Strategic Management: a set of managerial decisions often provide the sophisticated and innovative

and actions that determines the long-run performance techniques that the planning staff uses to gather
of a corporation. information and forecast future trends.

Includes: Phase 4—Strategic management: Realizing that even the

best strategic plans are worthless without the input and
• Internal and external environment scanning
commitment of lower-level managers, top management
• Strategy formulation forms planning groups of managers and key employees
at many levels, from various departments and
• Strategy implementation workgroups. They develop and integrate a series of
• Evaluation and control strategic plans aimed at achieving the company’s
primary objectives. Strategic plans at this point detail
Phases of Strategic Management: the implementation, evaluation, and control issues.
Phase 1—Basic financial planning: Managers initiate Benefits of Strategic Management:
serious planning when they are requested to propose
the following year’s budget. Projects are proposed on • Clearer sense of strategic vision for the firm
the basis of very little analysis, with most information • Sharper focus on what is strategically important
coming from within the firm. The sales force usually
provides the small amount of environmental • Improved understanding of a rapidly changing
information. Such simplistic operational planning only environment
pretends to be strategic management, yet it is quite
Additional Benefits of Strategic Management:
time consuming. Normal company activities are often
suspended for weeks while managers try to cram ideas • Improved organizational performance
into the proposed budget. The time horizon is usually
• Achieves a match between the organization’s
one year.
environment and its strategy, structure and
Phase 2—Forecast-based planning: As annual budgets processes
become less useful at stimulating longterm planning,
• Important in unstable environments
managers attempt to propose five-year plans. At this
point they consider projects that may take more than • Strategic thinking
one year. In addition to internal information, managers
gather any available environmental data—usually on an • Organizational learning
ad hoc basis—and extrapolate current trends five years Impact of Globalization:
into the future. This phase is also time consuming, often
involving a full month of managerial activity to make Globalization: the integration and internationalization of
sure all the proposed budgets fit together. The process markets and corporations
gets very political as managers compete for larger As more industries become global, strategic
shares of funds. Endless meetings take place to evaluate management is becoming an increasingly important way
proposals and justify assumptions. The time horizon is to keep track of international developments and
usually three to five years. position a company for long-term competitive
Phase 3—Externally oriented (strategic) planning: advantage.
Frustrated with highly political yet ineffectual five-year Impact of Environmental Sustainability:
plans, top management takes control of the planning
process by initiating strategic planning. The company Environmental Sustainability: the use of business
seeks to increase its responsiveness to changing markets practices to reduce a company’s impact on the natural,
and competition by thinking strategically. Planning is physical environment
taken out of the hands of lower-level managers and
concentrated in a planning staff whose task is to
develop strategic plans for the corporation. Consultants
Risks of Climate Change include: strategic choice perspective to include
people at all levels becoming involved in
• Regulatory Risk: Companies in much of the
providing input into strategic decisions
world are already subject to the Kyoto Protocol,
which requires the developed countries (and Strategic flexibility: the ability to shift from one
thus the companies operating within them) to dominant strategy to another and requires:
reduce carbon dioxide and other greenhouse
– Long-term commitment to the
gases by an average of 6% from 1990 levels by
development and nurturing of critical
2012
resources
• Supply Chain Risk: Suppliers will be increasingly
vulnerable to government regulations— leading – Learning organization – an organization
to higher component and energy costs as they skilled at creating, acquiring, and
pass along increasing carbon-related costs to transferring knowledge and at
their customers modifying its behavior to reflect new
Environmental sustainability can be a knowledge and insights.
prerequisite to profitable growth. Those
Main activities of a learning organization include:
automobile companies, for example, that were
quick to introduce hybrid or alternative energy • Solving problems systematically
cars gained a competitive advantage
• Litigation Risk: Companies that generate • Experimenting with new approaches
significant carbon emissions face the threat of • Learning from past experience, history and
lawsuits similar to those in the tobacco, experiences of others
pharmaceutical, and building supplies (e.g.,
asbestos) industries. • Transferring knowledge quickly and easily
• Reputational Risk: A company’s impact on the throughout the organization
environment can heavily affect its overall Basic Elements of Strategic Management
reputation.
• Physical Risk: The direct risk posed by climate 1. Environmental scanning
change includes the physical effects of droughts, 2. Strategy formulation
floods, storms, and rising sea levels.
• Population ecology: established organizations 3. Strategy implementation
are unable to adapt to change. For example, 4. Evaluation and control
proposes that once an organization is
successfully established in a particular
environmental niche, it is unable to adapt to
changing conditions.
• Institution theory: organizations adapt by
imitating successful organizations.
Figure 1–1 illustrates how these four elements interact;
• Strategic choice perspective: organizations
adapt to change and have the ability to reshape
their environment. This perspective is
supported by research indicating that the
decisions of a firm’s management have at least
as great an impact on firm performance as
overall industry factors.
• Organizational learning theory: organizations
adapt defensively and use knowledge to
improve their relationship with the
environment. This perspective expands the
Figure 1–2 expands each of these elements and serves as the model for this o Policies- the broad guidelines for
book. This model is both rational and prescriptive. It is a planning model that
presents what a corporation should do in terms of the strategic management decision making that links the
process, not what any particular firm may actually do. The rational planning formulation of a strategy with its
model predicts that as environmental uncertainty increases, corporations
implementation
that work more diligently to analyze and predict more accurately the
changing situation in which they operate will outperform those that do not.
Facebook’s Corporate Mission Statement
Basic Elements of Strategic Management
• “To give people the power to share and make
• Environmental Scanning is the monitoring, the world more open and connected.” (2017)
evaluating and disseminating of information
• “To give people the power to build community
from the external and internal environments to
and bring the world closer together.” (New
key people within the organization
Mission statement)

