Effectiveness of Rational Strategizing: Exploring Sustainability

Implications on Graduate Business Education

Gary A. Grey

March 1, 2017

Ateneo de Manila University

Ateneo Graduate School of Business

1

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Abstract

This paper explores sustainability for its implications on graduate

business education using analysis made on selected Philippine

companies for the effectiveness of its use of rational strategizing. The

analysis of rational strategizing proved that there is a positive

outcome resulting from the proper execution of a rational strategizing

process. The hypothesis of rational strategizing having a positive

outcome is proven to be valid given the empirical evidence using the

Chi-Square test. The strength of this positive outcome is dependent

on the interaction among the three components of change

management: the change agent (the leader), the change element (the

strategy process of formulation and execution), and the change target

(the organization). The outcome is measured by a credit risk measure,

specifically the Altman Z-score for emerging markets. The basis for

measuring the outcome is through selecting samples of implemented

strategic management (STRAMA) papers from AGSB’s almost 3,700

digitized strategic management papers. Specifically, papers from

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AGSB’s MBA Regis program and MBA Health programs were

selected with the cut-off year of implementation of 2004-2005 to

allow for a 3-year performance window for analysis of the before and

after implementation Altman Z-score outcome measure. A literature

review was conducted to scan and review strategizing methodologies

within the scope of the components of change management resulting

in creating a Strategy-Organization-Leadership model that explain

the positive outcome of implemented STRAMA paper using left-brain

strategizing processes. Cross-tabulation analysis and literature review

on the types of leadership, their strategies, and implementation show

the link between sustainable leadership and transformational

leadership and their impact on the organization as measured by the

Altman Z-score.

The insights provide a template for graduate business education

to incorporate sustainable strategy formulation in the teaching of its

courses. . Through strategic and systemic thinking embedded in the

Strategic Management integrative course of AGSB and the

recommendations and conclusions emanating from the study, a guide

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is provided for future research directions and improvement of the

strategizing process for higher education to assure sustainability.

Key Words: Rational Strategizing, Change Management, Strategy,

Change Agent, Change Element, Change Target, Data Mining,

Leadership, Organization, Strategy Management, Sustainable

Strategic Management, Sustainable Higher Education, Emerging

Market

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1 Introduction

This paper explores sustainability for its implications on graduate

business education using analysis made on selected Philippine

companies for their effectiveness of rational strategizing. Rational

strategizing or “left brain” strategizing is the andragogical approach

used by the Ateneo Graduate School of Business (AGSB) in its

integrative course called Strategic Management (STRAMA). The

strategy formulation tools employed are part of the Fred David

framework used in the course Strategy Management1 where the

output of the graduate student is the STRAMA paper . The analysis

done on the selected Philippine companies showed that the

STRAMA paper as applied in the business world once the students

graduate has a positive outcome. The hypothesis of rational

strategizing having a positive outcome is proven to be valid given the

empirical evidence using the Chi-Square test. The strength of this

positive outcome is dependent on the interaction among the three

components of change management: the change agent (the leader), the

change element (the strategy process of formulation and execution),

1 Fred R. David, Strategic Management: Concepts & Cases, 2009 12th Edition, Pearson Education

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and the change target (the organization). The outcome is measured by

a credit risk measure, specifically the Altman Z-score for emerging

markets. The basis for measuring the outcome is through selecting

samples of implemented strategic management (STRAMA) papers

from AGSB’s almost 3,700 digitized strategic management papers.

Specifically, papers from AGSB’s MBA Regis program and MBA

Health programs were selected with the cut-off year of

implementation of 2004-2005 to allow for a 3-year performance

window for analysis of the before and after implementation Altman

Z-score outcome measure.

The paper starts off by presenting a Conceptual and Analytical

Framework of the paper which includes the Change Management

Process, the Altman Z-Score as Measurement of Outcome,

Sustainability, Types of Leadership and the Strategy-Organization-

Leadership Scoring System. A summary of the survey results and

analysis of the study “Effectiveness of Rational Strategizing”2 is

presented followed by simple cross tabulation analysis to discover

new insights in the incorporation of the sustainability dimension. .

2 Gary A. Grey, Rational Strategizing of Philippine Companies: Implications for Sustainability, published in the proceedings of the International Business and Information Conference, Hiroshima, Japan, July 4-6 2017.

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Finally, the paper comes out with the implications for Graduate

Business Education when sustainability is incorporated to the Triple

Bottom Line perspective of Profit, People, and Planet as embedded in

the Leader (Change Agent), Strategy (Change Element), and

Organization (Change Target).

2 Conceptual and Analytical Framework

This paper views the change management model as the starting

point of the analysis. A measure used to determine the interaction

among the model’s components, the Altman Z-score, provides a

useful indicator to determine different component outcomes,

particularly sustainability.

2.1 Change Management Process

The conceptual framework (Figure 1) employs the change

management paradigm of the three components of change, viz.,

Change Agent (the Leader), Change Element (Strategy), and Change

Target (Organization).

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Figure 1: Change Management Framework

The appropriateness of using Change Management as the

theoretical framework is perhaps best expressed through this

comment from Robert Kaplan and David Norton, creators of the

Balanced Scorecard: “Managing strategy is synonymous with

managing change.”3

Figure 2: Interaction among Change Management Components

The interaction amongst various parameters within each

overlapping individual component is shown in Figure 2. It can be seen

3 Lagace, M., Q & A with HBS Professor Robert S. Kaplan, Harvard Business School, Working Knowledge for Business Leaders (n.d.)

