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MANPOWER
DIRECTORATE GENERAL OF TECHNOLOGICAL
EDUCATION COLLEGES OF TECHNOLOGY
BAMG42
16
Strategic
Management
7S Strategy Model-McKinsey
Survival
Growth
Any company can outperform the rivals; only if it can establish a difference that can
deliver greater value at a reasonable cost/price and preserve the same in the long
run. Strategy rests on unique activities The essence of strategy is in the activities
choosing to perform things differently and to perform different activities than rivals.
Strategy is long term. If companys focus is only on operational effectiveness, it can
be good and not better. Growth is achieved by deepening strategy.
Strategic Management:
organizations long term objectives by aligning internal capabilities with the external
demands of its environment, and then ensuring that the plans are being executed
properly to accomplish business goals.
Strategic Management is defined as the process of specifying an organizations
objectives, developing plans and policies to achieve these objectives and allocating
resources (4 Ms) to implement the plans to achieve the objectives.
DEVELOPMENT AS A DICIPLINE:
Strategic management as a discipline originated in the 1950s and 60s. Primarily the
development of this dicipline can be devided into four phases:
Phase 1 - Basic financial planning: Seek better operational control by trying to meet
budgets.
Phase 2 - Fore-cast based planning: Seeking more effective planning for growth by
trying to predict the future beyond next year.
General Electric, one of the pioneers of the strategic planning, led the transition from
the strategic planning to strategic management; this was started during the 1980s.
By the 1990s, most corporations around the world had also begun the conversion to
strategic management.
Although there were numerous early contributors to the literature, the most
influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, Peter
Drucker and Michael Porter.
In 1957, Philip Selznick introduced the idea of matching the organization's internal
factors with external environmental circumstances. This core idea was developed
into what we now call SWOT analysis; by Learned, Andrews, and others at the
Harvard Business School--General Management Group. The process is aimed to
assess the Strengths and weaknesses of the firm in light of the opportunities and
threats from the business environment.
Igor Ansoff built on Chandler's work by adding a range of strategic concepts and
inventing a whole new vocabulary. He developed a strategy grid that compared
market penetration strategies, product development strategies, market development
strategies and horizontal and vertical integration and diversification strategies. In his
1965 classic Corporate Strategy, he developed the gap analysis still used today in
which we must understand the gap between where we are currently and where we
would like to be, then develop what he called gap reducing actions.
In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements
of strategic management theory by the 1970s:
of
circumstances
requiring
unstructured
non-repetitive
responses/decisions.
Plans were merely extensions of what has been done in the past. Unless
these plans are altered as per the changes in the environment the
business may not get desired results. This is due to some environmental
shocks such as energy crises, accelarating technical changes and
increasing global competition.
3.
It provides setting of specific goals and providing staff with unified vision;
and
4.
believe that the competitive advantage is the key for obtaining a high revenue
and a long term success;
3.
High-performing organizations are strongly results-oriented and performanceconscious. Their managers consider the individual performance of each
employee as the motor of organizational competitiveness, and they fairly
reward outstanding results.
4.
Cognitive hurdle
Motivational hurdle
Resource hurdle
Political hurdle
Fighting brands
Price wars
Can the staff, equipment, and processes handle the new strategy
Failure to coordinate
o
The total process of strategy formulation can be divided under two heads; (i)
Formulation and (ii) implementation. One should understand these two parts
thoroughly before initiating the strategy.
1. Strategy Formulation: This process has three major activities like:
a. The first step is to scan the environment. This is called also situation
analysis. It is about gathering information about the companys
strengths and weaknesses, self evaluationInternal. It is also about
examining the external environment-PEST analysis (P-Political, EEconomical, S-Social and T-Technology) and competitor analysis.
b. Next step is to decide on the objectives to be achievedboth financial
(Profit and ROI) and growth-Volume and Market Share.
c. Third important step is to design various operational plans to achieve
these set objectives. These plans cover all the functional areas of
business.
2. Strategy Implementation is critical for the success of strategy.
This involves the following activities:
a. The most important step in strategy implementation is to allocate
resources to various functional areas of business.Finance required,
technology required, employee skill development, new employee
recruitment and market support in the form of advertisement and
promotion, etc.
The first stage in the formulation of strategy is to establish the mission statement of
an organisation.
