STRA1EGIC SUCCESS AND MEMBER COMMITMENT Donald R. Domm John Carroll University University Heights, Ohio Charles M. Byles Virginia Commonwealth University Richmond, Virginia Strategy formulation and implementation are more of a complex and inexact art than science. While data tends to support the importance of strategic planning ([28], [12], p.ll) inexact, incorrect, or poorly-eonceived pl~ns can make its achievement difficult. However, flrms often achieve success in spite of poorly-formulated strategies. In the clear light of hindsight, it is evident that these strategies should have resulted in failure and were very likely irrational. Success was nonetheless achieved as the commitment and effort of both management and operatives rose to the occasion. The high level of commitment necessary to make a poorly formulated strategy work is important to the success of the flrm and provides a clear competitive advantage. The role that commitment plays toward this end may be seen in the behavior of employees who are also owners of the flrm [20] - those more likely to feel committed to the suc- cess of the firm ([29], p. 25). Committed individuals normally have a strong belief in, and acceptance of, the organization's goals, a willingness to exert considerable effort on behalf of the firm, and a definite desire to maintain membership within the firm [19]. All of these attributes are significant factors in successful formulation and implementa- tion. Thompson and Strickland state, "[o]bviously, it is important for organizational sub-units and individuals to be committed to implementing and accomplishing strategy" ([30] , p.231). The significance of the relationship between commitment and organizational success has also been suggested by Schein [23]. While significant, the data which sup- ports the importance of commitment in implementing strategy and the achievement of strategic goals are limited. The intriguing, though largely unquantified, relationship be- tween commitment and success is the subject of this exploratory study. Strategy Implementation Deflning successful strategy implementation is complicated by the numerous defInitions of a firm's success. Factors important in a flrm's success range from the seventeen dif- ferent perspectives discussed by Steers [26], to multiple flnancial ratios [32], to the more restricted domain of financial performance found in most strategy research [31]. Upon reviewing various available measures and definitions, this study conceptually dermes strategic implementation as a process leading to the state the flrm strives to attain [3, 7] based on its operative goals [1, 26], which is indicative of the firm's ability to use its resources in attaining specific ends [5]. 68 Journal of Business Strategies Vol. 7, No.2 Although a firm addresses multiple goals [9] (for example, adaptability, flexibility, productivity, and satisfaction [26]), it may be concluded that the various measures must be ordered into a hierarchy of importance. However, it may be further concluded that none of the multiple goals are ultimately more important than the achievement of the narrow strategic goal of financial performance - profit. Certainly profit emerges as the dominant variable in empirical strategy research [11]. For the purpose of this study, return on assets (ROA) was selected as the profit measure, being the best single indicator of the firm's performance in the selected industry - banking. The multidimensional nature of profits in the banking industry reflects many factors, such as loan quality, earnings, net interest margin, and operating efficiency. A high ROA is almost always associated with superior all-around performance of a business firm [4]. ROA "is a more reliable measure of profitability because it measures the true amount of capital which companies [or individuals] have invested in the business" [6]. In a study of 105 large banks in the United States, ROA was found to be the most common goal quantified in the long-range plan [13]. ROA meets the strategic implementation criteria discussed earlier: a state which the firm strives to attain, an operative goal, and an in- dicator of the firm's ability to use resources in obtaining a specific objective. The working hypothesis of this study is that a positive correlation exists between employee commitment and financial performance, as measured by ROA. That is, banks employing a workforce which exhibits a high level of commitment will have a higher level of financial performance than banks with employees exhibiting a low level of com- mitment. Method The Organizational Commitment Questionnaire (OCQ) [14] was used to measure commitment. Mowday, Porter, and Steers [14] have provided reasonable evidence of the internal consistency for the OCQ with a median at .90. Based on administration to 2,563 employees, the reported alpha coefficient and test-retest reliability of the OCQ are well within ranges expected for an internally consistent instrument. To create a sample for the purpose