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that strategy planning, decision-making, and implementation, along

with the creation of vision, mission, objectives, key result areas

(KRAs) and performance indicators (PIs), interface with the leader

with his innate capabilities and attitudes, providing motivation,

evaluation, control, and reward, coupled with leading, staffing,

relating, and supporting activities that will enhance organizational

structure, systems, and resources.4 The change element which is the

rational strategizing process and the elements of leadership and

organization with the Altman Z-Score Outcome can thus be

visualized in Figure 3.

4 Ed Morato, (2006) Strategic Planning and Management: Strategizing, Organizing, and Implementing, Singapore: Pearson Education South Asia Pte Ltd.

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Figure 3: Strategy-Organization-Leadership Interaction Diagram

2.2 The Altman Z-Score as a Measure of Outcome

The three major components of change interact with each other; as

represented by the double-headed arrows and yield an outcome. The

outcome is measured by the Altman Z-score which is also a measure

of risk, particularly credit risk, as used by the banking community. ,36

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The literature on the Altman Z-Score and various literature on

modeling and data mining became the basis for determining the use of

the Altman Z-Score for Emerging Markets. Specifically, these

concepts are found in the various articles by Edward Altman that

pertain to the Z-Score, Bruce G. Carruthers and B. Cohen on Credit

Rating in the 19th Century, Nikolai Chuvakhin and L. Wayne

Gertmenian on Bankruptcy Prediction in the WorldCom Age, David

Loshin’s book on Business Intelligence, Armando Veira et al. on

Model Selection and Feature Ranking for Distress Classification,

Raymond Anderson’s The Credit Scoring Toolkit, and Linda Allen,

Gayle L. de Long, and Anthony Saunders work on Issues on the

Credit Risk Modeling of Retail Markets.5

5 Altman, E. I. (2000, July). Predicting Financial Distress of Companies: Revisiting the Z-Score and ZETA® Models.; Altman, E. I. (2002a). Managing Credit Risk: A Challenge for the New Millennium. Economic Notes by Banca Monte dei Paschi de Siena SpA, 31(2), 201-214.; Altman, E. I. (2002b). Revisiting Credit Scoring Models in a Basel 2 Environment. London Risk Books; Altman, E. I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance; Altman, E. I. (n.d.). The Use of Credit Scoring Models and the Importance of a Credit Culture. Stern School of Business, New York University. Retrieved from https://www.coursehero.com/file/6226451/Z-Score-of-Altman/; Altman, E., Haldeman, R., & Naranayan, P. (1977). Zeta Analysis: A New Model to Identify Bankruptcy Risk of Corporations. Journal of Banking & Finance, 1.; Altman, E., & Altman, R. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. Journal of Finance.; Altman, E. I. (2002c). Corporate Distress Prediction Models in a Turbulent Economic and Basel II Environment. ”, Stern School of Business, New York University.; Altman, E. I. (1993). Corporate Financial Distress and Bankruptcy (Vol. ), Chapter 3). New York: John Wiley & Sons.;Carruthers, B. G., & Cohen, B. (2006). The

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Ideally, the best tool for outcome measurement is the balanced

scorecard, analyzing the four areas of outcome, viz., financial

perspective, internal business perspective, customer perspective, and

learning and growth perspective. It would be impractical to use these

as the measurement of effectiveness as this would entail having a

monitoring system within the AGSB academe that will track the

Mechanization of Trust: Credit Rating in 19th c. America. Department of Sociology, Northwester University.; Chuvakhin, N., & Gertmenian, W. I. (n.d.). Bankruptcy Prediction in the Worldcom Age. Retrieved from http://ncbase.com/papers/BP.pdf; Loshin, D. (2003). Business Intelligence: The Savvy Manager’s Guide (ISBN: 1-55860-916-4). Morgan Kaufmann .; Adriaans, P., & Zantinge. D. (1996). Data Mining. Addison Wesley Longman Limited.; Mukkamala, S., Vieira, A. S., & Sung, A. H. (n.d.). Model Selection and Feature Ranking for Financial Distress Classification. Dept. of Computer Science, New Mexico Tech, Socorro, and ISEP and Computational Physics Center, University of Coimbra, Coimbra, Portugal. Retrieved from http://www.academia.edu/25892429/Model_selection_and_feature_ranking_for_financial_distress_classification; Anderson, R. (2007). The Credit Scoring Toolkit: The Theory and Practice of Retail Credit Risk Management and Decision Automation (ISBN: 9780199226405 ed.). Oxford University Press.; Allen, L., DeLong, & Saunders, A. (2003). Issues in the Credit Risk Modeling of Retail Markets. NYU Stern School of Business Working Paper No. FIN-03-007. http://dx.doi.org/10.2139/ssrn.412520

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outcomes of companies operating in the corporate world. For

practicality, therefore, the Altman Z Score is used as the preferred

benchmark measure.

2.3 Sustainability

The Triple Bottom Line (TBL) concept developed by John

Elkington has changed the way businesses, nonprofits and

governments measure sustainability and the performance of projects

or policies. Business sustainability is often defined as managing the

TBL- a process by which companies manage their financial, social

and environmental risks, obligations and opportunities. However, this

approach relies on an accounting based perspective and does not fully

capture the time element that is inherent within business

sustainability. A more robust definition is that business sustainability

represents resiliency over time – businesses that can survive shocks

because they are intimately connected to healthy economic, social and

environmental systems. These businesses create economic value and

contribute to healthy ecosystems and strong communities. These

concepts can be found in the papers of Joana Radomska “ The

Concept of Sustainable Strategy Implementation”, Wikipedia’s

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“Triple Bottom Line”, and Timothy Slafer & Tanya Hall’s “The

Triple Bottom Line: What is it and How Does it Work?”6

Beyond the foundation of measuring sustainability on three fronts

—people, planet and profits—the flexibility of the TBL allows

organizations to apply the concept in a manner suitable to their

specific needs.

