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Preface

The International Management program at the Fachhochschule für Oekonomie und Management (FOM) gave me the opportunity to learn a lot about today’s global economy. Along with the semester I studied at the Paris Graduate School of Management (PGSM) as well as my practical experience in the insurance sector, this program provides a good basis for my future career. With the present bachelor thesis I would like to apply the knowledge I gained within the last three and a half years by doing research on the chosen topic.

This bachelor thesis is addressed to the exam-committee of the FOM and explains the impact of cultural diversity on teams in mergers and acquisitions. With this paper, I plan to finish my studies at the FOM. I was always interested in other countries and their respective cultures, which was one of the major reasons for spending one year of high school in Sodus, NY, USA and a semester in Paris, France. Especially in Paris I got to work in teams that were made up of people with various cultural backgrounds. This was very interesting and inspiring, and lead to my choice for a culture- and team-related topic for the bachelor thesis.

At this point I would like to thank the lecturers at the FOM and the PGSM that I had the chance to listen to and that guided me throughout my studies. I especially thank Jörg H. Fischer for tutoring me and giving me his support in order to finish my studies with the present thesis.

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Content

Preface   II

Content.   III

List  of Abbreviations.  VI

List  of Tables and Figures  VIII

1  Introduction.  1

1.1  Executive Summary.  1

1.2  Scope of Work  1

2  Problem  3

2.1  Definition of Problem  3

2.1.1  The need for Teams in a Merger or Acquisition.  5

2.1.2  Cross-Cultural Challenges in Teams  6

2.1.3  Team Effectiveness  7

2.2  Reasoning and Motivation  7

2.3  Research Methods  8

3  Relevant Theories.  10

3.1  Mergers and Acquisitions  10

3.1.1  Definition, Types, and Phases  10

3.1.2  Theories for Mergers and Acquisitions  11

3.1.2.1  Transaction Cost Theory  11

3.1.2.2  Agency Theory.  12

3.1.2.3  Strategy  13

3.1.2.3.1  Resource-based View.  14

3.1.2.3.2  Knowledge-based View  15

3.2  Culture  16

3.2.1  Definition.  16

3.2.2  Theories for Culture  17

3.2.2.1  Kluckhohn / Strodtbeck.  17

3.2.2.2  Hall  18

3.2.2.3  Hofstede  20

3.2.2.4  Trompenaars  20

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3.2.2.5  Dülfer  21

3.2.2.6  GLOBE  22

3.3  Leadership.  23

3.3.1  Definition and Approaches.  23

3.3.2  Theories for Leadership.  25

3.3.2.1  Blake and Mouton’s Managerial Grid Model  25

3.3.2.2  Lewin’s Leadership Styles  26

3.3.2.3  Likert’s Leadership Styles.  27

3.3.2.4  French and Raven Power Taxonomy  27

3.3.2.5  Social Exchange Theory.  28

3.3.2.6  Strategic Contingencies Theory.  29

3.3.2.7  Fiedler’s Contingency Model  29

3.3.2.8  House’s Path-Goal Theory  30

3.3.2.9  Vroom-Yetton / Vroom-Jago Model  31

3.4  Teams  33

3.4.1  Definition.  33

3.4.2  Theories for Teams  33

3.4.2.1  Tuckman’s Model of Group Development.  33

3.4.2.2  Gersick’s Punctuated Equilibrium Model  34

3.4.2.3  Belbin’s Team Roles.  35

3.4.2.4  Hackman’s Team Effectiveness Model.  36

3.4.2.5  Guzzo Shea’s Team Effectiveness Model  38

4  Selected Theory Elements  39

4.1  Geert Hofstede’s Culture Value Dimensions  39

4.1.1  Power Distance  39

4.1.2  Individualism versus Collectivism  40

4.1.3  Masculinity versus Femininity  41

4.1.4  Uncertainty Avoidance.  42

4.1.5  Long-Term versus Short-Term Orientation  43

4.2  Likert’s Leadership Styles.  44

4.2.1  Exploitative Authoritative  44

4.2.2  Benevolent Authoritative.  45

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4.2.3  Consultative.  46

4.2.4  Participative  46

4.3  Hackman’s Team Effectiveness Model.  48

4.3.1  Real Team  49

4.3.2  Compelling Direction.  52

4.3.3  Enabling Structure  53

4.3.4  Supportive Organizational Context  55

4.3.5  Expert Coaching  56

5  Case - European Aeronautic Defence and Space Company N.V.  58

5.1  The Multinational Merger of EADS  58

5.1.1  About EADS  58

5.1.2  The Merger in 2000  59

5.2  Application of Selected Theory Elements  60

5.2.1  Hofstede’s Culture Value Dimensions  60

5.2.1.1  French Culture  60

5.2.1.2  German Culture  62

5.2.1.3  Spanish Culture  63