It enlist the business psychology and management intent in defining its core
values pertaining to its customers (products and services) and stakeholders
(shareholders, employees, suppliers, financiers, government, society and
other interest groups).
The significance of mission is that all other managerial functions and the
direction of the organisation revolve around it. It pictures the idea of long run
commitment of the business.
Objectives are the end results that pave the way for achieving the mission
Dalton McFarland defines objectives as, The goals, aims and purposes that
organisation wish to achieve over varying periods of time.
OOpportunity
TThreat
SStrength
Environment refers to all those conditions that have direct or indirect bearing or
influence on the actions of a business for accomplishing the set objectives and
goals.
Environmental scanning is a process of gathering, analyzing, and dispensing
information for tactical or strategic purposes. The environmental scanning process
entails obtaining both factual and subjective information on the business
environments in which a company is operating or considering entering.
There are three ways of scanning the business environment:
Ad-hoc scanning - Short term, infrequent examinations usually initiated by a
crisis
Regular scanning - Studies done on a regular schedule (e.g. once a year)
Continuous scanning (also called continuous learning) - continuous structured
data collection and processing on a broad range of environmental factors
Nature of Environment: from the above definition some elements of environment
can be drawn and are presented below:
1.
3.
4.
5.
The process allows a firm to improve the internal strengths pertaining to its
resources so as to face the external challenges more aptly. Environment
scanning helps a business organisation to prepare for any change with
alterations in internal factors, through effective change management
mechanism.
Employees shall find the organisation more stable and results in low attrition
rate and high morale.
Types of Environments:
A business firm operates in three sets of environments:
(a) Mega Environment
(b) Macro Environment and
(c) Micro Environment
1. Mega Environment:
External mega environment is again two parts:
Part A: consists of global environment both overall world scenario and or specific
countries, which the firm intends to explore for possible entry. This shall pertain
to political, economical, social and technological (PEST) changes and the
influence on the industry in general, and on the firm. It is to
study
the
Significance of technology
Benchmarking of practices
2. Macro Environment:
E- Economical
E- Environmental
3. Micro-Environment:
Internal micro-environment refers to the strengths and weaknesses of
the firm pertaining to its production, marketing, human and financial
resources (All Four Functional Areas)
Technology used
R&D
Quality control
Human resource skills and morale
Attrition rate
Working climate
Public image
Top managements initiation and capabilities
of necessary
resources.
Stage V: Review and Control of Strategy
Proper control mechanism should be put in place to ensure that the chosen strategy
is on the right path and in line with the objectives and desired results. Standards are
fixed and time frame is set to ascertain and compare the actual results with
standards in order to find deviations and embark upon appropriate corrective
measures to ensure that the results are achieved.
Review Questions:
1. Strategy Formulation process can be summed up as formulation and
implementation? List the steps under each head?
2. Define Environment? What are the types of Enviroment scanning
3. Environment Scaning is essential for Strategy formulation? Do you
agree? Why?
4. Explain the PESTEL Framework with two examples under each
category?
5. Discuss in deatil the BCG matrix and how it helps in portfolio planning?
6. Planning is done at three levels? Discuss
Classroom Activity:
Sample mission statements are given below for reference.
Activity: Create your own company and write the mission statement.
Case Study/Assignment 1:
Wal-Mart to Offset Weaker Sales
It's no secret that a meaningful percentage of the country's retail business goes on
under the roof of Wal-Mart 's (NYSE:WMT) stores. To that end, when consumers are
feeling pressure (particularly those on the less affluent side of the ledger) it shows up
in Wal-Mart's sales numbers. This gigantic retailer didn't have a bad fiscal first
quarter, and it sounds like the fiscal year ahead should get better, but once again
Wal-Mart is having to turn to operating efficiencies to wring out some growth. The
structure and operations of this company have been defined by the need to lower its
costs and increase its productivity so that it could pass these savings on to its customers
in the form of lower prices. Result of effective SCM Strategies
Cross-docking is a practice of unloading materials from an incoming truck or rail-car
and loading these materials directly into outbound trucks, with little or no storage in
between. This may be done to change type of conveyance, to sort material intended
for different destinations, or to combine material from different origins into transport
vehicles (or containers) with the same, or similar destination.
Wal-Mart reported just 1% revenue growth for the first fiscal quarter, though
underlying constant currency growth was a little more robust at nearly 2% and last
year's leap day weighed on the growth by almost a full point.