2.4 Types of Leadership

There are three types of leadership, viz., Transformational,

Transactional, and Laissez-faire, which the paper considered in

surveying the STRAMA students who implemented their papers. The

paper used the Multifactor Leadership Questionnaire (MLQ) factors,

6 Joanna Radomska. The Concept of Sustainable Strategy Implementation,Sustainability 2015, 7, 15847–15856; doi:10.3390/su7121579; Timothy F. Slafer, & Tanya J. Hall, (n.d.). The Triple Bottom Line: What Is It and How Does It Work? Retrieved February 10, 2017, from Http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html retrieved February 10, 2017, from Http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html; Triple Bottom Line. (n.d.). Retrieved February 20, 2017, from https://en.wikipedia.org/wiki/Triple_bottom_lin; Slafer, T. F., & Hall, T. J. (n.d.). The Triple Bottom Line: What Is It and How Does It Work? Retrieved February 10, 2017, from Http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html

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a survey which identifies different leadership characteristics based on

examples and provides a basis for leadership training.7

Transformational leadership is a style of leadership where a leader

works with subordinates to identify needed change, creating

a vision to guide the change through inspiration, and executing the

change in tandem with committed members of a group.

In contrast to transformational leadership, transactional

leadership styles focus on the use of rewards and punishments in

order to achieve compliance from followers. Transformational leaders

look towards changing the future to inspire followers and accomplish

goals, whereas transactional leaders seek to maintain the status quo,

not aiming for progress.

Studies have shown transformational leadership practices lead to

higher satisfaction with leader among followers and greater leader

effectiveness, while transactional practices lead to higher follower job

satisfaction and leader job performance.

In a laissez-faire leadership style, a person may be given a

leadership position without providing leadership, which leaves

7 Jens Rowold, Multifactor Leadership Questionnaire: Psychometric Properties of the German Translation, 2005. University of Muenster, Germany, Published by Mindgarden, Inc.

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followers to fend for themselves. This leads to subordinates having a

free hand in deciding policies and methods.

Studies have shown that while transformational leadership styles

are associated with positive outcomes, laissez-faire leadership is

associated with negative outcomes, especially in terms of follower

satisfaction with leader and leader effectiveness.8

This paper‘s findings jives with the studies found in the literature

review as will be discussed in the summary of findings and cross-

tabulation analysis.

2.5 The Strategy-Organization-Leadership Scoring System

Based on the literature review, the variables inferred as part of the

components of the interaction among the strategy-organization-leader

are as follows (Table 1).

Table 1: Component Variable among the Strategy-Organization-Leadership Catogories

Variable Name Definition

STRATEGY FORMULATION AND EXECUTION VARIABLES

8 Transformational leadership From Wikipedia, the free encyclopedia https://en.wikipedia.org/wiki/Transformational_leadership accessed May 14, 2017

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Strategy Development

1 Mission Degree of clarity of mission

2 Vision Degree of clarity of vision

3 Environment Degree of correct identification of environmental factors that impact strategy

Strategy Mapping

4 Scope Degree of proper definition of where and how the organization will compete

5 Model Degree of development of a comprehensive integrated model of the strategy

6 Target Degree of conversion of strategic direction statements into measures and targets

7 Action Plans Degree of defining the portfolio of initiatives/action plans to close performance gaps

8 Funding Degree of providing a source of funding for strategic initiatives separate from operational budget

9 Accountability Degree of establishing accountability for execution of cross-business strategic themes

ORGANIZATIONAL ALIGNMENT ENABLERS

Cascading Strategy Structures

Horizontal-vertical alignment structures

10 Cross-functional Teams Degree of using teams, cross-functional groups, or a matrix/"grid" structure to share resources or knowledge

11 Informal Communication Degree of using informal communication (i.e., person-to-person contact)

12 Formal Integrators Degree of using formal integrators (e.g. a project management or quality assurance organization)

13 Information reliabilityDegree of information reliability (from unreliable/managers do not trust information outside own departments to reliable)

14 Information enablersDegree of information reaching those who need it (from "information falls through the cracks" to information gets acted on by people who need it)

15 Decision-making/response time

Degree of speed in executing decisions (from slow response to high speed) (e.g. response to customer complaints)

16 Bureaucratic waste Degree of time or money being wasted because of inefficiency or bureaucracy in the execution process.

17 Appreciation of change Degree of appreciating strategy relevance to tasks (from none to seeing the whole picture of where the strategy fits)

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Individual alignment structures

18 Employee reluctance Degree of sharing important information or knowledge with others (from none to whole-hearted collaboration)

19 Political self-gainDegree of "Playing politics" as more important than performance against strategy execution goals for gaining individual recognition (from high to low)

Operational Planning

20 Translation Degree of monitoring and managing the strategic initiatives and the Balanced Scorecard

21 Resource Appropriate Degree of ensuring that resource capacity, operational plans, and budgets reflect the directions and needs

Monitor, Learn, & Adapt

22 Finance and Operations Management

Degree of monitoring and managing short-term financial and operational performance

23 Balanced Scorecard Degree of monitoring and managing the strategic initiatives and the Balanced Scorecard

24 Feedback monitoring Degree of periodically assessing results hypothesized in cause-effect diagrams are occurring as anticipated

LEADERSHIP VARIABLES

25 Trust Builds trust

26 Integrity Acts with integrity

27 Inspiration Inspires others

28 Innovation Encourages innovative thinking

29 Coaching Coaches people

30 Rewards Rewards achievement

31 Mistakes prevention Monitors mistakes

32 Fight fire syndrome Does not just fight fires

33 Involvement Does not avoid involvement

34 Extra Mile Generates extra effort

35 Efficiency Is efficient

36 Satisfaction Generates satisfaction

As can be seen in Table 1, there are 36 variables identified through

the literature review. In order to assess the “before” and “after”

implementation scores, these independent variables were used in the

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survey questionnaire administered to the selected STRAMA-

implemented companies. Each category component (i.e., Strategy

Formulation and Execution, Organizational Alignment Variables, and

Leadership Variables) will have a total score summed up from the

scores of the variables from each category. The total point is 1,000 for

the three main categories, and the weight distribution (almost 1/3 per

main category) is shown in Table 2.