5.2.2  Likert - Leadership Styles  64

5.2.3  Hackman’s Team Effectiveness Model.  66

5.3  Findings and Interpretation of Expert Interviews.  68

5.3.1  Culture  68

5.3.2  Leadership.  73

5.3.3  Teams.  74

5.4  Solution of Case Problem  79

6  Conclusion / Critical Comments / Outlook  82

Bibliography   85

Literature   85

Internet   90

Others.   93

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List of Abbreviations

ASM Aerospitale Matra S.A. BMW Bayrische Motorenwerke AG bn billion CASA Construcciones Aeronauticas S.A. CEO Chief Executive Officer CoP Community of Practice CVS Chinese Value Survey DASA DaimlerChrysler Aerospace AG DDI Development Dimensions International, Inc. e.g. example given EADC European Aerospace and Defence Company EADS European Aeronautic Defence and Space Company N.V. EBIT Earnings before Interest and Taxes EBOK Electronic Book of Knowledge EMS 97 European Media and Marketing Survey 1997 ESOP Employee Share Ownership Plan EU European Union FOM Fachhochschule für Oekonomie und Management IDV Individualism Index INSEAD Institut Européen d’Administration des Affaires IPO Input-Process-Output KBV Knowledge-based view LPC Least preferred co-worker LTO Long-Term Orientation M&A Merger and Acquisition MAS Masculinity Index MNE Multinational Enterprise PDI Power Distance Index PGSM Paris Graduate School of Management R&D Research and Development

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RBV Resource-based view UAI Uncertainty Avoidance Index US(A) United States (of America)

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List  of Tables and Figures  

Figure  1: Cross Border M As 1987-2004.  

Figure  2: Kluckhohn Strodtbeck’s Culture Value Orientations.  

Figure  3: Managerial Grid Model.  

Figure  4: The Punctuated Equilibrium Model.  

Figure  5: Hackman's Team Effectiveness Model.  

Figure  6: Sample Hofstede Graph.  

Figure  7: IPO Framework for Analyzing Group Behavior and Performance.  

Figure  8: Four Levels of Self-Management.  

Figure  9: Setting Direction about Means versus Ends.  

Figure  10:Hofstede Graph for France.  

Figure  11:Hofstede Graph for Germany.  

Figure  12:Hofstede Graph for Spain.  

Figure  13: Findings on Cultural Value Dimensions for France.  

Figure  14: Findings on Cultural Value Dimensions for Germany.  

Figure  15: Findings on Cultural Value Dimensions for Spain.  

Table 1:  French and Raven Power Taxonomy.  

Table 2:  Belbin's Team Roles.  

Table 3:  Findings on Cultural Value Dimensions from Expert Interviews.  

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1 Introduction

1.1 Executive Summary

The paper at hand gives information on how to succeed with teamwork in a cross-border and multicultural context, which is of major importance in the case of international mergers and acquisitions (M&As). A company’s management and people in charge of international teams not only face cultural diversity and the implications that come with it, but also the question of how to get teams to be most effective. What kind of leadership is most appropriate for teams and what factors influence teams in their efficiency are two of the most important questions to be answered. For that reason the present thesis concentrates on some of the major theories on M&As, culture, leadership, and team effectiveness and applies them to a practical example: European Aeronautic Defence and Space Company N.V. (EADS), a company that emerged from three culturally different companies in 2000 and that faced and still faces the challenges mentioned above. People from France, Germany, and Spain now need to work together to accomplish common goals, often by means of teamwork. The reader gets to know how EADS perceives and handles cultural diversity, exercises leadership, and achieves team effectiveness. The theory elements selected before serve as a guideline to see how EADS’ actions affected the challenges they faced. These findings from secondary sources together with in-depth interviews with a senior executive at EADS and other experts on multicultural teamwork provide the basis for recommendations on how to cope with cultural diversity after a merger or acquisition. These especially focus on what should be considered in this respect to make the transaction succeed after all. Critical comments and an outlook are added by the author at the end of this research paper.