Sales for Wal-Mart's U.S. stores rose barely at all, and so too for Sam's Club (though
sales were up about 0.5% excluding fuel). Sales in Wal-Mart's international
operations were up about 3% as reported and more than 5% in constant currency
terms. On a same-store basis, though, U.S. companies declined about 1% with a
nearly 2% decline in traffic. Sales were relatively stronger in essentials like groceries
and weaker in more discretionary areas like entertainment and apparel.
Fierce efficiency has long been a hallmark of Wal-Mart (and a source of frequent
criticism), and that helped deliver better results once again. Operating income rose
about 1%, with the operating margin basically holding steady.
Will It Get Any Easier From Here?
Wal-Mart cited several factors at play in the first quarter. Due to the last-minute
changes in the tax code, refunds came a little later this year and that seemed to
impact the quarter to some extent. Likewise, customers found themselves with less
disposable income after the payroll tax increase, and would expect this to show up in
the results of other discount chains like Target (NYSE:TGT) and Dollar General
(NYSE:DG).
As it stands today, don't see any particular reason to expect a big rebound. The new
payroll tax isn't going away anytime soon, and the here today/gone tomorrow
nature of improvements in economic statistics like unemployment/job growth, wage
growth, and consumer confidence don't speak to a big surge in demand anytime
soon. Moreover, with over 50% of store revenue coming from groceries,
improvements would be a little negative anyway, though in-store efforts to improve
other areas likely to produce results should help at least incrementally.
Some analysts also speculate that Wal-Mart could be at risk from renewed
turnaround/improvement efforts of retailers like Kohl's (NYSE:KSS) and JC Penney
(NYSE:JCP). Don't exactly doubt that Wal-Mart has benefited from Penney's failures,
but it seems like there's always somebody doing better or worse at any given point in
the cycle.
The Bottom Line
Still prefer Wal-Mart's international operations to their U.S. business. Wal-Mart's
huge size within the retail sector makes it effective on the retail sector and investor
confidence in that sector. Consequently, the fact that even a long-term growth
forecast of 8% is possible only when everyone feels better about the U.S. economy.
Two Major Strengths of Wal-Mart are:
Cross docking-Inventory Management-Benchmark
Every-day low prices- EDLP
Activity:
Prepare SWOT from WAL MART
What is your own SWOT for a Super Market in MUSCAT?
Which businesses level strategy you recommend and why?
Cost Leadership
Differentiation
Summary & Suggestions
A company will need strategy at various levels, as there is a different need at each
level. A company may have a different business with a central corporate office. Thus,
there will be multiple strategies at different levels.
3. Functional/Departmental strategy
a.
alternatives for a business at the corporate and business level. Once the
environment is scanned, the firm has to weigh the appropriate strategy to match
its objectives. A firm can decide on any of the following alternatives:
These are further sub divided into three groups:
1. Stability Strategies
2. Growth/Expansion Strategies
3. Retrenchment Strategies
1. Stability Strategy: As the word specifies stability is to consolidate rather than
taking chances of exploring new areas. Stability strategies are adopted when an
economy is slowing down, particular industry forecast show rapid changes, the
markets are fully exploited by the firm and needs to safeguard the same against
possible threat of new entrants,etc., are some reasons. Under this strategies the
following are the variants:
(a) No change strategy: Under this strategy the firm shall concentrate on
protecting the present position for sometime rather taking charge to expand
and diversify. This normally happens when there is a major shift in the top
management and it shall take sometime for the new management to
understand the current situation of the business. It is also common to see
small business groups otping for desired profitability rather than growth and
once the state of profitability is reached shall try to protect the same.
(b) Pause and proceed: Slow groth is preferred rather than sudden expansion.
For example, when major changes are expected in the political and
economical factors that have a bearing on the business, the management
adopts to pause and proceed strategy. The basic idea is to watch the
changes of these forces to asses the positive/negative impacts and then
(iii)
Growth
through
diversification:
Diversification
can
be
concentric
technology
and
treated
as
concentric
diversification.
Alternatively
selling expenses, and finding other useful ways to get rid of unprofitable
products to transform the company into profit making and efficient
organisation.
b.
c.
business.
A strategic business unit (SBU) may be a division or other profit center that can
be planned independently from the other business units of the firm. At the
business unit level, the strategic issues are about developing and sustaining a
competitive advantage for the goods and services that are produced.