– Empowering people

– Enabling community building

– Connecting the world

1. This new mission statement was implemented

in the midst of data privacy and security issues
involving Cambridge Analytica and other
parties.

2. The “empowering people” component of

Facebook’s mission statement signifies the
company’s goal of making its online social
networking service a means to make users more
Figure 1–3 depicts key environmental variables. They may be capable online.
general forces and trends within the natural or societal
3. In addition, the corporate mission shows that
environments or specific factors that operate within an
this capability is in the form of community
organization’s specific task environment—often called its
industry. building.

• Strategy Formulation: the development of long- 4. For example, people can use the social network
range plans for the effective management of to facilitate communication and information
environmental opportunities and threats in light sharing among members of communities.
of organizational strengths and weaknesses 5. Connections are created when users
(SWOT) communicate through the social media website
o Mission- the purpose or reason for the and its corresponding mobile apps. In relation,
organization’s existence the company enables businesses to connect
o Vision- describes what the organization with their customers.
would like to become
o Objectives- the end results of planned Facebook’s Vision Statement
activity • “People use Facebook to stay connected with
o Strategies- form a comprehensive friends and family, to discover what’s going on
master plan that states how the in the world, and to share and express what
corporation will achieve its mission and matters to them.”
objectives
– Corporate – Global market scope
– Business
– Tool for communication
– Functional
 – Tool for discovery o Procedures, sometimes termed
Standard Operating Procedures
– Tool for self-expression
(SOP), are a system of sequential
The “global market scope” component of Facebook’s
corporate vision is based on the company’s specification • Evaluation and control: the process in
of “people” as users, indicating everyone around the which corporate activities and performance
world. results are monitored so that actual
performance can be compared to desired
In addition, the company aims to make its online social performance
network a global tool for self-expression.
o Performance: the end result of
These components of Facebook’s vision statement
organizational activities
require the company to grow internationally to maintain
its leadership position in the multinational social media o Feedback/Learning Process: revise
market. or correct decisions based on
performance

Initiation of Strategy: Triggering Events

Triggering event: something that acts as a stimulus

for a change in strategy and can include:

