the resource allocations that were driven by regulatory involvement rose steadily from 2008 to a season high of 25% in the second half of 2010 and reached a climax high of 38% in 2013 – this meant that almost each third of the resource allocation decisions were being influenced by regulatory involvement directly (see figure B9);

Figure B9: The graph showing the share of firm level resources influenced by regulatory involvements

From the press releases, regulatory involvement for the period between 2005 and 2006 acted in a way that encouraged consistency as APCO benefited from privatization while since 2009 regulation is working against the interest of APSCO. This conclusion is supported by the analysis of consistency levels when resource allocations are done without regulatory involvement (see figure B10 ‘without regulations’). In that case the average consistency rose to 92% and improves to complete consistency at 100% starting from the second half of 2011. On the other hand, consistency levels for resource allocations influenced by regulatory involvements have been diverse and fluctuating. Mostly, the regulatory consistency has been somewhere around 50% meaning that one out of two resource allocations is not in tandem with the extant concept of corporate strategy (see figure B10);

Figure B10: A graph comparing regulatory consistency, without regulations and overall consistency

At this point, we are not assuming that the analyses of consistency levels satisfactorily meet the criteria for strong statistical methodology, but believe that it serves as an indicator for the influence of regulatory involvement on internal resource allocation decisions. Using this consistency analysis, it is proposed that regulatory involvement has a significant impact on the consistency between the extant concept of corporate strategy and resource allocations. The consistency decreases with increase in the regulatory involvement.

Neo-institutional theory at work

Regulative institutions in form of statutes and by-laws are the first institutions that force firms to comply with provisions of regulatory actors. For instance, the phasing out of nuclear power in the Kingdom and other divestment requirements has coercive pressure on resource allocations. Despite APSCO’s opposing strategic goals, it had to comply with the regulatory requirements by dropping any nuclear energy ambitions and divest strategic assets.

Even though line political actors normally rely much on regulative institutions, they sometimes engage in the establishment of normative institutions.  Normative institutions aligned to environmental sustainability and protection exerts significant normative pressure on energy related companies such as APSCO.

Cognitive institutions have also contributed to the impact of regulatory actors on strategy formation. For instance, market opening and liberalization have received profound support from industrial, private and political actors who have belief in the general idea of competition. This is in line with previous studies (see Miles and Cameron, 2012; Frankenberger, 2006; Zajac & Shortell, 2009) that revealed that competition is considered the most efficient approach to ensure market efficiency. Therefore, market opening and liberalization can be considered as cognitive institutions that exert more subtle, less assertive pressure on industrial firms within the energy sector to ensure they comply with provisions for fair competition and open markets.

Generally, it appears that regulatory institutions, normative and cognitive institutions, in that order, have profound influence on resource allocation at corporate level, resulting into increased inconsistencies between strategic action and strategic intent.

The outcome demands for significant realignment to the six elements of corporate strategy to increase the consistency. In line with the findings of Burgelman and Grove (1996), the neo-institution theory has helped us in understanding the normative, coercive and cognitive pressures that confront organizations when they face regulatory involvement that requires resource allocations that end up being inconsistent with the official concept of corporate strategy. Neo-institutional theory has helped us in highlighting the crucial role of consistency and the resultant pressure to re-align elements of the corporate strategy that acts as normative institutions for organizational management.

Selecting relevant regulative initiatives

Through the analysis of the above misalignment of resource allocations, expert consultations, industrial conference proceedings and press research, we came up with five regulative initiatives that influence corporate strategy and structure; nuclear power, anti-trust regulations, market opening, renewable energies, and emissions trading. After further assessment, emissions trading and market opening were selected while the other three were deselected.

Anti-trust regulation was excluded from this study because it turned out that currently there are no significant regulative changes being undertaken. This is because legislations are fully established and at advanced mature stage. Institutions have fully handled anti-trust provisions meaning that the organizational environment is relatively stable. At present, neither government nor other anti-trust regulatory actors strive to amend the existing legislations hence firms can concentrate on the management of existing regulative provisions. For these reasons, it was wise not to pursue the regulative initiative of anti-trust legislations.

Nuclear power initiative was excluded from this study because by 2001 the Saudi Arabian government and industrial players agreed on the phase out of any nuclear power plants and future plans to comply with international protocols. Even though the struggle about the phase out was so fierce, currently there are no open discussions on the matter. Organizational management of APSCO has shelved any discussion on that line. One of the direct quotations by the managing director from the company’s official press release read;

“For nuclear power, we can conclusively declare that there is an agreed position on its phase out and since that is the government position too, we will hold onto that” (APSCO, 2009).

Renewable energies as a regulative initiative were also left out of further discussion due to the initiative’s salience and its interdependency with emissions trading. According to Hillman et al. (2004), supporting the use of renewable energy even though it is a significant matter for the government’s environmental policies, it is merely of little economic importance for big energy companies such as APSCO. Organizational management tends to concentrate more on market openings given that the influence of renewable energy on the competitive position of big energy companies is very limited. Despite renewable energies commanding a 12.5% market share of energy consumption by 2013, it is no threat for large energy utilities because normally these companies seize the renewable energy technologies and built own business units for the same. Secondly, established trading schemes for emissions rights have exhibited the target as renewable energies, therefore, the discussion on renewable energies initiative was integrated into the examination of emissions trading as a regulative initiative.

Emissions trading and market opening remained the only relevant regulative initiatives in this study that required further elaborations. Therefore, they appear in the list of regulative initiatives that are responsible for inconsistency and both are of great importance to energy companies, even though market opening is leading the way. This was confirmed during the press research, expert interviews and conference proceedings. However, they differ according to their approach and issue characteristics but all utilize Oliver’s (2007) strategic response model towards institutional pressure and the typology on corporate political activities as outlined by Hillman et al. (2004). According to Frankenberger (2006), these differences form the core significance in the establishment of context-specific theories and propositions for this study and any subsequent research.

Novel Themes Emerging from the Study

These themes are those that emerged from the second phase of our data collection exercise that was the primary data from 18 interview transcripts. Phase two of the study used interview transcripts to get in-depth knowledge about how regulative actors influence strategy formation in terms of interior alignments of the six aspects of corporate strategy. This is in an attempt to answer the second research question for this study; how and in which sequence the internal alignments to the six aspects of corporate strategy are occurring after regulatory involvement.

Corporate strategy internal alignments following regulatory involvement

            First we examine the inductively gotten typology of interior alignments derived using the grounded theory for coding and categorizing raw data from the interview transcripts. This typology evolved naturally from our data and gives us a holistic image of all internal alignments that can be deduced from the interview scripts.