,
Aggressive pricing
Once achieved, the low cost position provides high margin which can be reinvested to build up the resources in order to maintain the cost leadership.
Risks
Cost leadership imposes severe burdens on firms to keep up its positions,
which means re-investing in modern equipment, ruthless scrapping of obsolete
assets, avoiding product line proliferation(increase) and being alert on
technological improvements.
2. Differentiation
It involves giving customers clear reasons to prefer the product over competitor
products. Example of Differentiation: Mercedes-Benz emphasizes quality,
Caterpillar emphasizes durability. This strategy involves selecting one or more
important features of product as preferred by buyers and then positioning the
business uniquely to meet those features.
For the competitor to break the loyalty and the uniqueness of the product
is entry barrier.
Achieving differentiation will imply trade-of with cost position if the activities
required in creating it are inherently costly, such as :
Extensive research
Product design
High quality materials
Intensive customer support
Risks
The cost differential between low-cost competitors and the differentiated firm
becomes too great for differentiation to hold brand loyalty. Buyers thus
sacrifice some of the features, services or image possessed by the
differentiated firm for large cost savings;
Buyers need for the differentiating factors falls due to any reason
Imitation narrows perceived differentiation, a common occurrence as industries
mature.
3. Focus
A business pursuing a focus strategy selects a market segment and builds its
competitive strategy on serving the customers in its market better and sometimes
more cheaply
the focus strategy does not achieve low cost or differentiation from perspective of
the market as a whole it does achieve either or both of these positions vis--vis
its market target.
The three generic strategies differ in dimensions other than the functional
differences noted above. Implementing them successfully requires different
resource skills. The generic strategies also imply differing organizational
arrangements. Control procedures and inventive systems. As a result of
sustained commitment to one of the strategies as primary target usually
necessary to achieve success.
Generic
strategy
Overall cost
leadership
Differentiation
Focus
Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors 1980, Free
Press, 1980, p. 4. Copyright 1980,1988 by The Free Press, a division of Simon & Schuster Inc. Reproduced with permission.
Exhibit 2.5
Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005)
a) Threat of entry, In general, the more easily new competitors can enter the
business, the more intense the competition. However, there are several
barriers which can make it difficult for new entrants to enter. For example its
not easy to enter automobile industry because of high investment required for
plant, equipment and technology. Sometimes, government rules and
regulations make it more difficult for new players to enter the field. For
example, in Oman, there was only one mobile service provider because
except Oman Mobile, no other company had the license. Now there are
several mobile service providers because the government allows more
licenses for the other providers.
resources through which business unit level strategies can be executed efficiently
and effectively.
Functional units of an organization are involved in higher level strategies by
providing input into the business unit level and corporate level strategy, such as
providing information on resources and capabilities on which the higher level
strategies can be based. Once the higher-level strategy is developed, the functional
units translate it into discrete action-plans that each department or division must
accomplish for the strategy to succeed.
Functional strategies cannot be formulated unless the business has a clear direction
in terms of the competitive strategy it wants to pursue. Once that is done, the
functional areas must match its competitive strategy. Some examples of generic
marketing strategies are given below:
(i) Defensive
It's often said that the best defense is a good offense. Here, that means taking care
of customers lest a competitor takes them away. That calls for a defensive marketing
strategy designed to retain customers and continually win their business. Customer
Relationship Management (CRM) and customer loyalty programs are two excellent
marketing tactics for improving markets and revenues around your best customers.
Ex: Apple & Blackberry
(ii) Offensive
With a defensive marketing strategy in place, you can mount an offensive. Maybe
your company has a new product/service. Or you spot a weak area in competitor's
product/service offering. It may be an untapped opportunity for your product offering.
Offensive strategy is to be carefully adopted as you are about to touch the
competitor and may invite resistance from competitors in the form of improved
advertisements/price reductions/better value products. Best example of offensive
strategy is the smart phones of Samsung, which made the company market leader
due to sustained R & D and product improvements that left competition brands
loosing customers to Samsung.
Review Questions:
1. Under what circumstances an organisation prefers stability strategy? Explain all
the options under stability strategy?
2. A firm wishes to specialize in one line of business What are your alternatives
for growth?
3. Compare and analyze the cost leadership and differentiation strategies? In your
opinion, which is good?