• New CEO: By asking a series of

embarrassing questions, a new CEO cuts
through the veil of complacency and forces
people to question the very reason for the
corporation’s existence.
• External intervention: A firm’s bank
suddenly refuses to approve a new loan or
A hierarchy of strategy is a grouping of strategy types by level in the suddenly demands payment in full on an old
organization. Hierarchy of strategy is a nesting of one strategy within one. A key customer complains about a
another so that they complement and support one another. (See serious product defect.
Figure 1–4.)
• Threat of a change in ownership: Another
• Strategy implementation: the process by firm may initiate a takeover by buying a
which strategies and policies are put into company’s common stock.
action through the development of: • Performance gap: A performance gap exists
o A program is a statement of the when performance does not meet
activities or steps needed to expectations. Sales and profits either are no
accomplish a single-use plan. It longer increasing or may even be falling.
makes a strategy action oriented. It • Strategic inflection point: Coined by Andy
may involve restructuring the Grove, past-CEO of Intel Corporation, a
corporation, changing the strategic inflection point is what happens to
company’s internal culture, or a business when a major change takes place
beginning a new research effort. due to the introduction of new
o A budget is a statement of a technologies, a different regulatory
corporation’s programs in terms of environment, a change in customers’ values,
dollars. Used in planning and or a change in what customers prefer
control, a budget lists the detailed
Strategic Decision Making
cost of each program.
What Makes a Strategic Decision?
 Strategic decision making focuses on the long-run 1. Evaluate current performance results in terms
future of the organization of (a) return on investment, profitability, and so
forth, and (b) the current mission, objectives,
Characteristics of strategic decision making include:
strategies, and policies
• Rare: Strategic decisions are unusual and 2. Review corporate governance—that is, the
typically have no precedent to follow performance of the firm’s board of directors and
• Consequential: Strategic decisions commit top management.
substantial resources and demand a great 3. Scan and assess the external environment to
deal of commitment from people at all determine the strategic factors that pose
levels. Opportunities and Threats.
• Directive: Strategic decisions set precedents 4. Scan and assess the internal corporate
for lesser decisions and future actions environment to determine the strategic factors
throughout an organization. that are Strengths (especially core
competencies) and Weaknesses.
Mintzberg’s Modes of Strategic Decision Making 5. Analyze strategic (SWOT) factors to (a) pinpoint
• Entrepreneurial mode: Strategy is made by one problem areas and (b) review and revise the
powerful individual. The focus is on corporate mission and objectives, as necessary.
opportunities; problems are secondary. Strategy 6. Generate, evaluate, and select the best
is guided by the founder’s own vision of alternative strategy in light of the analysis
direction and is exemplified by large, bold conducted in step 5
decisions. 7. Implement selected strategies via programs,
budgets, and procedures.
• Adaptive mode: Sometimes referred to as
8. Evaluate implemented strategies via feedback
“muddling through,” this decision-making mode
systems, and the control of activities to ensure
is characterized by reactive solutions to existing
their minimum deviation from plans.
problems, rather than a proactive search for
new opportunities.
• Planning mode: This decision-making mode
involves the systematic gathering of appropriate
information for situation analysis, the
generation of feasible alternative strategies, and
the rational selection of the most appropriate
strategy. It includes both the proactive search
for new opportunities and the reactive solution
of existing problems.
A fourth decision-making mode can be viewed
as a synthesis of the planning, adaptive, and, to
a lesser extent, the entrepreneurial modes.
•
• Planning mode: This decision-making mode
involves the systematic gathering of appropriate
information for situation analysis, the
generation of feasible alternative strategies, and
the rational selection of the most appropriate
strategy. It includes both the proactive search
for new opportunities and the reactive solution
of existing problems.

Strategic Decision Making Process:

Strategic audit provides a checklist of questions, by • Assures that the corporation is managed in
area or issue, that enables a systematic analysis to accordance with state laws, security regulations
be made of various corporate functions and and conflict of interest situations
activities
Role of the Board in Strategic Management
Corporate Governance
• Monitor developments inside and outside the
Corporation: a mechanism established to allow corporation
different parties to contribute capital, expertise and
• Evaluate and Influence management proposals,
labor for their mutual benefit
decisions and actions
Corporation is governed by the board of directors
• Initiate and Determine the corporation’s mission
that oversees top management with the
and strategies
concurrence of the shareholders.

Corporate governance: the relationship among the

board of directors, top management and
shareholders in determining the direction and
performance of the corporation

Due care: Board of directors are responsible that the

corporation is not harmed by members of the
board. Directors can be held liable

Responsibilities of the Board of Directors

• Sets corporate strategy, overall direction,

mission, or vision

• Hires and fires the CEO and top management Members of a Board of Directors

• Controls, monitors, or supervises top Inside Directors are officers or executives employed
management by the board’s corporation