            The aforementioned codes and categories established from the interview transcripts fully reflect the internal alignments that were observed in the primary data. Using an inductive study methodology, this study sub-consciously avoided the use of preset codes and categories because we could have plunged in the high risk of losing data from the primary study or receive biased outcomes following our subjective expectations on the potential outcomes. This open and holistic approach allowed for the exploration of empirical data and allowed theories to evolve during the research process. Then after, we would make sense of the findings in relation to our study objectives and link them with existing literature.

            Looking at the 22 codes generated and categories obtained for six elements of corporate strategy, it was found that the inductive systematic approach could be matched. Importantly, there were little hurdles in assigning the 22 codes identified to the various elements of the corporate strategy. According to the overall coding approach, the six elements of corporate strategy represent nodes of the entire coding network and represent the major categories. As shown in figure B11, all the 22 codes have been linked to the six elements of corporate strategy and management systems received the highest density, 210 empirical grounding. Coordination is second highest code with 176 empirical groundings while organizational design was third with 143 empirical groundings. Even though the alignments in configuration and corporate concept categories were less frequently mentioned during the interview, their still received 38 and 81 groundings respectively while the least mentioned category, leadership and style received only 6 groundings (See Figure B11)

Figure B11: Linking the 22 codes and categories to the six aspects of corporate strategy with their empirical groundings.

Analysis along market opening and emissions trading

The analysis along market opening and emissions trading became a powerful comparative tool given that regulatory effects and corporate strategy responses differed sharply along these two regulatory initiatives. Given that the interview questions included areas for both market opening and emissions trading, the coding scheme required systematic co-occurrence analysis. In that manner, we sought to support our propositions using interview quotations and density measurements for various categories and codes. In this case, the categories were the six elements of corporate strategy.

Even though the questions gave equal attention to both, the findings revealed that market opening was more dominant in the interview sessions than was emissions trading. This is because market opening was grounded 1.93 times more than its counterpart – 428 times against emissions trading’s 222 times. One of the emerging reasons behind this dominance is that emissions trading happen to be a vital subject for electric generation but less important for petroleum and gas business. However, when we considered only the internal alignments, such dominance reduced significantly to 1.61 times (242 internal alignment activities for market opening against 150 for emissions trading (see figure B12).

Figure B12: Co-occurrence analysis of the internal alignments using absolute and relative densities for the six elements of corporate strategy

As demonstrated in fig.6, market opening had stronger influence on three elements of corporate strategy than emissions trading. For instance, concerning corporate concept, market opening had in total 29 empirical grounding against 12 for emissions trading. For portfolio configuration, empirical data revealed that the level of completion, ownership structure, and market regulation – all associated with market opening – seemed significant determinants of any portfolio activity. Therefore, portfolio activities were a reactionary move to regulative shifts occurring within the market environments. For emissions trading, effects on possible industrial acquisitions and their feasibility were less prominently considered by the management of APSCO.

            The effects of market opening on organizational design were relatively more frequent than emissions trading because market opening issues were integrated into the organizational structures of APSCO. Emissions trading were only considered in projects or whenever there was a task force job.

For management systems, emissions trading had stronger influence than market opening. This is because the company was facing major shifts within the regulative environment; information-based, formalized processes needed reinforcement and changes so as to control the turbulences within the environment. Profound emphasis was directed towards project work and task force to represent core elements of arranged routine works and strategic manner of dealing with the emerging issues from the environment. Due to this, 29 empirical groundings were made related to task forces and project groups out of 68 within emissions trading for this element of corporate strategy compared to 30 out of a massive 80 for market opening. Moreover, standard procedures and management strategies were introduced to forecast measures and report any emission to the regulators. For market opening, scenario planning and environmental screening were of critical importance for management systems and both had more than 50% (45 out of 80) of the entire empirical grounding for management systems.

Overall, market opening have deep-reaching effects on vital elements of the corporate strategy – portfolio configuration and corporate concept. The same findings were confirmed by the results of press research. For the 54 articles gathered that covered emissions trading, internal alignments were mentioned only 18 times. Conversely, internal alignments appeared 28 times from just 19 collected articles.

Internal alignment routes

From the results, we have revealed which element of corporate strategy received the greatest attention using both market opening and emissions trading regulatory initiatives. Common to both emissions trading and market opening is the initial stages of their effects on the elements of corporate strategy. Overall, continuous environmental screening actions uncovered profound shifts in the regulative environment and outlined specific issues that required further attention. These identified issues could be dealt with at the existing structures or be sent to a particular task force or further down to a project team. Scenario planning is one of the important strategies that can be used to deal with the identified issues from the regulatory environment (see figure B13);

Figure B13: The general process of dealing with issues arising from regulatory environment

As expected, internal alignment paths differ between market opening and emissions trading. At the initial stage, issues from both initiatives are handled within the present organizational structures and systems, however, in later stages, they are directed to a special task force and project team. For most task force or project work on emissions trading normally result into process guidelines for organizational design (daily business) or to new management systems. For instance, the measurements and reports on emissions to regulators. For market opening, almost all the six elements of corporate strategy were influenced and ended up making organizational design alignments (see figure B14);

Figure B14: A graph demonstrating the perceived alignment paths for both market opening and emissions trading

While admitting that there are some doubts as to when and where the internal alignments start, from the above general process, it can be argued that the following sequence is predominant for alignment of corporate strategy and structure for APSCO following regulatory involvement. At first, the company introduces a new concept of corporate strategy; consequently, resource allocations are focused on portfolio activities and at the end resource allocations gradually shift towards organizational design. Therefore, the most probable sequence suggested for the alignments paths can be coordination – new concept of corporate strategy – portfolio activities – management system – organizational design – leadership and styles.

Neo-institutional theory at work

For the second part of this study on the internal alignments of the six elements of corporate strategy following regulatory involvement, this section demonstrates the neo-institutional mechanisms that guide such alignments. This study concurred with Scott’s (2001) findings that normative institutions were the starting point of the regulative pressure on energy firms from international and regional actors. For both emissions trading and market opening, normative international guidelines served as the main reason for institutionalizing regulatory systems at the national government.