Table 2: Weight Distribution of Strategy-Organization-Leadership Score

Each major category has a range of scores as shown in Table 3.

Table 3: Range of Scores by Category and Sub-Category

Category Minimum MaximumStrategy Strong 234 350 Medium 118 233 Weak 0 117Organization Strong 218 325

Maximum Points

Points % to Total

Strategy 350 35.00Organization 325 32.50Leadership 325 32.50

Total 1,000 100.00

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Medium 110 217 Weak 0 109LeadershipTransformational 218 325Transactional 110 217 Laissez-Faire

(None) 0 109

The Strategy-Organization-Leadership Scoring system uses a

1,000 point system similar to a bank‘s. A common cut-off point for

banks to accept or reject a loan application is 70% or 700 points. This

decision point is also represented in the Altman Z-score’s distressed

zone score, which is 1.1 and below.

The score per category becomes the basis for measuring the

strength of outcome as measured by the Altman Z-Score, whose

determination is based on the four financial variables for the

Emerging Market Z-Score configuration.

The “expert”-determined SOL scoring system provides a fresh

insight on the interaction of strategy, organizational alignment, and

leadership in explaining the outcome not just in financial ratio

vocabulary, but also in the multi-disciplinary language of other

disciplines – strategy, organization, and leadership. Given sufficient

historical data, the 1,000 point scoring system can eventually be

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calibrated to the Altman Z-score and can even be used for predicting

the outcome without using the financial ratios.

2.6 Sustainable leadership

In order to do the cross-tabulation analysis of the results, it was

necessary to find the link between transformational leadership and

sustainable leadership. Sustainable leadership is defined as

“individuals who are compelled to make a difference by deepening

awareness of themselves in relation to the world around them”. In

doing so, they adopt new ways of seeing, thinking, and interacting

that result in innovative sustainable solutions. Some take the view

that sustainability leadership or more precisely leadership for

sustainability is not a separate school of leadership but a particular

blend of leadership characteristics applied within a definitive context.

A number of business leaders felt that the need to differentiate

leadership from leadership in general may be a necessary but

temporary phenomenon and really embedding it in the organization is

the unique current set of challenges on a 10 year view. Beyond that

hopefully it becomes business as usual.9 9 Wayne Visser & Polly Courtice, Sustainability Leadership: Linking Theory &

Practice. SSRN Working Paper Series 21 October 2011. Report also presented in the CPSL 2011 Report entitled A Journey of a Thousand Miles: The State of Sustainability Leadership 2011

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A recent CEO study on sustainability conducted by the UN Global

Compact and Accenture – the third one of its kind – reached out

to more than 1,000 executives from 27 industries in 103 countries

around the world, asking for their views on the past, present and

future of sustainable business. This largest-ever CEO study on

sustainability offered a mixed picture of global movement in the

positive direction juxtaposed with the frustration over slow progress.

In the previous edition of this study, conducted in 2010, CEOs

were optimistic that sustainability – understood as the active

management of social, environmental, and governance issues as a part

of core business – would soon become a norm embedded into

operations of companies worldwide, with leadership on

sustainability incentivized and rewarded. In 2013, 63 percent of CEOs

still expect sustainability to transform their industry within five years

and 76 percent believe that embedding sustainability into core

business will drive revenue growth and new opportunities.

However, the predominant feeling is that global business efforts on

sustainability may have plateaued, and despite deeper awareness and

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commitment levels many business leaders deem the pace of change

and the scale of impact insufficient.

The report notes that

CEOs see business caught in a cycle of ‘pilot paralysis’—individual, small-scale projects, programs and business units with an incremental impact on sustainability metrics—and while they see a role for business in promoting sustainable development, their responsibilities to the more traditional fundamentals of business success, and to the expectations of markets and stakeholders, are preventing greater scale, speed and impact

Such views are not surprising given a prolonged recovery from the

global financial crisis that pushed businesses to focus more narrowly

on the bottom line.  And the lack of solid metrics tying sustainability

to business performance isn’t helping. In 2007, just 18 percent of

surveyed CEOs reported that they perceived no link between

sustainability and business value.  In 2010, this number rose to 30

percent, and this year to 37 percent. Changing that trend requires a

shift of the context in which companies strive to be good corporate

citizens.

The surveyed CEOs envision a significant role for national and

local governments in re-shaping the landscape for sustainability: 83

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percent of them see the need for greater efforts by governments and

policymakers to provide an enabling environment for the private

sector as integral to advancing sustainability, and 85 percent demand

clearer policy and market signals to support sustainable growth.10

From the literature review, the link between the sustainable

leadership and transformational leadership through the traits and

mindsets of the leader was brought out. By drawing an input-process-

output chart and comparing transformational leadership traits against

sustainable leadership traits, the picture clearly emerges that they are

the same and supports the assumption used by the cross-tabulation

analysis of the results that transformational leaders are sustainable

leaders. In Isabel Rimanoczy’s A Matter of Being: Developing

Sustainability-Minded Leaders11, a reframing of the findings map of

the paper shows the input, process, and output elements as shown in

Table 4.