1.2 Scope of Work

The thesis starts with an introduction in chapter 1, covering an executive summary of the present thesis followed by the current chapter,

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which gives an overview of how this thesis is structured. Chapter 2 includes a definition of the problem that the research is based on as well as the authors reasoning and motivation for choosing “Successfully Structuring Multicultural Teams in M&As - based on the example of EADS N.V.” as a topic for the bachelor thesis. At the end of chapter 2 the reader gets an overview of available primary and secondary research methods and which ones had been used. All relevant theories for the subjects covered in this thesis are listed and briefly described in chapter 3, which starts with the field of M&As, followed by theories for culture, leadership, and teams. In chapter 4 the author gives more detailed information on selected theory elements that were in his opinion most suitable for doing research on the given topic. After these theoretical parts of the thesis, chapter 5 advances to the practical example of EADS. Some general information about EADS and the merger in 2000 is given, being followed by an application of the theory elements selected in chapter 4. The next part of this chapter shows the findings and interpretation of the conducted expert interviews for each of the areas in focus. Chapter 5 finishes by describing the author’s finding on how EADS solved the problem mentioned in chapter 2. The bachelor thesis ends with a conclusion, critical comments, and an outlook by the author in chapter 6.

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2 Problem

2.1 Definition of Problem

Due to ongoing globalization and increasing competition, the market for M&As has been remarkably growing throughout the two last decades, especially booming in the 1990s. Multinational mega-mergers such as Daimler-Chrysler and Exxon-Mobil “virtually changed the landscapes of their respective global markets.” ¹ M&As continue to radically change business environments. ² Even though M&A activity has been decreasing between 2000 and 2003, it has been growing again in 2004 (see Figure 1). ³ The trend for the future is upwards, especially for hostile takeovers. ⁴ The continuous gathering of EU (European Union)-states under one economic roof and the economic opening of countries following the Warsaw Pact provide new opportunities for industry, trade and services. 5

Figure 1: Cross Border M&As 1987-2004. 6

¹ Eiteman et al. (2001) p. 449.

² Cp. Picot/Bergmann (2002) p. V and Wirtz (2003) p.V.

³ Cp. UNCTAD (2002) p. 341 and UNCTAD (2005) p. 325.

⁴ Cp. Landgraf/Potthoff (2006).

⁵ Cp. Behrens/Merkel (1990) p. V.

⁶ Cp. UNCTAD (2002) p. 341 and UNCTAD (2005) p. 325.

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Knowing about the importance of M&As for worldwide economy, it is very unsatisfactory that more than 50% of them do not deliver the expected outcome in the sense of added value and interest. ⁷ The consultancy company AT Kearney found out that, in average, companies lose 10% of profitability after the transaction. ⁸ Companies are frequently losing great amounts of capital. For an example, Bayrische Motorenwerke AG (BMW) bought Rover in 1994 for around 7 billion (bn) US$ and sold it again in 2000 for ten British Pounds. There are various reasons for these failures, such as unsystematic and inconsistent acquisition-strategies or integration problems, as well as a lack of stringency in conducting demerger-activities. ⁹ By 1999, 85% of American top-managers believed that human resource problems have a bigger influence on the success of an M&A than problems in the financial area. In other words, the merger will only be successful, if the employees accept the management’s decision and are thus ready to work together with their new colleagues. ¹⁰ One of the major integration problems is the cultural difference between people in the merged companies. “Managers have often seriously underestimated the significance of cultural factors.” ¹¹ Differences appear in three major areas: one is the structural difference between the two firms in size, age, and their history, as well as the industry they are in, geographic locations, and whether products and/or services are involved. Secondly there are political differences in a sense that managerial decision making may reside in different levels of hierarchy. Thirdly there may be a difference in emotions, which is the main focus of this research: different day-to-day thoughts, habits, attitudes, commitment, and daily behaviors have a major influence onto the clash or compatibility of two or more cultures. ¹² As all the points mentioned above illustrate, most problems are seen in the merger integration process. It is

⁷ Cp. Jansen (2001) p. 223 and Cartwright/Cooper (1996) pp. 24-25.

⁸ Cp. Anon (1998).

⁹ Cp. Wirtz (2003) p. 7.

¹⁰ Cp. Hubbard, N. (1999) p. 16 and Cartwright/Cooper (1996) p. 5.

¹¹ Deresky, H. (2005) p. 82.

¹² Cp. Clemente/Greenspan (1999) p. 9.