The created normative institutions formed the platform for interactions among major actors in the energy sector and generate pressure for the incumbents to react both externally and internally (Oliver, 2007). Given these pressures, energy companies had to undertake certain internal alignments. For instance, they were forced to separate distribution and transmission activities from the other business units (unbundling). In addition to unbundling, regulative institutions generates coercive pressure on energy incumbents to divest particular businesses so as to obtain approvals for mergers and acquisitions. This forces companies like APSCO to diminish their energy portfolio, an action that negatively impact their competitiveness and value (Wright & Ferris, 1997).

Regulative and normative institutions have long been complemented by cognitive institutions such as the right and freedom to choose, which widely-accepted norm of market economies is. While top Arabian energy generation and distribution companies have sometimes tried to challenge or dismiss the normative values and rules, for instance by deliberately obstructing attempts by clients to change suppliers (Oliver, 2007), they at least conform partially to the institutional requirements.

Regulatory and normative pressures associated with emissions trading within APSCO were initially examined within specialized project groups, which eventually generated general process frameworks for the interaction with regulative authorities. The frameworks generated performs two main functions: first, help in the creation of effective interfaces between the regulative authorities and the firm, thereby becoming part of the company’s compliance and concealment strategies; secondly, the framework guidelines represent buffer strategies that are meant to guard the operational cores of the company as well as disguise potential non-conformity (Wright et al., 1996). Changes in organizational design and management systems were found to be driven by compliance behaviors as it anticipates for future regulative standards. To comply, APSCO established calculating, measuring and reporting systems that would cover the requirement of the regulative authorities.

For market opening, APSCO’s growth and focus strategy represent a familiar strategy observed by previous studies in other industries following market liberalization in most of the world economies (see, Smith & Grimm, 1987; Kashlak & Joshi, 1994; Bonardi, 2004). Due to shifts in the regulatory institutions’ environment in the Kingdom, APSCO attempted to align its concept of corporate strategy with its portfolio configuration that is largely related to growth potential within the energy sector in and outside the Kingdom (Bonardi, 2004). However, for the domestic market, resistance to corporate strategy changes was high. In general, the pursuit of growth opportunities and support for market opening overwhelmed the resistance behaviors and protection of domestic markets. Here market opening was closely linked with strategic opportunities instead of being perceived as a threat. Normative institutions generally played a pivotal role in transforming the company. For instance, there was an apparent need for the company to invest in building its brand; all major energy incumbents engaged in expensive market campaigns to emotionally link with their potential customers.

Results of Hypothesis Tests

Hypothesis one sought to understand if and to what degree, corporate strategy process is influenced by external regulatory actors. Resource allocation was used as tool of understanding whether the external regulatory actors influenced the strategy formation process. To quantify the ‘influence’ of external actors, pre-defined tracks were used to code resource allocation data so as to understand how and to which extent the external regulatory actors influence the corporate strategy formation process. The tracks were narrowed down to specific and easily applicable themes. The tracks were documented in the resource allocation database that contains all the information in a quantifiable form. This unique quantification of qualitative data allowed the testing of the first null hypothesis using two-tailed Chi-square analysis.

The second hypothesis focused on how the whole strategy formation process is influenced by regulatory involvement particularly how the internal alignments occur via the six aspects of corporate strategy transform as a result of regulatory involvement. The interview transcripts were coded through the open coding system which acted has free codes representing concepts whose properties have been isolated from the raw data and assigned to particular quotations. The quotations from the interview transcripts denoting the internal alignments to the six elements of corporate strategy formation were coded into selected themes with numerical value that denote the level of ‘involvement’ from the external actors. The ‘involvement’ was measured and analyzed using the density of the codes shown by the quotations from the interview script using the empirical grounding theory.

First Hypothesis Test

H₀₁: External regulatory actors have no significant influence on corporate resource distribution and are not configured to the concept of corporate strategy formation.

H_A1: External regulatory actors have significant impact on corporate resource distribution and are consistent with the extant idea of corporate strategy formation.

Chi-Square Tests
	Value	df	Asymp. Sig. (2-sided)
Pearson Chi-Square	32.713a	8	.002
Likelihood Ratio	35.182	8	.003
Linear-by-Linear Association	4.016	1	.045
N of Valid Cases	460
a. 15 cells (65.7%) have expected count less than 5. The minimum expected count is .35.

The Chi-square test was carried out to establish if there is a correlation between regulatory actors and corporate strategy formation is statistically significant at a confidence level of 5%. Even though Chi-square (χ²) is a bit high at 32.713 because of the large sample size, it can be said to be within the accepted limits that is deemed to support the alternative hypothesis since the degree of freedom (df) of the independent and dependent variables is too low (df=8). According to Hair et al. (2010) this means that the data collected supported the alternative hypothesis.  Form the Chi-square test, Pearson correlation for all the tests were less than 0.05 (p-value<0.05). Therefore, there is a significant positive relationship between the external regulatory actors and the corporate strategy formation through resource allocations. The null hypothesis is rejected.

Second Hypothesis Test

H₀₂: There are no significant internal alignments to corporate strategy and structure due to the involvement of external regulatory actors.

H_A2: There are significant internal alignments to corporate strategy formation and structure due to the involvement of external regulatory involvement.

Chi-Square Tests
	Value	df	Asymp. Sig. (2-sided)
Pearson Chi-Square	2.507a	8	.004
Likelihood Ratio	2.623	8	.003
Linear-by-Linear Association	.034	1	.013
N of Valid Cases	22
a. 4 cells (25.7%) have expected count less than 5. The minimum expected count is 2.92.

The above Chi-square test was carried out to establish whether there is a significantly positive relationship between internal alignments to the six elements of corporate strategy and the external regulatory involvement at a margin error of 5 percent (Gerbing & Anderson, 1985). The Chi-square (χ²) was established to be as low as 2.507 with the degree of freedom between the independent and dependent variables also low (df=8). Since the test shows that Pearson’s co-efficient is less that 0.05 (P-value <0.05), there is statistically a significant relationship between internal alignments to the elements of corporate strategy and the regulatory involvement. The alternative hypothesis is supported while the null hypothesis is rejected.

Validity and Reliability

According to Denzin and Lincoln (2003), validity and reliability of a study can be ensured based on four dimensions that tries to establish the quality level of the research study i.e. internal validity, construct validity, external validity and reliability. Although many researchers perceive these dimensions for validity and reliability as constructs for quantitative research studies, they are suited for any type of study design that combine systematic process with dynamic research strategies because they aid the analysis of the risk of systematic mistakes.

