Saudi Arabian Stock Exchange - Thesis Example

Chapter Three 3.1 Introduction This chapter outlines the methodology adopted for this study’s primary research, which consists of a survey of managers in firms listed on the Saudi Arabian stock exchange, and a series of semi-structured interviews with a number of those survey participants. The mechanics of the methodology are detailed first, followed by an in-depth explanation of the use of managers’ perceptions as a measure of firm performance as well as the overall research perspective and approaches to the research that were considered and rejected. A discussion of the data analysis techniques employed and their contribution to the results’ validity and reliability is then presented, along with an explanation of the study’s limitations and ethical considerations. 3.2 Research Methodology 3.2.1 General Description The first stage of the primary research is a survey consisting of 24 questions administered to managers at 40 firms listed on the Saudi Arabian stock exchange. The full survey is presented in Appendix A. There are four main components of the survey: First, some demographic information pertaining to the type and size of the firm in terms of number of departments or divisions, number of employees, and annual revenue is gathered. Second, the firm’s strategic management methodology and the strategic management tools utilised are identified. The third part of the survey identifies the firm’s plans developed from its selected strategic management tools by collecting information on the manner in which the planning process was conducted, and the implementation steps created from the process. And finally, the survey gathers information to conduct an assessment of the organisations’ performance outcomes following the deployment of strategic management tools and the resulting planning/implementation processes. The performance outcomes are measured by managers’ perceptions, using a six-point Likert Scale (from 0 to 5, with 0 representing “no effect” and 5 representing an “extremely positive” effect). These questions are shown in Table 2 below: Questions Scale Responses 0 1 2 3 4 5 *How would you rate the impact of SMT on gathering information needed for planning? No Effect Slightly Positive, but Much Less than Expected Moderately Positive, Slightly Less than Expected Positive, About as Expected Very Positive, Better than Expected Extremely Positive, Major Impact * How would you rate the impact of SMT on developing objectives for the firm as a whole? * How would you rate the impact of SMT on developing objectives for individual departments? * How would you rate the impact of SMT on monitoring performance in the period covered by the planning? * How would you compare your firm’s performance using SMT to the most recent period in which you did not use SMT or used a different SMT? * Did the use of SMT make planning, performance measurement more efficient or easier? Table 2: Managers’ Perceptions Survey Questions These six questions form the basis for semi-structured interviews with a number of survey participants to gather further insights into how managers perceive the role and effectiveness of tools in contributing to the performance of their firms. A key part of this segment of the research analysis investigates the manner in which these perceptions of performance are related to the subsequent year’s planning, as suggested by the study of internal and external influences on planning processes done by Dutton and Duncan (1987). 3.2.2 Use of Managers’ Perceptions as a Measure of Firm Performance As discussed in the previous chapter, managers’ perceptions present some challenges to their use as a measure of firm performance. Managers’ perceptions are affected by a number of cognitive and behavioural filters such as confirmation bias, mental accounting, and false consensus, simple gaps in information, and the managers’ own personalities and preferences (Roxburgh, 2003; Valle Santos & García, 2006: 753). Valle Santos and García (2006: 765) offer this rather blunt warning on the use of managers’ perceptions in research: “...the presence of biases in managers’ opinions should also remind us that using managers as informants in scientific research carries some risks. Thus, when researchers ask managers for their opinions, the phenomenon being studied should be simplified and clarified as much as possible in order to reduce the process of simplification associated with the perception process. Moreover, the formulation of the questions should be shielded from the affective influence of the managers’ beliefs, so the respondents should be asked for clear evidence of their statements. Researchers would be advised not to rely on managers as a sole source of information, but rather to compare managers’ opinions with information obtained from other sources.” However, Poon, et al. (2006: 69) make a strong counter-argument for the use of managers’ perceptions in their study, citing numerous previous studies to support their assertion: “Because business owners tend not to reveal their business financial data (Naman and Slevin, 1993) and asking for such data might have precluded any response at all, we used perceptual measures to assess firm performance. The use of subjective, self-report measures of performance is also consistent with past research