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found to be “difficult, time consuming, uncertain, and fraught with risks and setbacks.” 13

2.1.1 The need for Teams in a Merger or Acquisition

The issues mentioned above appear greatly in multicultural teams formed before, during, and after an international M&A. One of the biggest purposes for forming teams in international companies is the implementation of projects. Projects are most commonly used when there are:

-nonrecurring,

-time-limited,

-relatively new,

-particularly complex,

-highly interdisciplinary

tasks and problems. ¹⁴ These conditions are especially fulfilled when an M&A is planned and undertaken. 15

Apart from these specific reasons to form teams, there is an overall trend towards employee participation in decision-making. John Naisbitt portrayed this phenomenon as a megatrend towards participative ethic. ¹⁶ This theory has been affirmed by other economics, including Thomas R. Harvey and Bonita Drolet: “People want and expect some measure of control over their own destinies.” ¹⁷ They also expect horizontal team structures to replace vertical, authoritarian command structures as the twenty-first century advances. ¹⁸ Not only have teams become very popular, but also firms discovered that “people working together as a group can accomplish more than they can working individually.” ¹⁹ As a consequence, managers must

¹³ Haspeslagh/Jemison (1991) p. 105.

¹⁴ Cp. Kutschker/Schmidt (2004) p. 628.

¹⁵ Cp. Meckl (1995) pp. 25-39.

¹⁶ Cp. Naisbitt (1982)

¹⁷ Harvey/Drolet (2004) p. 3.

¹⁸ Cp. Ibid p. 7.

¹⁹ Griffin/Pustay (2005) p. 441.

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build strong teams and strong people in order to survive in the future and to ultimately build strong organizations. 20

2.1.2 Cross-Cultural Challenges in Teams

In times where the world of organizations is no longer defined by national boundaries, managers need to take cultural differences into account. ²¹ In cross-cultural M&As there is always communication between at least two cultures. It may be said that culture is a critical factor for the success of the venture. Exploding data traffic, an increasing movement of people, and the international exchange of goods lead to the fact that cultural standards and beliefs admix - but they also collide. ²² “There are many instances where the failure of an international alliance [such as an M&A] has been attributed to lack of cultural fit, or conflict between two cultures” ²³ . Multinational enterprises (MNEs) may see it as an additional burden to adapt to local cultural values that are transmitted through a nation’s political economy, education, religion, and language. ²⁴ It is unquestionable that teams have become an omnipresent part of all organizations, but managers need to be aware “of the differences that can result from diversity within a group or team.” ²⁵ Thus it is important to know how to handle this issue and get the most out of cultural diversity. A successful team leader or builder additionally faces the challenge to build teams across functional and corporate differences, which brings up the question on how to best lead a team. 26

²⁰ Cp. Jamieson/O’Mara (1991) pp. 130-133.

²¹ Cp. Adler (1997) p. V.

²² Cp. Weiss (2006)

²³ Ghauri/Usunier (1996) p. 165.

²⁴ Cp. Schwartz (1999) p. 24.

²⁵ Griffin/Pustay (2005) p. 441.

²⁶ Cp. Trickey (2004).

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2.1.3 Team Effectiveness

Unfortunately, teams often lead to negative outcomes in terms of low productivity, poor decisions, or conflict. Research done in the field of team effectiveness has begun around 20 years ago, so it is still quite young. It suggests that teams hold the potential for a lot of positive outcomes. ²⁷ What conditions are necessary for teams to be effective and how this effectiveness can actually be measured are major issues of the research done in this thesis.

2.2 Reasoning and Motivation

The problems mentioned above show that many M&As do not bring the success anticipated before the transaction. In a more and more globalizing world this problem will be of growing concern, as companies will need to internationalize in order to stay competitive. As mentioned in chapter 2.1.3, an M&A is not only about institutions, but also people from the respective countries coming together. Different cultural backgrounds may cause misunderstandings, prejudices, and misinterpretations. The other issue to point out is the general trend towards participation and teamwork. All of these aspects together are a great challenge for companies, managers, and employees in today’s global business environment and ask for further research and studies. There have been numerous studies and theories on M&As, culture, leadership, and teams. But research on how these issues play together has only recently started, and there are a lot of problems still to be solved. The paper at hand tries to find out, how M&As can get to be more successful through the effective use of multicultural teamwork. The author’s motivation for choosing this topic lies mainly in his experiences made in Paris, France. As he got to work in small teams with people from various countries (mainly France, Mexico, China, USA, Spain, and Sweden), he experienced some of the pros and cons of multicultural

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teamwork himself. It was interesting to see how people from different cultures could all reach the same goal, but with different approaches based on how they were used to solve a problem and tackle a task. The author considers multicultural teamwork a powerful tool for companies to remain competitive in tomorrow’s business environment. Getting deeper insights and finding out how to be more effective in this respect was the author’s main motivation for conducting research on the chosen topic.