Arzubiaga et al. (2008) argued that construct validity deals with the conceptualization and measurement of constructs under study. When not achieved, the study may end up investigating concepts that are not with the scope of the study, otherwise, a rigorous observation of the subject under investigation is achieved. To ensure construct validity for this study, we need to ensure that alignments for the six aspects of corporate strategy are indeed triggered by external regulatory involvement – not by any other external actors. To accomplish this, we collected data from multiple credible sources such as annual and quarterly company reports, newspapers, press releases, key informant interviews and academic journals. Moreover, the findings from the interview transcripts were validated through extensive analysis of the journal articles and those appearing on the weekly press release so as to triangulate the findings. We also seek to establish a clear series of evidence from the questions asked, the gathered data and findings established. This is done through the tracing of actual regulative initiatives, their influence on strategy formation and the reaction of the firm to such involvement.

Denzin and Lincoln (1994) argued that internal validity address the ambiguousness of the interpretation attached to the research findings. This means that the researcher needs to ensure that the interpretation given to the findings from the observation of the phenomena is indeed true. For the quantitative part of this study, we employ statistical methods so as to ensure internal validity while in the qualitative part; we used careful case study narration and the account of chronological order of activities. Anchoring of our findings on the previous research studies helped avoid making wrong interpretation and the findings cross-checked and discussed with key informants and the research team.

According to Golafshani (2007), external validity addresses the generalizability of the research findings. Although there is considerable criticism of qualitative research study, particularly where a single case study is used, on this validity parameter due to the subjectivity and narrow scope associated with such study, we accept that that may be the price for establishing new theories and agree that measures need to be in place so as to increase the external validity. Generalization aspects of this study can occur through the reproduction of the case study findings in different settings. To increase generalization, the study considers two business units one of which had been an independent company until 2006 and compares our findings across various kinds of regulatory initiatives. In addition, ad-hoc interviews are conducted with employees from one of APSCO’s greatest competitor, Saudi Arabian Oil Company, so as to develop a more generalizable theory.

Reliability addresses the replication of the study findings to an extent that if another researcher carries out the same study in a different environment but with the same conditions, comes up with the same findings (Brink, 2009). In phase I, a standardized database is established with clear concise guidelines for rating and coding formulated and documented to achieve reliability. In phase II, reliability is hard to achieve given that grounded theory approach is used but the basic statistics on the codes’ density increases reliability. The memos and case study protocols taken after every interview and during the whole research process increases the reliability of this study. To increase the reliability of the research instruments, a pilot test is conducted on 10% of the key informants and adjustments made to best collect only relevant and accurate data (Burney, 2000). A T-test and post-test analysis of the instruments used helps test the reliability of the instruments to test the hypotheses and generate theories.

Summary

This chapter presented the results from the field and analyzed them in the context of resource allocations and internal alignments to the elements of corporate strategy. The findings revealed that external regulative involvement result into internal alignments to the corporate strategy. The results revealed the negative impacts of regulatory actors on the existing consistency between strategic action (allocation of resources) and strategic intent (formal concept of corporate strategy) leading to corporate strategic dissonance within the firm and increase pressure to realign organizational strategies with the external environment.

There are context-specific findings on the sequence and intensity of internal alignments of the elements of corporate strategy and structure. In summary, if a regulative initiative is viewed as an opportunity, the alignments first involve basic adjustments to the portfolio configuration and concept of corporate strategy so as to grab the seen opportunity. Management systems and organizational design are subsequently aligned to boost the strategic change. On the other hand, if a regulative initiative is viewed as a threat, the alignments to the elements focus on organizational design and management systems so as to shield the technical core of the organization – only minor alterations to the concept of corporate strategy are done later.

Chapter 5: Discussion, Conclusions, and Recommendations

This chapter reflects on the results analyzed in chapter 4, discusses the key findings from the analysis conducted including the results on the study hypotheses and addresses the implications of the findings to practice and theory. Given the importance of ethics in any research that involves human subjects, the essence of getting an IRB approval number, is first discussed to make aware any reader that the research was conducted within the existing professional and moral ethics. The study limitations in terms of scope, methodology, data collection and analysis are also discussed and the implications to social and management theory and practice are outlined.

Ethical Dimensions

Each study is done in a general public where there are moral rules. Field ethics makes a study reliable and streamlined into societal standards. This study considered the major ethical and moral issues as far as human participants are concerned. These ethical issues can be categorized along three principal dimensions i.e. justice, respect for people and beneficence (CTRFP, 2013). The key informants who participated in the interviews were given official invitation to voluntarily participate in this study. These informants were asked to give consent of their cooperation and they were allowed to recommend the suitable time for the interviews. The security of the subjects was guaranteed using anecdotal names and serialized codes to represent to a respondent rather than their real names. The researcher swore to keep any classified data confidentially and that the data given will be used for academic purposes only – nobody will be victimized based on the information disclosed or the data be used as evidence in a legal process against them.

The secrecy and confidentiality of the data given will be upheld by the researcher by shredding all the interview scripts used just a month after the study is completed so as to ensure that they do not fall into bad hands any time in the future (Resnik, 2010).  A copy of the completed study findings will be availed to the informants in soft copy upon request as pledged by the researcher to the respondents and key research participants as a show of appreciation for their participation. This study process acknowledged all the secondary data sources through correct citation and referencing to evade copyright and plagiarism matters. The researcher sought permission from the local authorities within Saudi Arabia to carry out the study as well as from the relevant department of the California Intercontinental University. As prove that the study complied with the set US research standards when human subjects are involved, IRB approval number was issued (08061717666) as a green light to collect and analyze data.

Limitations

Every research study has its own and shared challenges. For this study, time was one of the major constraints identified as the research required in-depth data collection and analysis then produce a nice write up with appropriate illustrations and documentation (Lechner, 2003). However, the research had a time of three months which pose a crucial challenge to the researcher. Financial constraints also affected the research undertaking given that the researcher is a student with meager income and other financial needs. Collecting and analyzing data requires state-of-the art technology both hardware and software to ensure data manipulation is easier and brings out the intended outcomes. All these required financial expenditure. Due to financial expenditure, the researcher has to downsize the research scope and sample size to be within the comfort financial zones.