of assessing organizational performance, a list of banks in three performance categories was obtained from Sheshunoff Banks of Ohio [25J. Five Chief Executive Officers of banks within the required deposit amount and socio- economic categories agreed to participate. A sixth bank, having a slight difference in deposit size, was also selected for the study. No apparent material impact on the research results can be attributed to this difference. Based on bank performance data obtained from Dun and Bradstreet [4], the banks selected for the study were ranked as either "low-performance" (ROA of .7 and below), "medium-performance" (ROA between .8 and 1.2), or "lIgh-perl'ormaoce" QtOA of 1.4 am above). A gap between the low-, medium-, and high-performance categories was estab- lished to clearly differentiate the categories. From the total of six banks, each category could equally be represented: two high-, two medium-, and two low-performance fIrms. Each bank, which had between 1 and 4 branches, was located in a small to mid-sized Fall 1990 Domm&Byles: Strategic Success 69 Ohio town having similar socio-economic characterisitics. The survey group banks had deposits in the range of $37-72 million. The number of employees per bank, which ranged between 40 and 60, permitted all employees to be surveyed. Characteristics of banks included in the study are found in Table 1. Table 1 Bank Characteristicsa Banksb Performance Groupc Total Domestic Deposits $(000) Total Assets $(000) Employees Branches A High 36,361 40,026 40 1 B High 73,416 69,867 55 2 C Medium 50,139 48,391 50 3 D Medium 55,120 63,022 50 4 E Low 55862 N/A 60 1 F Low 52,517 55,286 50 2 a. Source: Sheshunoff Banks of Ohio, 1985. b. Bank A is in Shesbunoff Deposit Size Group E. Banks B-F are in Deposit Size Group D. c. Performance h based uopn a 5-year average return on average assets. An individual was designated within each bank to receive and distribute the materials of the survey: cover letters, questionnaires, and return envelopes. Employees completed, sealed, and returned envelopes to this individual. Confidentiality was stressed in all discussions with management, the designated individuals, and participants. The number of usable returned questionnaires which were included in the sample to- taled 210. Respondents were representative of the survey population and included bank presidents, loan officers, branch managers, tellers, and clerks. Respondents ranged from post-high school to pre-retirement. The majority of respondents were female, with a larger number of males clustered at the management level. Of the 210 questionnaires, 66 were from high-performance banks, 74 were from medium-performance banks, and 70 were from low-performance banks. Findings Commitment and Bank Performance Groups To test the hypothesis that ROA and commitment are positively correlated, the E-test was used initially, followed by supplementary Nests. The level of commitment mea- sured by the OCQ was different across groups of high-, medium-, and low-performance banks. As reported in Table 2, low-performance banks possessed the highest level of employee commitment, medium-performance banks had the lowest level of commitment, and high-performance banks demonstrated the middle commitment score, While employee commitment did differ across the performance spectrum, the relationship was not an- ticipated, Results of the analysis of variance within and between groups are presented in Table 3. 70 Journal of Business Strategies Table 2 Commitment Within Bank Perfonnance Categories Means and Standard Deviations Vol. 7, No.2 Bank Performance Group High Medium Low Commitment Group Means 5.06 4.72 5.35 Standard Deviation 1.31 1.30 0.84 Table 3 Analysis of Variance Commitment and Bank Performance Commitment Between Groups Sum of Mean Squares Squares 14.15 7.05 Within Groups Sum of Mean Squares Squares 281.70 1.37 F Ratio 5.17 FProb .0064 Commitment Within Hierarchial Levels and Across Performance Groups The mean value of commitment for each hierarchial level within each performance group is reported in Table 4. One attribute of the means reported in Table 4 is the rank-ordering Table 4 Commitment and Bank Performance (Mean Commitment by Organizational Level) High Medium Top Management 6.56 5.73 Middle & Lower Management 5.29 4.65 Non-Managerial Operatives 4.82 4.62 5.71 5.18 5.32 of mean commitment by organizational level of the respondent. In high and mediwn performance banks, there is a consistent rank ordering of the commitment value, with top management possessing the highest value, followed by middle and lower manage- ment, followed by non-managerial operatives. In low-performance banks, middle and lower management possess the lowest degree of commitment among the three organiza- tional levels in that performance level. While not a statistically significant finding, it is interesting to note and may be a source for future study. Analysis of variance was used to determine whether any differences existed in com- mitment levels