practices (e.g., Covin and Slevin, 1989; Lyles and Salk, 1996; Smart and Conant, 1994). Furthermore, there is research evidence that top managers’ perceptions of the performance of their firm are highly consistent with how their firm actually performed as indicated by objective measures (e.g., Dess and Robinson, 1984; Wall, et al., 2004).” The present study takes the view that managers’ perceptions are appropriate, because they are internal measures of internal variables, i.e., the effectiveness of strategic management tool choices and strategic management processes, and are consistent with the knowledge-based view of the firm, as supported by the literature in Rumelt, et al., 1991; Hoskisson, et al., 1991: 441-442; Rollier and Turner, 1992; Morris, 2005; Roberts and Stockport, 2009; and Pryor, et al., 2011. 3.3 The Research Perspective The ontological perspective of this study is one of a socially-constructed, contextual, and dynamic reality; because the internal and external environments of individual firms differ from one firm to another and change over time, a ‘fixed’ model of firm environment against which the performance of a firm can be judged from an external perspective contains would contain so many variables as to be unmanageable. The selection of strategic management tools, for example, is just one component of the firm environment, and while selection decisions can be identified as being made according to one of three broad approaches, each of those approaches comprises an almost infinite number of environmental variables. The intuitive approach, illustrated by the informal planning processes widely used by successful small US firms (Meers & Robertson, 2007), is forward-looking, and focuses on a desired future state to be created by the use of strategic management tools, which are largely selected on the basis of interactions between people, and between people and the firm environment. The analytical approach relies on forecasting based on past performance and past environment conditions; in this approach strategic management tools are chosen to ‘fill the gap’ between past and future, with regard to the fit between the firm’s capabilities, environment, and objectives (Al Ghamdi, 2005: 378). The third approach is a hybrid of the analytical and intuitive approaches; tools provide structure to the strategic management process with the objective of focusing and encouraging the intuitive, creative effort rather than providing empirical solutions (Ibid.). This approach is implied by Abramson (1995, in Pettinen & Pohjola, 2008: 6) to be the most effective and the most widely-used, precisely because the reality of firms is dynamic – the interaction of context, tool, and user not only varies from firm to firm, but varies within firms because neither the external nor the internal environment is static. Thus the indicated approach to the research is a subjective, relativist perspective that falls somewhere between interpretivism and critical theory (Murray & Ozanne, 1991; Clarke, 2005). The axiological perspective is interpretive, seeking to explain a phenomenon; and the epistemological assumptions are that the knowledge gathered is value-laden, contextual, and reflective (Murray & Ozanne, 1991: 132-135; Cohen & Crabtree, 2006; Bryman, 2012). While the research is guided by theories that explain some of the phenomena of strategic management processes and firm and managerial decisions, the overall approach of the research is inductive, seeking to contribute to developing theories and models, rather than deductive, or testing established theories and models. 3.4 Rejected Approaches The mixed, inductive approach to the research was selected over a quantitative, empirical approach in view of the dynamic nature of firms described above. An approach attempting to correlate firm performance to the use of strategic management tools using an objective measure such as firm profit margin has one basic problem that would make the reliability and validity of the results questionable: because the firms’ internal and external environments are dynamic, it is difficult to connect the use of strategic management tools to a particular objective measure of performance without eliminating all other possible environmental factors as contributors to the measure, a process that may be impossible and would certainly be exhausting and go well beyond the scope of the present research even if it were possible. And in order to use an objective measure (such as profit margin), the research would have to ascertain that the objectives of the firms using strategic management tools were connected to that measure; otherwise the correlation of strategic management tool use to an objective measure might not be a correlation at all, but a simple coincidence. 