10 Anna Nadgrodkiewicz, In Search of Transformational Leadership on Sustainability Posted on 19 December,2013 by Anna Kompanek http://www.cipe.org/blog/2013/12/19/in-search-of-transformational-leadership-on-sustainability/#.WRfChZKGPMw accessed May 14, 2017

11 Isabel Rimanoczy, A Matter of Being: Developing Sustainability-Minded Leaders, p. 95, Journal of Management for Global Sustainability, vol. 2, Issue 1,2014

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Table 4: Developing Sustainable Leadership

In Les Bell & Phil Smith, “A Case Study of Sustainable

Transformational Leadership in a Challenging School”12, the output

elements from the reframed map in Table 4 are transposed into 7

sustainable traits and compared against similar 7 transformational

traits as shown in Table 5

Table 5: Comparison of the Principles of Transformational & Sustainable Leadership

12 Les Bell & Phil Smith,“Creatures that by a Rule in Nature Teach the Act of Order (Henry V Act Scene 2): A Case Study of Sustainable Transformational Leadership in a Challenging School“ in Building for a Sustainable Future in our Schools Brick by Brick ed. Rosemary Papa & Anna Sarti.Springer International Publishing Switzerland 2017 DOI 10.1007/978-3-319-12403-2 p, 171

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3 Summary of Survey Results and Analysis

This section covers the results of the Chi-Square test which prove

the main hypothesis of the study and the results of the two surveys (or

interviews) meant to support the secondary hypothesis: (1) Altman Z-

Score of Selected Companies (2) The Strategy-Organization-

Leadership (SOL) Score of Company Respondents. Under the survey

of Altman Z-Score of Selected Companies, there is also a variance

analysis of the score, vis-à-vis the companies’ identified main

competitors. These tables are used to conduct the cross-tabulation

analysis. Further results can be found in Grey, Rational

Strategizing.13

3.1 Chi-Square Test Results and Analysis

13 Grey, Rational Strategizing, 2017

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The Chi-Square test results show that the study’s main hypothesis

(i.e., there is a positive outcome in the proper execution of a rational

strategizing process) is valid based on empirical evidence. Based on

the methodology of the Chi-Square Test, if the null hypothesis is

proven invalid because the p value is less than the alpha (α) value,

then the alternative hypothesis is proven valid.

In this study, the following are the null and alternative hypotheses:

H0 = Null Hypothesis = the Rational Strategizing Process has a

negative outcome

H1 = Alternative Hypothesis = the Rational Strategizing Process

has a positive outcome

Assuming,

α = .01 (level of significance) 99% confidence

If p value < α, reject H0

Hence, accept H1.

The results of the Chi-Square test using the normal distribution

template are shown in Table 6.

Table 6. Chi-Square Test on Selected Companies’ Altman Z-Score

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1. The p value is 1.25E-15, a negative value that is lower than α = .01 leading to the rejection of the null hypothesis and acceptance of the alternative hypothesis.

2. Conclusion. the left brain strategizing process of the AGSB, as implemented in the real world, has a positive outcome.

The next sections analyze the selected companies amongst

themselves, against their competitors, and the explanatory variables of

the SOL Score.

3.2 Altman Z-Scores of Selected Companies

The basis for the computation of the Chi-Square test is found in

Table 7. 10 companies which implemented the STRAMA papers were

interviewed. The average of the Altman Z-Score in the three years

prior to implementation and the three years after implementation were

derived.

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Table 7: Altman Z-Scores of Selected Companies with Implemented STRAMA Papers

1. The average Altman Z-Score of the before and after implementation of the STRAMA paper shows an overall positive variance of 1.05 or .14%

2. Six of the 10 companies showed positive variance, with the highest positive variance at 58.4% and the lowest at 2.81%.

3. Of the four companies which showed negative variance, the highest negative variance recorded was -14.60% and the lowest was -.15%.

3.3 Altman Z-Score of Company vs. Competitor

Another analytical view would be to compare how the selected

companies performed relative to their main competitor.

Table 8 shows the company versus competitor analysis of the

Altman Z Score.

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Table 8: Companyr vs.Competitor Analysis of the Altman Z-Score

1. Overall, shows a deterioration on a before and after implementation basis from .-94 or -16.56% before and -1.20 or -30.85% after (company vs. Competitor).

2. Of the 10 selected companies, five fully implemented the strategies recommended in the STRAMA paper, while five only partially implemented the recommended strategies.

3. 5 companies with fully-implemented strategies showed a negative variance -8.15%. before implementation and a positive variance of 8.88% after implementation.

4. 5 companies with partially implemented strategies suffered deterioration from -24.96% to -70.38% vis-a-vis competitors.

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3.4 Strategy-Organization-Leadership (SOL) Score of Company Respondents

There were 10 respondents who completed the SOL online survey.

Of the 10, two had matching Altman Z-Scores before and after

implementation. The results are shown in Table 9.

Table 9: Strategy-Organization-Leadership Scores of Company Respondents

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3.5 Summary of Results on Survey on Strategy-Organization-Leadership Score

Table 10: Average Strategy-Organization-Leadership Score of Respondent Companies

1. SOL Scores shows a movement from Medium-Medium-Transactional before and a Strong-Strong-Transformational after implementation.

2. Seen as an aggregate the effect of the rational strategizing process shows a transformation of the respondent companies towards strong strategic execution, strong organizational execution, and transformational leadership.