The mixed research method is deemed most appropriate for this study because the limitations of either quantitative or qualitative approaches are offset by the advantages of the other (Creswell, 2014). Nonetheless, it is difficult to effectively collect both qualitative and quantitative data from the same respondent. It requires highly skilled researcher and up-to-date tools to successfully analyze both sets of data collected. For secondary data collection and review of literature, it is so difficult to access of company files and government confidential documents. Some organizations may treat the researcher suspiciously for thinking that he is an espionage agent. Some may hide crucial research files for fear of victimization for some violation of the set government regulations. All these were great limitations for the data collection exercise. In addition, subjectivity associated with the qualitative aspect of the mixed methodology reduces the reliability and validity of findings (Golafshani, 2007)

Another research limitation came in the form of its scope. The research is enclosed to the energy sector in Saudi Arabia and deals with only regulatory actors for a wide range of external factors that may influence internal operations of a firm. This narrow scope limits the replicability and generalization of the findings from the study. Some of the findings may explicitly be associated with either the energy sector alone or be true to Saudi Arabia alone hence generalizing those findings lead to misleading conclusions. Comparative studies are required to further validate the findings from this study. Finally, the limitations associated with both the Harvard Business School model and the Neo-institutional theory will affect the research process, scope and interpretation of the findings from this study.

Overview of the Population and Sampling Method

The research population and sampling procedures used for collecting primary data was from in-depth interviews with key organizational informants. Before selecting the participants for this study, an interview guideline was established derived from chosen expert information and secondary research. In choosing the interview respondents, we used theoretical sampling instead of statistical sampling which has received heightened criticism in the recent past for its lack of qualitative aspects (Brown & Eisenhardt, 1997; Strauss & Corbin, 1998). The criteria for the selection of the respondents was based on the person’s expected level of knowledge on the subject matter and the anticipated validity of the data to be supplied as well as the degree of cooperation for the study (Anderson, 2010).

In order to ensure that the data collection reaches saturation, 18 respondents were selected as the study sample. These were at the senior management level of APSCO and cut across all management levels and business functional units. The respondents were senior managers with those classified as high-level informants who had a holistic approach to the issue of integrating regulatory influence on corporate strategy and those classified as low-level informants who had a specific perspective on the identified regulatory initiative under investigation such respondent are like the project manager for gas emission business unit (Brown and Eisenhardt, 1997).

In choosing the interview respondents, we used theoretical sampling instead of statistical sampling which has received heightened criticism in the recent past for its lack of qualitative aspects (Brown & Eisenhardt, 1997; Strauss & Corbin, 1998). The criteria for the selection of the respondents was based on the person’s expected level of knowledge on the subject matter and the anticipated validity of the data to be supplied as well as the degree of cooperation for the study (Anderson, 2010).

Since obtaining an appropriate sample for qualitative study that ensures data saturation is reached is important, Slovene’s Formula was utilized to obtain the optimum sample size for the given study population i.e.

n=N/ {1+N (e) ²}   where;

n= the optimum sample size desired for the study from a given study population,

N= the entire study population from which the optimum sample is derived, and

e=the estimated margin error which is set at 10% for this study.

Since the total number of senior managers within the target departments was 30, the entire study population for this study is set at was set 30 and substituting in the slovene’s Formula;

n= 30/ {1+30(0.1)²} = 23 participants

Given that the confidence level (level of significance) for this study was at 95%, the actual sample was computed as; 23*0.95 = 21 participants. However, from the collected data, only 18 participants committed to attend the interview schedules and give satisfactory responses to the question. This translated to a response rate of about 85% which is acceptable for a good qualitative study hence there was no need of replacing respondents because the response rate ensured data saturation.

Data Collection and Analysis

Upon receipt of IRB approval number 08-06-171-7666, the data collection process commenced using interview schedules and resource-based secondary data collection from press release, company journals and financial reports within the premises of APSCO in Saudi Arabia.

In phase I, the research process focused on the impact of external regulatory actors on corporate strategy process as demonstrated through internal resource allocations. The process seeks to understand if and to what degree corporate strategy process is influenced by external regulatory involvement. Resource allocations act as the unit of analysis. Major activities include the general evaluation of strategy formation over time, collection of secondary data, build-up of a structure database on resource allocation, critical appraisal of the consistency between the concept of corporate strategy and resource allocation. Through the appraisal of inconsistent resource allocation, the process seeks to establish the most profound regulatory initiatives that influence corporate strategy decisions (Burney 2008). Data will be collected from publicly available information from Arabian Petroleum Supply Company (APSCO) including annual and quarterly financial and status reports. Data has been collected from external sources such as academic journal and relevant newspapers so as to supplement the data received from the APSCO.

            In phase II, the research process focused on how the whole strategy formation process is influenced particularly how the internal alignments occur via which the six aspects of corporate strategy transform as a result of regulatory influence. The firm is used as a unit of analysis. The research process in this phase focuses on these six corporate strategy elements i.e. portfolio configuration, organizational design, concept of corporate strategy, leadership style and management systems which are used to identify and interpret the alignment routes. The analytical strategy for this phase involves grounded theory and case study narrations (Miles and Huberman, 1994; Creswell, 2013). Before analyzing the internal alignments, we identified and described crucial regulatory initiatives that are used to trigger change and contextual variables.

            The secondary data from weekly press and APSCO reports are used in the triangulation of the findings obtained from interview transcripts. The study covered a period of 10 years from 2005 to 2014. Even though this implies that to a large extent this study process is carried out in retrospective, there is a window for real-time research observations through interview schedules with key informants. This is an opportunity to ‘catch reality in flight’ and is aimed at increasing the validity because we are better placed to track the research-based cause-effect relations of the variables (Golafshani, 2007). However, the study is largely a longitudinal retrospective case study design. This helps elaborate the intermittent sequence through which discrete set of actions take place based on a historical narration (Pettigrew, 1990).

The units of analysis for this study are designed in two separate processes for the two phases. For phase I, pre-defined tracks have been utilized to code resource allocation data so as to understand how and to which extent the external regulatory actors affect the corporate strategy formation process. The tracks are narrowed down to specific and easily applicable themes. The tracks are documented in the resource allocation database that contains all the information required to duplicate the data gathering process in a different environment. The coding structure used for the instrumentation in phase I served as a meta-analytical framework for research which is contrary to the grounded theory perspective that is why it was not used in this phase. Borrowing from Van de Ven and Poole (1995) research, indicators were utilized in the transformation of tracks recorded into dichotomous variables. The indicators were derived from the tracks employed in the coding of incidents of APSCO from 2005 to 2013. The variables with value 1 in the database represent the presence of a specific indicator and when the value is 0, it represents its absence. This unique quantification of even qualitative data allows us to perform statistical analysis of all variable including qualitative relationships. For instance, regression analysis and frequency distributions can be employed to assess the relationship between variables as observed during the secondary data gathering exercise (Schmidt, 2000).