4. Explain in detail the BCG Matrix? How it helps in portfolio planning?
5. Five Force Model examines the competitive position of a particular industry
Discuss
6. Write Short Notes on:
a. Integration strategies
b. Focus Strategy
Classroom Exercise/Assignment
How Nokia went from a position of domination to abandoning its
handset business
In just five years Nokia fell from dominating the mobile phone industry to
abandoning the handset business, a swift fall from grace with lessons for
market leaders.
The story of Nokia, now at the toughest stage of the restructuring cycle, is a
particularly salutary business case about the fast-moving, high-risk, high-reward,
tech sector consumer goods. The rapid decline, which is ending with the 5.44
billion euro ($7.5 billion) sale of the mobile phone division to Microsoft, owed
much to Nokia growing too big, too fast and its management getting drunk on
their own success, analysts say.
Looking back after years of Apple iPhone dominance, some may have difficulty in
recalling that Nokia, in its heyday in 2007 took more than 50 percent of the world
market for early smartphones. They had become arrogant at Nokia and as a
result they were too slow to react to changes in the world around them," Petri
Rouvinen, a researcher at the economic think tank ETLA, told AFP.
The technology of the iPhone upended the mobile handset business. It also
highlighted the critical importance in any business, but particularly in the hightech sector, of getting the timing right. Not only did the iPhone, with its touch
screen, become a hot fashion item worldwide, but also the operating system with
paid-for applications invented a new revenue stream for Apple.
When Google's Android took off in 2009, it became clear that handset
manufacturers had lost dominance to the operating systems which generated
revenue from applications sold to users. Nokia's management was aware that a
digital revolution was underway but in a recent book it's former chief executive
Jorma Ollila said the company peaked too soon investing heavily in smart phone
technology before operators were ready to offer services.
Analysts said another lesson is to have the appropriate expertise on the
board. They said that Nokia had suffered from a culture of sycophancy towards
Ollila at the helm for 14 years until 2006. Canadian firm BlackBerry is the latest
example of a market leader fallen by the wayside.
Nokia was already a business case of how to engineer corporate
transformation.
But with core businesses like its smartphone, PCs, TVs and audio operations weaker
than it expected through the first nine months of the fiscal year, Sony slashed its fullyear operating profit forecast to 80 billion yen from the 170 billion yen it previously
expected.
1.
2.
3.
4.
5.
Primary Activities:
After Sales Service: Is the support activities involved post sale of the
product
Support Activities:
All these activities, if done in a systematic manner shall enhance the value to
create an advantage for the firm and increase consumer satisfaction in the form of
improved quality at reasonable price. The chain of activities gives the products more
added value than the sum of added values of all activities. It is the effect of synergy.
It is important not to mix the concept of the value chain with the costs occurring for
the activities. For example, the activity of polishing a wooden chair may involve less
time and less skill but the value added is more significant as the chair without polish
looks raw and may not be attractive.
It is that strength through which a firm can dictate terms of its own in the market.
Competition finds it difficult to imitate this particular advantage in the short run. The
area of core competency/advantage can be a low price, market coverage, product
features, brand and customer base, etc. For example, Toyota cars are known for the
quality and market coverage. Sony products are known for quality.
Features of Competitive Advanatge:
1. It is unique to a particular organization
2. It pertains to any functional area like production, marketing, finance, and
personnel.
3. It cannot be easily imitated by competitors in the short run
4. It should give considerable returns to an organization in the form of new
markets or improved position in the existing market
Achieving Competitive Advantage: An organisation needs best practices to
achieve competitive advantage, which are explained below:
a. Localization of Global Markets: Implementing simultaneous strategies of
localization and globalization in global market returned Panasonic to a profitable
growth path. In 2000, the company suffered its first loss due to Chinese competitors
effectively exporting to the US, Europe and South Asia. In response, Panasonic
shifted from a US-based view to a global view. It set up a center focused both on
local Chinese market needs and on globally available and soon-to-be available
Panasonic products. The center uncovered a need for narrower refrigerators,
allowing fridge sales to increase ten-fold in one year. It also found a need to sterilize
laundry. Panasonic was the first major player to bring this capability to market. As a
result, the front-loaded washer market share in China increased from 3% to 15%.