3.6 Application of the SOL Score to the Altman Z-Score Results

The SOL Scores were designed to explain the Altman Z-Score of

the selected companies. In effect, the SOL Score would illuminate the

secondary hypothesis: The strength of the positive outcome of the

rational strategizing process is dependent on the interaction among

the three components of change: change agent (the leader), change

element (the strategy process of formulation and execution), and

change target (the organization). Since the number of respondents of

the SOL survey does not represent sufficient sample size required to

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come out with a predictive analytics model (at the least the sample

size should equal the number of the 36 explanatory variables under

the three main categories of change management), the SOL survey

results can be used to explain the movement of the Altman Z-Score

for the companies with both the Altman Z-Score and SOL Score.

The two companies with completed Altman Z-Score and SOL

Score are Company D and Company A. A sample illustration of how

the SOL Score can be used to explain the movement of the Altman Z-

Score is in Table 11.

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Table 11: Application of SOL Score to Explain Altman Z-Score Movement

1. High positive variance of Company D (58.4%) and Company A 51.24% can be explained by the SOL Score movement from Medium-Medium-Transformational to Strong-Strong-Transformational for Company D, and from Medium-Medium-Transactional to Strong-Strong-Transformational for Company A.

2. Probing the sub-categories of Strategy, Organization, and Leadership could further provide insights.

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4 Cross-Tabulation Analysis

Table 12, which compares Sustainable versus Transactional

strategizing, cross-tabulates the results from Tables 7 and 9. Table 12

is based on the following premises: a. Sustainable leadership is

equivalent to Transformational Leadership as supported by Table 5

and the findings from Table 10 which shows that the effect of the

rational strategizing process shows a transformation of the respondent

companies towards strong strategic execution, strong organizational

execution, and transformational leadership.

b. Companies that fully implemented the recommendations of the

STRAMA paper are considered transformational and those that only

partially implemented the recommendations are transactional. This is

inferred from the findings of Table 10 that the effect of the rational

strategizing process shows a transformation of the respondent

companies towards strong strategic execution, strong organizational

execution, and transformational leadership. Table 8 reveals that

partially implemented papers by the same respondent companies as in

Table 10 showed a deterioration of their Altman Z-Scores versus their

competitors. Since the execution of the STRAMA recommendations

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is only partial, then it cannot be considered transformational. Hence,

it is considered transactional.

Table 12: Sustainable versus Transactional Strategizing

1. Sustainable strategy formulation and implementation are superior than transactional : 13.24% vs. 8.24% improvement (sustainable vs. Transactional)

2. Fully implemented sustainable strategies have highest improvement at 25.02% while partially implemented sustatainable exhitibt deterioration at -2.66%..

These findings from rational strategizing of Philippine companies

that sustainable leaders fully implementing their sustainable strategy

as having the biggest improvement is also supported by findings of

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the United Nations Business and Sustainability Development

Commission (UN BSDC)14

The Leader-Strategy-Organization framework cross-tabulated with

leadership style shows that transformational/sustainable leaders have

the biggest impact. A UN BSDC study points out that the

improvement is in the areas of efficiency gains, innovation gains,

enhanced reputation, attraction and retention of employees,

consumers, B2B customers and investors.15 Cross-tabulating Tables 8

and 9 using the same premises as Table 12 and the further

assumption that the competitor strategies are transactional since the

competitors did not form part of the survey) , a company-to-

competitor analysis is formed in Table 13.

14 Malloch-Brown, L. (2017). .Better Business, Better World: The Report of the Business and Sustainable Development Commission. Business and Sustainable Development Commission, (January). Retrieved from http://report.businesscommission.org/uploads/BetterBiz-BetterWorld.pdf

15 Malloch-Brown,Better Business, 2017

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Table 13: Sustainable versus Transactional Strategizing Company versus Competitor Analysis

1. Sustainable strategizing companies improved 16.87% over competitors

2. Transactional strategizing companies deteriorated (-70.8%) over competitors.

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5 Exploring Sustainability in Graduate Business Education

Given the findings of this paper on the positive outcome of the

rational strategizing process with the most significant impact coming

from sustainable strategizing and implementation, this section comes

out with recommendations on the application of the sustainability

features of the Triple Bottom Line Parameters on graduate business

education through the lens of the change management framework of

the Leader, the Strategy, and the organization.

5.1. Embed Sustainability in the Change Management Framework

The findings point to the need to embed sustainability in the

components of change management in graduate business education,

viz., the Leader (Change Agent), the Strategy (Change Element), and

the Organization (Change Target)

5.1.1. Leader

The paper showed that the transformational leader generates the

best outcome (vs. the laissez-faire and transactional leader). While

the literature review shows that the transformational leader has a

sustainable mindset the literature also points out that the sustainability

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mindset is not an inborn trait among leaders and has to be developed.

Using the input-process-output process diagram in Table 4, training

and developing leaders for sustainability involves inputs from the Self

and from a Coach. The inputs from the Self involves coming out with

a Personal Mission with a spirituality dimension that aligns with a

universal mission on sustainability. The inputs from the

Coach/Trainor/Facilitator are the provision of training on Sustainable

content, messages, development of sustainable habits, and sustainable

learning methods. These learning methods can be self-directed

learning, reactive learning, reflective learning, and social learning.

The features attributed to sustainable leadership are the sustainable

mindset of systems thinking, innovative thinking, and being

orientation; the sustainable attitudes of introspection, persistence,

entrepreneurial, learner-oriented, positive, inspiring, communication,

engaging, and implementation orientation coupled with sustainable

responsibility, knowledge, and skills. 16

The Business & Sustainable Development Commission (BSDC)

has identified 6 actions for leaders to take.17

16 Rimanoczy, A Matter of Being, 9517 Malloch-Brown,Better Business, 2017

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1. Build support for the right growth strategy.