Summary of Findings

This study aimed at plugging the research gap that exists because of a feeble integration of exterior regulatory actors into strategic research process as revealed by Burgelman (2002a). Most of the existing literature covers mainly the exemplary study on the role of external forces in corporate strategy formation. In most cases, the exterior forces to the firm are amalgamated under abstract description of the environments such as complexity or uncertainty (Papadakis et al., 1998). When the external actors are explicitly considered, the existing cross-sectional studies attempted to measure their impact on the various elements of corporate strategy, for example, organizational design (dickie, 1984), diversitification (Matsusaka, 1996; Russso, 1992), powers of collective strategy (Stevenson & Greenberg, 2000; Dobbin, 1997) or the scope of operation (Toulan, 2002; Haveman et al., 2001).

The findings further revealed that external regulative involvement result into internal alignments to the corporate strategy. The findings of this study offered two significant contributions to the integration of regulatory actors into the strategy formation process. First, it revealed the negative impacts of regulatory actors on the existing consistency between strategic action (allocation of resources) and strategic intent (formal concept of corporate strategy) leading to corporate strategic dissonance within the firm and increase pressure to realign organizational strategies with the external environment.

Secondly, there were generated context-specific findings on the sequence and intensity of internal alignments of the elements of corporate strategy and structure. In summary, if a regulative initiative is viewed as an opportunity, the alignments first involve basic adjustments to the portfolio configuration and concept of corporate strategy so as to grab the seen opportunity. Management systems and organizational design are subsequently aligned to boost the strategic change. On the other hand, if a regulative initiative is viewed as a threat, the alignments to the elements focus on organizational design and management systems so as to shield the technical core of the organization – only minor alterations to the concept of corporate strategy are done later.

Explanation of Findings

The findings from this study aimed at the integration of both research streams and establishing a holistic conceptualization of the way in which exterior regulatory actors influence strategy formation and the reactions of firms towards the external involvement. Two questions were formulated and the findings are aligned towards the two questions;

Research Question 1

This first research was; what are the impacts of external regulatory actors on resource distribution at the corporate level and the extent of their configuration to the idea of corporate strategy formation?  Here our study was investigating whether corporate strategy formation and structure was significantly influenced by external regulatory involvement. This was followed by a dynamic analysis of the impact of regulative actors on the perceived consistence between the concept of corporate strategy (strategic intent) and resource allocations (strategic action).

The findings revealed that increased regulative involvement leads to decreased strategic consistency denoted by the allocation of resources to satisfy corporate goals. Requirements and interests of these external actors generated regulatory institutions and sustained coercive pressures that force the company to significantly deviate from its normal concept of corporate strategy. This resultant dissonance within the firm (Burgelman & Grove, 1996) consequently, induces internal alignments in a desperate search for consistency and industrial footing (Bacharach et al., 1996; Hillman et al., 2004).

Research Question 2

The second question was; what and to which extent are alignments to the six elements of corporate strategy formation and structure following the integration of regulatory actors? For this question, the study was investigating the impact of regulative actors as established in question one on the strategy formation. The analysis of the findings was how and in which sequence the six elements were aligned after the regulative influence. Comparative results across two regulative initiatives – emissions trading and market opening – it was found that the nature of internal alignment mostly depended on the characteristic of the regulative initiative influencing the alignment and other corresponding internal dynamics such as divestment decisions, mergers and acquisitions.

Further analysis revealed that internal alignments are much intensive and consequently could include crucial adjustments to portfolio configuration and concept of corporate strategy, if only the following conditions are present; a) absence of powerful interceders that advances the interest of the company, b) matured initiative, c) heightened public pressure on the firm, and d) when the initiative is viewed as an opportunity. Otherwise, the internal alignments became superficial and geared towards adjustments to management systems and organizational design so as to cushion the technical core of the company from anticipated risks (McKay, 2001).

If the initiative is viewed as an opportunity, the sequence of the internal alignments followed the route of corporate strategy – portfolio configuration – organizational design – management systems. In this sequence, structure followed strategy (McKay, 2001; Bacharach et al., 1996; Morgan, 1981b). If regulative initiative is viewed as a threat, the most likely sequence would follow the route management systems – organizational design – concept of corporate strategy. This sequence confirms a strategy following structure paradigm (Cook et al., 1983; Hillman et al., 2004). The use of neo-institutional theory further revealed that only when internal alignments incorporate both the concept of corporate strategy and the organization’s values and culture could there be consistency between the external and internal institutions, and sustainable institutional stability be arrived at.

Findings of the Hypothesis Tests

Findings of the first hypothesis.  The Chi-square test was carried out to establish if there is a correlation between regulatory actors and corporate strategy formation is statistically significant at a confidence level of 5%. Even though Chi-square (χ²) is a bit high at 32.713 because of the large sample size, it can be said to be within the accepted limits that is deemed to support the alternative hypothesis since the degree of freedom (df) of the independent and dependent variables is too low (df=8). According to Hair et al. (2010) this means that the data collected supported the alternative hypothesis.  Form the Chi-square test, Pearson correlation for all the tests were less than 0.05 (p-value<0.05). Therefore, there is a significant positive relationship between the external regulatory actors and the corporate strategy formation through resource allocations. The null hypothesis is rejected.

Findings of the second hypothesis.  The Chi-square test was carried out to establish whether there is a significantly positive relationship between internal alignments to the six elements of corporate strategy and the external regulatory involvement at a margin error of 5 percent (Gerbing & Anderson, 1985). The Chi-square (χ²) was established to be as low as 2.507 with the degree of freedom between the independent and dependent variables also low (df=8). Since the test shows that Pearson’s co-efficient is less that 0.05 (P-value <0.05), there is statistically a significant relationship between internal alignments to the elements of corporate strategy and the regulatory involvement. The alternative hypothesis is supported while the null hypothesis is rejected.

Open-Ended Questions

The interview guide had mostly open-ended questions as items to respond to. These questions help the researcher in getting a variety of in-depth information about the subject matter. Unlike closed-ended questions that require specific responses hence giving the respondent restrictions on the response, open-ended questions give them a space to express their thought and the interviewer an opportunity to interrogate the non-verbal cues from the respondent. This helps the interviewer in ascertaining the validity and genuineness of the responses given by the participants. Samples of the open-ended questions include;

Open-ended Question 1.  Do you think resource allocation is the best way to assess the internal alignments due to regulatory influence?

Open-ended Question 2.  What is the influence of the different regulative initiatives on the effectiveness and efficiency of the firm (strategy formation process)?