2.3 Research Methods

In general, research may be described as “a careful investigation leading to the discovery and interpretation of information.” ²⁸ There are various methods at hand for researchers, which allow them to discover and reinterpret this information, or to suggest practical applications or theoretical implications of that information. These methods may be divided into two types of research: primary and secondary research. ²⁹ “Primary research is the study of a subject through firsthand observation and investigation” ³⁰ . Examples for primary research methods are of a qualitative kind such as in-depth interviews, focus groups, and panels, or quantitative methods like telephone, self-administered, and interview surveys. ³¹ The author uses in-depth interviews with experts from different areas. Questions in the interviews vary depending on the occupation, knowledge, and experience of the expert. Due to the author’s occupation and personal contacts many experts have an insurance-related background. Secondary Research refers to the examination of studies that others have written about a topic, such as books and articles (in journals, newspapers, the internet etc.). In contrast to primary research it is about data that has already

²⁷ Cp. Campion/Medsker/Higgs (1993) p. 1.

²⁸ Seattle Central Community College Library (2003) p. 7.

²⁹ Cp. Ibid.

³⁰ Gibaldi (2003) p. 3.

³¹ Cp. Joppe (2006).

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been collected and, if used in a research paper, needs to be fully cited. ³² The author uses the most common types of secondary research, including all of the sources mentioned above.

³² Cp. Gibaldi (2003) p.3 and Asia Market Research (2006).

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3 Relevant Theories

3.1 Mergers and Acquisitions

3.1.1 Definition, Types, and Phases

In most discussions on activity in the area of M&As the terms merger, acquisition, and consolidation are used interchangeably. ³³ The management of a target firm usually prefers to talk about a merger of the two firms, while the term used in discussions amongst themselves and the boards of directors is ‘acquisition’. They seem to find more comfort in talking about a merger, as it implies mutual interests. ³⁴ Still, there are some considerable differences between a merger and an acquisition in the degree of cooperation and interaction between the two firms. While mergers tend to involve equalized firms, an acquisition of a firm is usually exercised by a large and more powerful firm taking over a smaller one. The key factor for distinguishing the two “is the extent to which one firm is expected unilaterally to give up its independence to the other.” ³⁵ In general, M&As vary along three dimensions: the dominant strategic purpose, the degree of friendliness versus hostility, and the desired level of integration between the firms. ³⁶ M&As may be divided into four types depending on the “extent to which the business activities of the acquired organization are related to those of the acquirer” ³⁷ : (1) vertical, (2) horizontal, (3) conglomerate, and (4) concentric. In a vertical M&A the two firms work in successive processes in the same industry, e.g. a manufacturer buys one of its suppliers. Horizontal M&As refer to mergers of two firms in the same industry, so former competitors. If a firm acquires another firm from a completely unrelated industry one may speak of a conglomerate M&A. Concentric mergers differ from horizontal mergers in

³³ Cp. Buono/Bowditch (1989) p. 60.

³⁴ Cp. Mace/Montgomery (1962) pp. 3-4.

³⁵ Buono/Bowditch (1989) p. 61.

³⁶ Cp. Ibid.

³⁷ Cartwright/Cooper (1996) p. 3.

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the fact that the acquired firm is in an unfamiliar but related industry into which the acquirer wishes to expand. ³⁸ Instead of speaking of concentric mergers, other research suggests to distinguish between product and market extension. Product extension is defined just like concentric mergers, while market extension refers to M&As in which the acquirer wishes to sell the same products in another market that has not been tapped yet. ³⁹ Marks and Mirvis (1998) introduced a three-stage model for dividing the M&A process into phases, namely precombination, combination, and postcombination. The precombination phase, also called the pre-merger phase, is usually a time spent with financial implications. Buyers concentrate on aspects like the price for the target, tax implications, the estimated return on investment, and how to structure the transaction. Communication between the two parties is often very low, which may create an atmosphere of uncertainty and ambiguity. In the combination or merger phase, emphasis is generally put on political issues, mostly dealing with power. ⁴⁰ The postcombination or post-merger phase “requires implementing the decisions made for integrating organizations, structures, structures, cultures, policies, practices, and people.” ⁴¹ This phase is in the main focus of this thesis, also because it is considered the key to making acquisitions work. 42

3.1.2 Theories for Mergers and Acquisitions

3.1.2.1 Transaction Cost Theory

The Transaction Cost Theory goes back to the research done by John R. Commons (1934) and Ronald H. Coase (1937). It was later extended by Oliver E. Williamson (1979). The basic question they asked was: Why are not all economic transactions handled on the market? Or putting it another way:

³⁸ Cp. Cartwright/Cooper (1996) p. 3.