2. Incorporate the Global Goals into company strategy.

3. Drive the transformation to sustainable markets with sector

peers.

4. Work with policy-makers to pay the true cost of natural and

human resources.

5. Push for a financial system oriented towards longer-term

sustainable investment.

6. Rebuild the Social Contract.

5.1.2. Strategy

5.1.2.1 Embed sustainability in the entire Fred David Framework

The sustainability concepts may be embedded in the rational

strategizing framework of Fred David in the aspect of Mission

Statement Formulation, Industry Analysis, General Environment

Analysis, Company Analysis, Strategy Formulation, Prioritization of

Strategies, and Strategy Evaluation and Control using the Balanced

Scorecard and Strategy Map.

5.1.2.1.1 Mission Statement Formulation

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While the STRAMA papers have the component of sustainability

(viz., concern for survival and growth, nation-building), concern for

sustainability is not explicit. The UN Sustainable Development Goals

has pointed out 17 goals for sustainable development18 viz., no

poverty; zero hunger; good health & well-being; quality education;

gender equality; clean water & sanitation; affordable & clean energy;

decent work & economic growth; industry, innovation &

infrastructure; reduced inequalities; sustainable cities & communities;

responsible consumption & production; climate action; life below

water; life on land; peace, justice & strong institutions; partnerships

for the goals. While these are on the macro level, these may be

included in the mission formulation as may be appropriate for the

business and cascaded to all levels of the organization. The business

case for sustainable development as core strategy gets much stronger

as the world achieves the Global Goals. The BSDC research shows

achieving the Global Goals in just four economic systems could open

60 market “hot spots” worth an estimated US$12 trillion by 2030 in

business savings and revenue. The total economic prize from

implementing the Global Goals could be 2-3 times bigger, assuming

18 Malloch-Brown, Better Business, 2017

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that the benefits are captured across the whole economy and

accompanied by much higher labor and resource productivity.19

5.1.2.1.2 Industry and General Environment and Company

Analysis

The process of external environment analysis which involves the

Social, Technological, Environmental, and Political (STEP) trends

should take advantage of the BSDC’s findings that four economic

systems, viz., food & agriculture, cities, energy & materials, health &

well-being, will account for US$12 trillion by 2030 in business

savings and revenue.

The tools used for strategy formulation, viz., External Factor

Evaluation (EFE) Matrix, Porter’s Competitive Forces, Competitive

Profile Matrix (CPM) , Internal Factor Evaluation (IFE) , Strength-

Weaknesss-Opportunities-Threat (SWOT) Matrix, Strategic Position

& ACtion Evaluation (SPACE) Matrix, Boston Consulting Group

(BCG Matrix) Analysis, Internal-External (IE) Matrix, Grand

Strategy Matrix, and the Quantitative Strategic Planning Matrix

19 Malloch-Brown, Better Business, 2017

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(QSPM) should embed sustainability as may be appropriate forming a

“shadow” parallel analysis when using these tools.

5.1.2.1.3 Strategy Evaluation and Control using the Balanced Scorecard and Strategy Map

The implementation of sustainable strategy should be measured

with a sustainable balanced scorecard. In Frank Figge, Tobias Hahn,

Stephan Schalteger, and Marcus Wagner’s paper on The

Sustainability Balanced Scorecard, it is suggested that the TBL

framework be integrated into the balanced scorecard by adding social

and environmental components into the financial perspective, the

customer perspective, internal business processes, and learning &

growth20

5.1.2.2 Adapt Sustainability Strategizing Methodologies in

STRAMA Course

20 Figge, F., Hahn, T. Schalteger, S., Wagner M. The Sustainability Balanced Scorecard-Theory and Application of a Tool for Value-Based Sustainability Management. Center for Sustainability Management, University of Lueneberg, Scharnhorststr. 1,D-21335, Luneburg, Germany. Paper presented at the Greening of Industry Network Conference, Gothenburg. “Corporate Social Responsibility-Governance for Sustainability”

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Scanning the various strategizing methodologies, there are two that

have sustainability features, viz., W. Chan Kim & Renee

Mauborgne’s the Blue Ocean Strategy21 and Alexander Osterwalder

& Yves Pigneur’s Business Model Canvas.22

The Blue Ocean Strategy which may be considered “right” brain as

it encourages “innovative” or creative thinking to expand boundaries

of red oceans into blue oceans, can be incorporated into the Fred

David methodology particularly in the Competitive Profile Matrix.

The sustainability element inherent in the Blue Ocean Strategy lies in

its Four Actions Framework (Reduce-Create-Raise-Eliminate as

shown in Figure 4.

21 Kim, W., Mauborgne, R., (2005) Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, Boston: Harvard Business Press

22 Osterwalder, A.& Pigneur, Y, Businees Model Generation: A Handbook for Visionaries, Game Changers and Challengers, 2010, John Wiley & Sons, Inc

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Adapted from Kim & Maugborgne (2005)

Figure 4: The Four Actions Framework (Reduce-Create-Raise-Eliminate) of the Blue Ocean Strategy

Blue Ocean Strategy is about simultaneously increasing value

while reducing cost. This is achieved by identifying which elements

of the Value Proposition can be Eliminated, Reduced, Raised, or

Newly Created. The first goal is to lower costs by eliminating or

reducing less valuable features or services. The second goal is to

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enhance or create high value features or services that do not

significantly increase the cost base.

In Fred David’s CPM Matrix, the Critical Success Factors used by

the industry to gauge competitiveness among the industry players can

be modified to accommodate the Four Actions Framework by

changing the ratings per Critical Success Factor (scaled from 1-4 with

4 having the highest score). For instance, if the company wants to

eliminate a factor, the rating should be 0 relative to the industry curve.