b. Strategic Alliance or Acquisition: Strategic Alliances are an important source
of capabilities a firm may not otherwise possess. Few firms have all the capabilities
needed to compete effectively in the world of fast-paced change. Consequently,
successful strategic alliances can bring significant competitive advantage.
c. Company Wide Market Orientation: Based on 9 years of data, Kumar et al find
that market orientation has a positive effect on business performance in the short
and the long run. It can take some time for the market orientation to have a positive
(i)
(ii)
(iii)
Adapting to change;
(iv)
(v)
Review Questions:
1. Define value chain analysis and explain the primary activities of Value chain?
2. Do you think secondary activities needs all the attention-Why
3. Developing core competency needs some best practicesWhat are they
4. Explain in detail how an organisation can develop competitive advantage?
INTRODUCTION
The fundamental idea of corporate social responsibility is that business
corporations have an obligation to work for social betterment."
The Classical View
Some observers, ranging from Adam Smith to Milton Friedman, have argued that
social responsibility should not be a part of management's decision making process.
Milton Friedman has maintained that business functions best when it sticks to its
primary mission - producing goods and services within society's legal restrictions. Its
sole responsibility is to attempt to maximize returns. Friedman states his theory
about social responsibilities of business in the following passage from Capitalism
and Freedom:
Peter Drucker argues business have a role in society which is "to supply goods and
services to customers and an economic surplus to society...rather than to supply
jobs to workers and managers, or even dividends to shareholders". The latter he
argues, are means not ends. Drucker contends that it is mismanagement to forget
that a hospital exists for its patients and a university for its students. This classical
view holds that business should not assume any social responsibility; thus, the one
and only obligation of business is to maximize its profits without deception or fraud.
In earlier times,
results of their decisions. Today, it is generally accepted that business firms have
social responsibilities. Moreover, managers feel that in order to respond effectively
and efficiently to the major social issues, corporate social policy must be integrated
into corporate strategy.
"the firm's consideration of, and response to, issues beyond the narrow
economic, technical, and legal requirements of the firm in order to accomplish
social benefits along with the traditional economic gains which the firm
seeks."
Proposition 2: Business shall operate as a two-way open system with open receipt
of inputs from society and open disclosure of its operation to the public.
Proposition 3: Both the social costs and the social benefits of an activity, product, or
service shall be thoroughly calculated and considered in order to decide whether or
not to proceed with it.
Proposition 4: Social costs related to each activity, product, or service shall be
passed on to the consumer.
Proposition 5: Business institutions, as citizens, have the responsibility to become
involved in certain social problems that are outside of their normal areas of
operation.
Managers today feel that once a clear separation between public and private sectors
has broken down; in order to respond effectively and efficiently to the major social
issues and demands of the day, corporate social policy must be integrated into
corporate strategy; at the same time many of these stakeholders feel that much of
the business community has not and is not adequately dealing with many of these
social problems of concern.
Business enterprises are primarily accountable to six major interest groups: These
groups are also known as stakeholders.
A. Shareholders
The primary responsibility of a business is to protect the interests of its shareholders.
They expect the management to use the capital properly and operate the business in
a way that ensures a good return on their investment, both through dividends and
through increase in stock value. Shareholders should be provided with adequate and
timely information about the functioning of the organization.
B. Employees
The traditional economic concept of organizational functioning does not give workers
their proper share in the distribution of income. The owners and managers have too
much power under the economic state of affairs. Thus, it is the management's
responsibility to protect the interest of workers in the organization.
Laws and
C .Customers
The growth of consumerism has made firms more aware of their duties towards
consumers.
Business firms can fulfill their obligations to their customers by:
1. Customers should be charged a fair and reasonable price.
2. The supply of safe goods and services should be of uniform standard and of
reasonable quality.
3. The distribution of goods and services should be widespread so that customers
do not face any problems in procuring them.
4. Unethical practices like profiteering, hoarding, or creating artificial scarcity should
be avoided.
5. Management should not mislead the customers by false, misleading and exaggerated advertisements.
D. Creditors and Suppliers
Creditors and suppliers are responsible for providing inputs for production
process in the form of raw materials and capital. Management is responsible for
fulfilling its obligations to its creditors and suppliers.
This can be done by:
i. Creating a long-term and healthy business relationship with them.
ii. Making prompt payments to creditors and suppliers.
E. Society
Organizations function within a social system and draw their resources from this
system. Therefore, they have certain obligations towards society. The
management of business organizations can fulfill their obligations toward society
by preserving and enhancing the well-being of the members of society.