³⁹ Cp. Buono/Bowditch (1989) p. 63.

⁴⁰ Cp Marks/Mirvis (1998) pp. 28-44.

⁴¹ Ibid p. 41.

⁴² Haspeslagh/Jemison (1991) p. 105.

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Why do organizations evolve that internalize market transactions? ⁴³ Coase started off with a vague definition of transaction costs as “the cost of using the price mechanism” ⁴⁴ . This definition left a lot of interpretation to what costs can be included, which lead many transaction cost economics to do further research and give more specific definitions. Definitions for transaction costs vary depending on what they are applied for, so Thrainn Eggertsson suggests that there is “no clear-cut definition of transaction costs”. ⁴⁵ Others tried to redefine the term, like Williamson who first defines the term ‘transaction’ by saying it “occurs when a good or service is transferred across a technologically separate interface” ⁴⁶ . He then describes the respective costs as "the economic equivalent of friction in physical systems” ⁴⁷ . They could “include all costs associated with any allocative decision regardless of whether the decision is made in a market or by a government (i.e. policies).” ⁴⁸ A company needs to decide whether it is more efficient to internalize transactions or use the market. The decision between the two main institutions, meaning the organization and the market, and therefore the decision between the coordinates price-system and hierarchy-system, is made after the consideration of costs. As long as costs in the market are lower, the market decision will be made. But as soon as they are higher, the hierarchy-decision is the right choice and the market will be internalized, or taken into the organization. 49

3.1.2.2 Agency Theory

Also called the principal-agent problem, the agency theory describes the problem “that because people are, in the end, self-interested they will have conflicts of interests over at least some issues any time they attempt to

⁴³ Cp. Kutschker/Schmid (2004) p. 446.

⁴⁴ Coase (1988) p. 88.

⁴⁵ Eggertsson (1990) p. 15.

⁴⁶ Williamson (1985) p. 1.

⁴⁷ Ibid p. 3.

⁴⁸ OECD (2001) p. 2.

⁴⁹ Kutschker/Schmid (2004) p. 446.

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engage in cooperative endeavors.” ⁵⁰ This problem has first been introduced by Michael C. Jensen and William H. Meckling in 1976. Their findings started a discussion on the work of companies’ top management in a sense that they may often be led by personal interests rather than those of the company. ⁵¹ An agent is, by commercial law, defined as “a person, who is authorized to act on the behalf of another (called the principal) to create a legal relationship with a Third Party.” ⁵² As both the agent (i.e. the top management team) and the principal (share-/stakeholders) are commonly considered utility maximizers, it is easy to assume a conflict of interests in this agency relationship. ⁵³ The fact that the agent usually obtains information earlier than the principal may be tempting for the agent to make decisions, which may not be to the welfare of the principal. For cooperations like M&As this may happen in two ways: within the cooperation or between the common management team and executives in the cooperation. ⁵⁴ Due to this problem the principal has different types of costs defined as agency costs. These arise from three sources: monitoring expenditures by the principal (measuring, observing, and controlling the agent), bonding expenditures by the agent (monitoring others, who in turn may act for their own interest), and residual losses (losses due to the agent not acting for the full welfare of the principal). 55

3.1.2.3 Strategy

Following the definition of Thompson, Gamble, and Strickland, “a company’s strategy consists of the combination of competitive moves and business approaches that managers employ to please customers, compete successfully, conduct operations, and achieve organizational objectives.” ⁵⁶ It shows what choices the company’s managers made among alternative

⁵⁰ Jensen (1994) p. 12.

⁵¹ Cp. Kutschker/Schmid (2004) p. 574.

⁵² Wikipedia (2006a).

⁵³ Cp. Jensen/Meckling (1976) p. 5. and Kutschker/Schmid (2004) p. 574.

⁵⁴ Cp. Pausenberger/Nöcker (2000) p. 395.

⁵⁵ Cp. Jensen/Meckling (1976) p. 5-6.

⁵⁶ Thompson et al. (2004) p. 3.

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