The Business Model Canvas of Osterwalder can also be

incorporated into the STRAMA paper as a summary sheet which

draws from the information found in the STRAMA paper,viz., Key

Partners, Key Activities, Key Resources, Value Proposition,

Customer Relationships, Channels, Customer Segments, Cost

Structure, and Revenue Streams as shown in Figure 5.

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Adapted from Osterwalder, Business Model Generation (2010) www.businessmodelgeneration.com

Figure 5: Business Model Canvas

The Four Actions Framework can in turn be blended into the

Business Model Canvas. By asking questions from the Four Actions

Framework about each Business Model building block, one can

immediately recognize implications on both the cost side and value

side of the Business Model Canvass

5.1.2.3 Embed Sustainability in the Curriculum

Since the STRAMA course is an integrative course that

synthesizes the various management disciplines of Finance,

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Management Accounting, Operations, Information Technology,

Human Resource, Marketing, Leadership, and Ethics, the sustainable

concepts must similarly embedded in the core MBA subjects. Cases

that raises awareness and critical thinking about sustainability could

be incorporated into core management disciplines as may be

appropriate to the course.

5.1.3. Organization

Graduate Business Education organizations should inculcate the

sustainability culture by creating metrics that involve the TBL. The

inculcation of the metrics could take into consideration the prevalence

of 5 new business models across the 12 business themes to achieve

the UN Goals. The BSDC identified the following new business

models, viz., the sharing economy, lean service model, the circular

economy, big data machine learning, and new social enterprise

business models. The identified 12 business themes were: mobility

systems; new healthcare solutions; energy efficiency; affordable

housing; clean energy; circular economy manufacturing; agricultural

solutions; healthy lifestyles; food loss & waste; urban infrastructure;

building solutions; forest ecosystem services.23

23 Malloch-Brown, Better Business, 2017

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5.1.3.1 Create a Center of Excellence on Sustainability to plan,

implement, and monitor progress on a continuous improvement basis.

Along the line of these creating a TBL culture, AGSB has

formulated sustainable punch lines in its mission statement like “Our

Country is Our Business”, “The Purpose of Business is not just for

profits but to build the nation,” and “Serve by Leading, Lead by

Serving”.

5.2 Collaboration Among Academe, Business, Government and

Community Sectors for Sustainability

The academe is only one leg in the equation of sustainability. The

Business sector where the sustainable strategies take effect should do

its part to ensure the TBL implementation in the supply chain and

partner relationships, customer relationships, internal business

processes, and human resource training on sustainability The

Government should come out with the appropriate regulations as well

as apply the TBL framework in the operations of all its agencies. The

community where the companies operate should also take part as well

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by vigilance in seeing to it that environmental damage is minimized if

not eliminated.

5.3 Continuous Improvement Program

There should also be a constant improvement program on the

strategizing process and periodic scanning of new strategizing

methodologies which may be blended with the AGSB rational

strategizing process While the paper focused on the effectiveness of

rational strategizing and exploring sustainability in graduate business

education, the collateral benefit was to come out with a template for

measuring sustainability in strategic management. While applied to

business operating in the Philippines, further studies can be done to

compare this experience with other emerging markets as well as the

more developed economies. Moreover, other business schools can

adopt the template and can compare their experiences thus elevating

higher education to a new level. With the shift of the global

economic growth towards Asia and emerging markets like the

Philippines, the paper study provides a strategic framework for

spurring business growth which promotes the social good and

sustainability.

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Acknowledgements

To raise the research capability of AGSB, a Research Unit headed

by the former Dean Alberto Buenviaje (current Dean is Rodolfo P.

Ang) with selected members of the faculty was created. Dr. Carol S.

Guina was appointed as the research advisor to the Dean. The thrust

of the Research Unit among other things is to publish research papers

written by AGSB faculty members and participate in research

conferences. This paper on the “Effectiveness of Rational

Strategizing” is part of the AGSB Research Unit’s initiative to award

research grants to faculty members. The paper was peer reviewed by

Dr. Epitectus Patalinghug, Dr. Eduardo A. Morato,Jr. and Dr. Carol

Guina, with the participation of faculty members Ric Palo and Winnie

Constantino. Research assistance was provided by the research staff

of the Research Unit, particularly Anna Medrano and Ysa Cayabyab

and the student researchers of the Research Unit. Continuing

mentoring was also provided by Dr. Maria Cristina G. Bautista.

About the Author

Gary A. Grey, MBM is a faculty member of the Ateneo Graduate

School of Business, Ateneo de Manila University where he teaches

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Information Technology, Business Intelligence, E-Marketing,

Technopreneurship, and E-Commerce and in the Ateneo School of

Medicine and Public Health where he teaches Health Informatics. He

is also a consultant of Vision Analytics, Inc., a software

development company engaged in creating optimal decision-making

systems and intelligent process support software for the global

market.. He recently completed a research dissertation on

“Effectiveness of Rational Strategizing” for eventually acquiring a

PhD. He completed his Masters in Business Management at the

Asian Institute of Management (1974). He took up undergraduate

studies at De La Salle University where he graduated Magna Cum

Laude major in Economics in 1972. He served in the banking

community for the last 26 years with stints in Union Bank of the

Philippines, Bancom Development Corporation, and PCIBank (now

Banco de Oro).

Contact Details:

Ateneo Graduate School of Business, Ateneo de Manila University

# 20 Rockwell Drive, Rockwell Center, Makati City,1200

Philippines

ggrey@ateneo.edu

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