between performance groups within each hierarchial level. The E test showed a significant difference at the .05 level between means for the non-managerial operative group. A subsequent! test of means showed significant differences at the .05 level in commitment levels between the high and low performance firms, and between the medium and low performance firms as shown in Table 5. Fall 1990 Domm & Byles: Strategic Success 71 Table 5 Comparisons of Average Commitment within Hierarchical Levels and Across Perfonnance Groups Performance Groups Non-managerial Operatives Ilvalues are for a 2-tailed test. High to Medium 1=0.854 12=0.601 High to Low 1=2.074 12=0.038 Medium to Low 1=2.984 12=·004 In summary then, commitment levels did not vary significantly within top or middle/ lower management groups across performance levels. But among non-managerial opera- tives, the low performance banks showed significantly higher levels of commitment than their top and middle/lower management counterparts. Commitment Within Performance Groups and Across Hierarchial Levels Table 6 shows that top management was the most committed group in all performance categories. Analysis of variance was used to test whether significant differences occurred between commitment means for each of the hierarchial levels. The E test showed sig- nificant differences at .05 level for the high performance group only. Subsequent! tests showed significant differences between the top management and non-managerial operative group only (alpha=.05), and top management and middle management (alpha=.10). Table 6 Comparisons of Average Commitment Within Perfonnance Groups Across Hierarchical Levels Hierarchical Levels High Performance Top to Middle Management 1=1.882 12=·075 Top Management to Operative 1=2.885 12=·006 Middle Management to Operative 1=1.169 12=·245 12 values are for a 2-tailed test Discussion This exploratory study has examined the relationship between strategic success, defined as return on assets (ROA) and the level of commitment to the firm. It has been suggested that commitment is important in implementing and accomplishing strategy ([30], p. 213) and results in greater effort to achieve success ([29], p. 25, [20]. [14]). Within top performing banks, top management was found to be significantly more committed to the firm than their subordinates and somewhat more committed than top management in other banks. The high commitment and associated work behavior of top managers are compatible with top management behavior displayed in other high-perfor- mance firms-these individuals work harder and show a greater indication of "marry" 72 Journal of Business ·Strategies Vol. 7, No.2 their jobs than their counter-parts in lower-performing organizations [15], behaviors which would increase the probability of strategic success-high ROA. The low commitment (relative to that of top management) of middle and lower man- agement and operative employees in high-performing banks may constrain general management's decision making ([2], [1], [18]) and potentially result in middle and lower managers giving low priority to strategy implementation [22]. Although subordinate commitment in high-performing banks was not significantly higher than that of their peers from lower-performing banks, a highly committed top management's probable demands for high performance, well-established control systems, and tight performance reviews has greater potential for directing subordinate behavior to desired performance outcomes-an important factor in strategic implementation [21]. And while important within the work group [27], high commitment may not be vital to strategic success when the above-men- tioned control systems are in place. Even though support from a segment of a firm's members may be required to implement those strategic activities that accomplish a firm's objectives, "it is not the case that such support be given because of commitment to the firm" [22] or that commitment exist throughout the organization. Highly committed top management may require achievement regardless· of the level of commitment of their employees. Conversely, highly committed operatives with less highly committed managers were not significantly related to high bank performance. Their top managers did not appear willing or able to capitalize upon the commitment of their operatives in achieving a high ROA. One may tentatively conclude that regardless of the level of commitment of an organization's employees, commitment of top management is critical to the success of the enterprise. Strategy, the balancing of focused commitment on the one hand and flexible resource allocation on the other, requires both commitment and mental flexibiltiy from management in considering options in strategy formulation [10]. Without the stability of high com- mitment, top managers may be disinclined to explore all available options or be unwilling to carry or force a chosen strategy to completion. 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