Potential Errors

In any empirical study, there some sources of errors for the findings that can reduce their replication and generalizability. This research study was no exception even though many measures were put in place to reduce the occurrence of such errors or mitigate their effects on the findings. One of the potential errors could result from computational mistakes during the transfer of data from the press release and interview transcripts to the computer programs for coding and analysis. Due to the human nature, some of the figures may have been exaggerated by accident as the data was being coded of typesetting errors may have arose. Another source of computational errors could have arisen from the truncation and rounding off of final figures for analysis and easier interpretation. However, counter-checking was done to minimize errors during the data coding into the data book and all calculations were redone to prove that the results were correct and reflected the data collected.

Another potential source of errors could have arisen from the subjectivity associated with qualitative research studies. Since the responses collected from the interview schedules were qualitative, the result had to be coded into quantifiable entities by the researcher with the human subjectivity. This may have added some researcher perceptions into the data and result into un-empirical manipulation of the data to fit given theoretical propositions. However, to eliminate this scenario, the researcher used inductive approach that require the generation of knowledge from the field to form theories and propositions.

Summary

This chapter discussed the findings from chapter 4 and put them in perspective so as to examine the extent to which the study objectives have been achieved. Since this study involved human subjects, ethical considerations on the field have been addressed to ensure that data collection followed accepted moral and professional standards. The findings revealed that external regulative involvement result into internal alignments to the corporate strategy. The findings of this study offered two significant contributions to the integration of regulatory actors into the strategy formation process. First, it revealed the negative impacts of regulatory actors on the existing consistency between strategic action (allocation of resources) and strategic intent (formal concept of corporate strategy) leading to corporate strategic dissonance within the firm and increase pressure to realign organizational strategies with the external environment.

Secondly, there are context-specific findings on the sequence and intensity of internal alignments of the elements of corporate strategy and structure. In summary, if a regulative initiative is viewed as an opportunity, the alignments first involve basic adjustments to the portfolio configuration and concept of corporate strategy so as to grab the seen opportunity. Management systems and organizational design are subsequently aligned to boost the strategic change. On the other hand, if a regulative initiative is viewed as a threat, the alignments to the elements focus on organizational design and management systems so as to shield the technical core of the organization – only minor alterations to the concept of corporate strategy are done later.

Recommendations

In general, this dissertation has contributed to the present strategic process research by examining the impact of external actors on the internal strategy structure and formation to support some of the previous studies on the same topic (see Woolridge & Floyd, 1990; Burgelman, 1991; Woolridge & Floyd, 2000; Frankenberger, 2006). It provides in-depth insights into the influence and how the organization reacts through internal resource allocations and alignments to the elements of corporate strategy. From the study, various recommendations can be made to both the senior and strategic managers for improvement and sustainability of the strategic formation process. It is worth noting that the recommendations given here are context-driven and conscious of the fact that in Saudi Arabia, the external regulative institutions changed from protecting the energy companies to the promotion of changes that may sometimes be contrary to the strategic objectives of the firm;

Given that the more mature any regulative initiative is, the greater the realization of internal alignments, strategic managers should be aware that this leads to intense adjustments to the portfolio configuration and the official concept of corporate strategy. They need to understand that the less intense are the resultant internal alignments, the greater are the adjustments to the management systems and organizational design. It is recommended that more research be done to understand what characteristic of the regulative initiative affects the remaining two elements of corporate strategy – coordination and leadership styles.

When external actors are incorporated into the concept of corporate strategy and exhibited in the organizational values and culture, they are assumed to be consistent with the interior functional units of the organization. Such consistency should be maintained at all costs because the more such consistency exists between external and internal institutions, the more stable can the organizational environment be. Moreover, it is recommended that when normative institutional pressures originating from stakeholders complement regulatory institutions, consistency among external and internal institutions increases – organizational stability is enhanced.

When a regulative initiative is highly regarded as an opportunity, the firm should more intensely use externally-directed responses instead of internal alignments and frequently utilize consensus-driven strategies such as partnering, negotiating and information gathering. However, it is recommended that if the perceived opportunity of a regulative initiative is small, the firm should utilize more resister-driven strategies such as prevention, manipulation and deferment.

When faced with regulative initiatives, firms should engage in direct influencing processes that create regulative institutions so as to balance normative institutions and help challenge or transform current cognitive institutions. These directly influencing strategies need to be generated by non-market functional units because the indirectly influencing strategies (associated with cognitive and normative institutions) are largely dominated by market players.

Reflecting Upon the Study

The journey from the conceptualization of this dissertation topic through the collection of data and finally the analysis has been a challenging one. However, through that long journey, I have learnt a lot and established much of the propositions through empirical groundings. First, it was a challenge coming up with a researchable topic that indeed can fill some gaps in existing literature. I came up with more than five draft topics which I realized were either obvious or difficult in researching information about them. I settled on regulatory institutions and corporate strategy formation because both are within the current research areas and within the scope of my study program.

Gathering various studies previously carried out on this topic was not a big challenge since there are several published journals with studies in the strategic research process and regulative actors. However, it was difficult to get latest research studies on the topic as those that tackled the topic in detail are mostly over ten years older meaning that the findings may have been outdated. Some of the most recent studies on corporate strategy formation and structure were either copyright protected or on sale at various online portals. I had to buy some research articles, subscribe to some peer-reviewed journal sites and request for copyright permissions so as to access some crucial materials on the available knowledge on the area.

Selecting participants for the study was difficult given that the study methodology targeted senior managers who are mostly busy or suspicious of any interview. Selecting the day for the interview was also a challenge as I had to allow each participant choose a day and time of his/her convenience. Some chose a day and time that was conflicting to my schedule while other choose the same day and time but at different venues. From the scheduled 22 interviews, only 18 were conducted but luckily data saturation was arrived at. Before collecting data, I had to enroll for an IRB program which taught me much on how to carry out research studies involving human subjects. I learnt various statutes and international laws that govern the ethics in research studies that involve human subjects. During the interviews, some participants appeared apprehensive and conservative maybe because they feared revealing company secrets but with further reassurances, they went on to respond to most of the items on the interview transcripts.

After collecting secondary data from company publications and press release, it was absolutely challenging to generate the 460 quotations that would support the interview findings and answer my first research question. Generating 22 codes from the interview transcripts and use the grounded theory to attach them to empirical roots was an interesting experience. Using previous studies that used ground theory such as Frankenberger’s (2006) approach came in handy. The quotations and the 22 codes from 18 interview scripts made the outside-in analysis easier and empirical grounding was possible. I believe that the analysis was upbeat and the results valid.