Management can do so by establishing development programmers for the benefit
of economically weaker sections of society like providing basic amenities,
healthcare and education facilities, thus, creating better living conditions.
F. Government
The government of a country provides the basic facilities required for the survival
and growth of businesses. The government monitors and, to a certain extent,
controls the business systems of the country. Most of the controls imposed by the
government are in the best interests of businesses and society.
To fulfill its obligations to the government, the management of business
organizations should:
i. Be law-abiding.
ii. Pay taxes and other dues fully, timely and honestly.
iii. Not to bribe government servants to obtain favors for the company.
iv. Not try to use political influence in its favor.
Measuring Social Responsibility: To help evaluate how well as company is doing
in the areas of social responsibility, the social audit has been developed as
preliminary guide. Based on the results of this basic evaluation, the company can
see what and where improvements can be implemented. The various categories for
measuring the social responsiveness of organizations are discussed below (these
can vary depending on the industry or company).
1. Proactive Strategy:
2. Accommodative Strategy:
3. Defensive Stratgey:
4. Obstructional Stratgey:
Action Plan:
1. Proactive Strategy: Meets all the creteria of social responsibility
including descretionery performance
2. Accommodative Strategy: Accepts CSR and tries to satisfy
economic, legal and ethical standards
3. Defensive Stratgey: Seeks protection by doing what is minimum
4. Obstructional Stratgey: Avoids CSR; infact opposes the business
role in CSR and reflects mainly economic proirities
Review Questions:
1. The contemporary view is that business, as important and influential members of
society, are responsible to help maintain and improve the society's overall
welfare -Discuss
2. List various points to study under CSR towards, Customers, Employees and
Government?
3. Define CSR? How you can understand that an organisation is socially
responsible?
4. Discuss in detail various strategies of companies towards CSR alongwith the
corresponding action plan?
to staff all
Corporate scandals of various forms have maintained public and political interest in
the regulation of corporate governance. In the U.S., these include Enron Corporation
and MCI Inc. (formerly WorldCom).
rights. They can help shareholders exercise their rights by openly and
effectively communicating information and by encouraging shareholders to
participate in general meetings.
2. Interests of other stakeholders: Organizations should recognize that they
have legal, contractual, social, and market driven obligations to nonshareholder stakeholders, including employees, investors, creditors, suppliers,
local communities, customers, and policy makers.
3. Role and responsibilities of the board: The board needs sufficient relevant
skills and understanding to review and challenge management performance. It
also needs adequate size and appropriate levels of independence and
commitment to fulfill its responsibilities and duties.
4. Integrity and ethical behavior: Integrity should be a fundamental requirement
in choosing corporate officers and board members. Organizations should
develop a code of conduct for their directors and executives that promotes
ethical and responsible decision making
5. Disclosure and transparency: Organizations should clarify and make publicly
known the roles and responsibilities of board and management to provide
stakeholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company's
financial reporting. Disclosure of material matters concerning the organization
should be timely and balanced to ensure that all investors have access to clear,
factual information.
Auditing
Board and management structure and process
Balance of Power-MBO
Structure and Role Dispersion (Middle-Lower Level)
Corporate Social Responsibility and compliance
Financial transparency and information disclosure
Strategic Control makes sure strategies are well implemented and that poor
strategies are scrapped or modified.
The current trend is toward greater emphasis on the responsibilities of corporate
governance.
ever before to boards of directors and other stakeholder interest groups. But just as
a board of directors is expected to exercise strategic control of the enterprise. That is
they are supposed to make sure that strategies are well implemented and that poor
strategies are scrapped or modified to quickly meet performance demands of
changing conditions.
And just when questions are asked if there was strategic control over the previous
years. Was top management in control of these firms in the run-up to the economic
crisis and collapse of markets, or was lack of control in part to blame for their
inabilities to achieve and maintain competitive advantage versus foreign rivals?
Strategic Leadership inspires people to continuously change, refine and improve
strategies and their implementation. The following are additional aspects of strategic
leadership tasks:
Thus,
successful in
Without
import quotas and with substantially reduced tariffs, firms need to compete
with cheaper, and in some cases higher quality, imports in their domestic
markets.
There
is
pressure
on
businesses
therefore
to
improve
Review Questions:
1.
2.