3.5 Data Analysis The survey results are subjected to analysis of normal descriptive statistics (mean and standard deviation), and then the Mann-Whitney U Test is conducted. This is an appropriate statistical analysis for the results because the responses to the Likert-scale questions (see Table 2) are treated as ordinal data, and the most meaningful descriptive analysis of the results involves a series of comparisons – different sizes of firms, firms in different business sectors, managers at different levels of responsibility within firms – which can be treated as paired sets of data (Shier, 2004). The data analysis was conducted using the SPSS program, which has a built-in function for the Mann-Whitney U Test. 3.5.1 Validity & Reliability of the Results Because of the overall qualitative and inductive nature of this research, validity and reliability of the results is a significant concern, one that is satisfied by adopting the mixed approach. The statistical analysis conducted on the survey responses, and after coding, the responses from the semi-structured interviews, tests for consistency of the data through triangulation, albeit in a way which provides different sources of the data through different groupings of the data set (Golafshani, 2003: 601-604). Applying the quantitative techniques with this objective does not eliminate the possibility of unexpected results, but since the approach to the research is inductive, unexpected results – and there are a few, which are discussed in the following chapter – do not present problems to the findings and conclusions (Bryman, 2006: 110-111). Thus, the results are offered with a high degree of confidence in their validity and reliability, with the usual disclaimer, of course, that the best test of this will be for the research to be repeated or duplicated. 3.6 Research Limitations In terms of methodology, there are no significant limitations to the research within the parameters of the mixed approach selected for the study. In terms of the results and findings, the relatively narrow scope of the study – limited to firms whose stock is traded on the Saudi Arabian stock exchange – may limit their applicability to firms of different types, or firms outside the cultural, environmental, and organisational contexts found in Saudi Arabia. 3.7 Ethical Concerns The primary ethical concern of this study is confidentiality, particularly in view of the fact that the information being discussed by the firms relates to internal management and planning processes that most of the firms in the study consider sensitive, and would not like to be known to their competitors. A high degree of confidentiality is also necessary to elicit the most honest responses possible, given that managers’ opinions and perceptions are subject to natural ‘filters’ as explained above. To that end, neither the firms nor the participating managers are identified by name, but only by general descriptions of the type of business and the manager’s role within the firm. To further guard against inadvertently identifying a firm or participating manager, at least two firms for each general business description were sought for the study; this also helps in providing data for comparisons according to the analytical techniques described above. 3.8 Conclusion The research approach adopted for this study is a mixed approach combining qualitative and quantitative techniques. This interpretive, inductive perspective best suits not only the main focus of the study, which is the effectiveness of strategic management tools according to the unavoidably subjective measure of managers’ perceptions, but also the dynamic, contextual reality of the internal and external environments of the different firms studied. The primary research consists of two parts, a 24-question survey and a series of semi-structured interviews based on six ‘perception questions’ included in the survey; the semi-structured interviews are conducted with a random sampling of survey participants willing to provide in-depth additional information. Statistical analysis of the survey responses and coded responses to the semi-structured interviews is accomplished using the Mann-Whitney U Test run using the SPSS program; the results of the research and data analysis are presented in the following chapter. References Bryman, A. (2006) “Integrating quantitative and qualitative research”. Qualitative Research, 6(1): 97-113. Bryman, A. (2012) Social Research Methods, 4th Ed. Oxford University Press, New York. Clarke, R.J. (2005) “Research Models and Methodologies”. University of Wollongong (Australia) Faculty of Commerce [online], Spring 2005. http://www.uow.edu.au/content/groups/ public/@web/@commerce/documents/doc/uow012042.pdf. Cohen, D., and Crabtree, B. (2006) “Semi-structured Interviews”. Robert Woods Johnson Foundation Qualitative Research Guidelines Project [online], July 2006. http://www.qualres.org/HomeSemi-3629.html. Dutton, J.E., and Duncan, R.B. (1987) “The Influence of the Strategic Planning Process on Strategic Change”. Strategic Management Journal, 8: 103-116. Golafshani, N. (2003) “Understanding Reliability and Validity in Qualitative Research”. The Qualitative Report, 8(4): 597-607. Murray, J.B., and Ozanne, J.L. (1991) “The Critical Imagination: Emancipatory Interests in Consumer Research”. The Journal of Consumer Research, 18(2): 129-144. Poon, J.M.L., Ainuddin, R.A., and Junit, S. (2006) Effects of Self-concept Traits and Entrepreneurial Orientation on Firm Performance”. International Small Business Journal, 24(1): 61-82. Shier, R. (2004) “Statistics: 2.3 The Mann-Whitney U Test”. Mathematics Learning Support Centre, 2004. Available from: http://mlsc.lboro.ac.uk/resources/statistics/Mannwhitney.pdf. Valle Santos, M., and García, M.T. (2006) “Managers' opinions: reality or fiction: A narrative approach”. Management Decision, 44(6): 752-770. Read More