Submitting the chapter segments on the university’s checkpoints was helpful as the review guided my next moves and refined my previous stages hence the dissertation progress was impressive. The writing center was so critical to the success of this study. I believe their guidance and editing of the dissertation chapter per chapter helped me stay focused on the scope and relevance of the study. It also helped me full implement APA writing style throughout the dissertation and avoid copyright offences. In general, this study experience was intriguing as the challenges encountered build my research and writing skills. I look forward to undertaking similar research studies on a wider scope and context.

Suggestions for Future Research

The limitations addressed earlier for this study can be perceived as part of the possible future directions of research. In fact, there is need for future empirical as well as theoretical studies to establish the insights developed for this study into full-pledged theories. In terms of methodological and empirical approach, a single case research strategy used for this paper need additional proof from comparative qualitative or quantitative case studies across different industries. This will deepen the appreciation of the phenomena under study through additional empirical evidence. Moreover, further studies that use larger sample sizes can help test the various parts of the theory developed in this study.

Future research studies that add a performance link can add more empirical value to this study by allowing a thorough economic analysis of the effectiveness of various kinds of internal alignments and strategies directed externally to the regulatory involvement. In the area of consistency between strategic action and intent, we think that further studies with more differentiated perspectives which take account the various causes of inconsistency can be helpful. Such studies should judge consistency levels by considering whether the management behaviors that enhanced the strategic changes were the cause of the intermittent inconsistency, or whether the external forces prompted the declining consistency levels, or whether it is mismanagement that is behind the inconsistency in resource allocations. This means that such studies should reflect on the probable time lags between formally communicated and actual shifts in the corporate strategy formation.

This study addressed regulatory actors as the only external forces on the firm with a general overview of various stakeholder groups and their interests on the firm. The study also outlined the existing ambiguities among various stakeholders and their relationship with the regulatory actors. Further studies may take a holistic approach to encompass a wider spectrum of external factors such as suppliers, community members, competitors and customers. Moreover, future studies may attempt to use other theoretical models apart from the Harvard Business School Model and the Neo-Institutional theory as their basis for propositions and then compare the outcomes with those from this study. Such studies may expose the weaknesses of the approach and assumptions of the theoretical models used in this study which may result into review and editing of the generalizations made for wider application.

Implications for Social, Practice, or Organizational Change

This study focused on the multifaceted interdependencies between regulatory actors and corporate strategies, and between the industry and co-evolution of corporate strategies. One of the implications to management practice is that the study utilized a neo-institutional approach to strategy formation and management which opened a new perspective on how to approach corporate strategy within external forces and environmental necessities. If the way these environmental and external forces operate and are established is understood, the management can best configure feasible strategies that consists of internal alignments (strategic adaptation), and participatory strategies for institution optimization and creation (external responses).

Another implication to management practice is that the concept of consistency can be utilized as a corporate governance tool. For instance, in event that there are heightened concerns about the appropriateness of top management behaviors, ways to control their behaviors become highly significant. Given that strategic consistency is a measure of the coherence between management defined concept of corporate strategy and the management action revealed through allocation of resources, consistency shows if actually the executive management translates promises into strategic actions. According to Shaw, et al. (2007), development of consistency through a prolonged period of time is a perfect indicator that there is high effectiveness in the corporate management. Just like a clinical thermometer, strategic consistency can show the managers the state of affairs and indicate presence of a problem. According to Horn and Alexander (2013), when consistency declines, management should look for reasons why and find counter-measures.

The selected research methodology especially the research design can be adopted as a crucial tool in studying and understanding socio-political changes and external forces that influence corporate level resources and decisions. Business practitioners and entrepreneurs working in regulated industries can use the concepts and propositions made in this paper concerning the use of neo-institutional theory and the HBS Model to understand the impacts of external regulatory forces the firm’s decisions. The HBS Model will help practitioners understand the strategy formation process and research which is core to the management of change. Using the HBS strategic model, managers can predict the new desired state of operations and strategy and help stabilize the new equilibrium. According to Burnes and Cooke (2012), the Lewin’s force field analysis involves the examining of the driving forces and restraining forces for the change required to arrive at a new equilibrium. Practitioners can use the HBS model proposed here to trace the stages of strategic change so as to attain the new state.

The detailed discussions on the internal alignments as a response to the regulatory involvement gives the foundation under which to provide normative guidelines on strategy even the performance aspect of these alignments is not included in this study. The successful integration of the study alignments by our case study firm in Saudi Arabia over the recent years gives practitioners an indication of potential success upon implementation of such alignments. These are internally-formulated but externally-directed responses to regulatory influence when perceived as an opportunity and relatively internally-generated protective strategies if the influence is perceived as a threat.

Conclusions

The main aim of this dissertation was to generate knowledge through empirical research that helps in better integrating external actors into the strategy research process. Anchored on retrospective, longitudinal study on Saudi Arabian energy giant, APSCO, the findings revealed that strategy formation was significantly influenced by external regulative actors are demonstrated by resource allocations. The findings further revealed that external regulative involvement result into internal alignments to the corporate strategy. The findings of this study offered two significant contributions to the integration of regulatory actors into the strategy formation process. First, it revealed the negative impacts of regulatory actors on the existing consistency between strategic action (allocation of resources) and strategic intent (formal concept of corporate strategy) leading to corporate strategic dissonance within the firm and increase pressure to realign organizational strategies with the external environment.

Second, it generated context specific findings on the sequence and intensity of internal alignments of the elements of corporate strategy and structure. In summary, if a regulative initiative is viewed as an opportunity, the alignments first involve basic adjustments to the portfolio configuration and concept of corporate strategy so as to grab the seen opportunity. Management systems and organizational design are subsequently aligned to boost the strategic change. On the other hand, if a regulative initiative is viewed as a threat, the alignments to the elements focus on organizational design and management systems so as to shield the technical core of the organization – only minor alterations to the concept of corporate strategy are done later.

Despite the heightened regulatory institutional pressures, managers can also steer their firms successfully through their set market strategies using other mechanisms. One way can be through the selection appropriate and accepted strategies such as customer service orientation, brand building, cost leadership or product differentiation strategies. Another method involves bypassing or manipulating the existing institution order utilizing some eluding strategies including cross-subsidizing, dumping, or profit skimming in order to bar new entrants who expect to reap from new institutional standards and rules.

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