• Reviews and approves the use of resources Outside Directors are executives of other firms but
are not employees of the board’s corporation
• Cares for shareholders’ interests
Agency theory problems arise in corporations Nomination and Election of Board Members
because top management is not willing to accept
Traditional Approach
responsibility for their decisions unless they own a
substantial amount of stock in the corporation • CEO invitation to membership
• Agency Problem – • Shareholders approval in annual proxy
statement
– Objectives of owners & agents in
conflict • All nominees usually elected
– Difficult for owners to verify agent 97% of U.S. boards use nominating committees to
performance identify potential board members
• Risk Sharing Problem – Staggered boards- only a portion of board members
stand for re-election when directors serve more than
– Owners & agents risk assessment in
one year terms
conflict
Nomination and Election of Board Members
• Managers may take less risky
decisions to protect their jobs Criteria for a good director include:
Stewardship theory as the result of long tenure with – Willingness to challenge management
the corporation, insiders (top management) tend to when necessary
identify with the corporation and its success. Act in
the best interest of the corporation more than self- – Special expertise that is important to
interest the company

Members of a Board of Directors – Available for outside meetings to advise

management
Affiliated directors- not employed by the
corporation, handle legal or insurance work – Expertise on global issues

Retired executive directors- used to work for the – Understands the firm’s key technologies
corporation, partly responsible for past decisions and processes
affecting current strategy – Brings external contacts that are
Family directors- descendents of the founder and potentially valuable to the firm
own significant blocks of stock – Has detailed knowledge of the firm’s
Interlocking Directorates- useful for gaining both industry
inside information about an uncertain environment – Has high visibility in their field
and objective expertise about potential strategies
and tactics – Is accomplished at representing the firm
to stakeholders
Direct interlocking directorate- when two firms
share a director or when an executive of one firm Approximately 70% of the top executives of U.S. publicly
sits on the board of a second held companies hold the dual designation of Chairman
and CEO
Indirect interlocking directorate- when two
corporations have directors who serve on the board Lead Director- is consulted by the Chair/CEO regarding
of a third firm board affairs and coordinates the annual evaluation of
the CEO
• Codetermination
• 96% of U.S. companies that combine the
– The inclusion of a corporation’s Chairman and CEO positions had a lead director
employees on its board of directors
Impact of the Sarbanes-Oxley Act on U.S. Corporate Responsibilities of Top Management
Governance
• Executive leadership is the directing of activities
Sarbanes Oxley Act 2002- designed to protect toward the accomplishment of corporate
shareholders from excesses and failed oversight of objectives. Sets the tone for the entire
boards of directors corporation

– Whistleblower procedures • Strategic vision- description of what the

company is capable of becoming
– Improved corporate governance
• Transformational Leaders provide change and
Impact of the Sarbanes-Oxley Act on U.S. Corporate
movement in an organization by providing a
Governance
vision for that change.
• Evaluating Governance
Characteristics include:
– Rating agencies such as S&P (Standard
• CEO articulates a strategic vision for the
and Poor) Corporate Governance
corporation
Scoring System influence credit rating of
a company • CEO presents a role for others to
identify with and to follow
• Avoiding Governance Improvements
• CEO communicates high performance
– Multiple classes of stock to reduce
standards and also show confidence in
voting power of ousiders.
the followers’ abilities to meet these
– Public to private ownership standards

– Controlled companies in which a party Managing the Strategic Planning Process

controles more than 50% of the shares.
Strategic planning staff- supports both top management
Trends in Corporate Governance and the business units in the strategic planning process

• Boards shaping company strategy Major responsibilities include:

• Institutional investors active on boards • Identifying and analyzing company-wide

strategic issues, and suggesting corporate
• Shareholder demands that directors and top strategic alternatives to top management
management own significant stock
• Work as facilitators with business units to guide
• More involvement of non-affiliated outside them through the strategic planning process
directors
Social Responsibilities of Strategic Decision Makers
• Increased representation of women and
minorities  Social Responsibility

• Boards evaluating individual directors  proposes that a private corporation has

responsibilities to society that extend
• Smaller boards beyond making a profit
• Splitting the Chairman and CEO positions Friedman’s Traditional View of Business Responsibility
• Shareholders may begin to nominate board  Argues against the concept of social
members responsibility
• Society expects boards to balance profitability  Primary goal of business is profit maximization
with social needs of society not spending shareholder money for the general
social interest
 Urging a return to a laissez-faire worldwide  the goodwill of key stakeholders, that
economy with minimal government regulation, can be used for competitive advantage
Milton Friedman argues against the concept of
 opens doors in local communities
social responsibility as a function of business.
Friedman thus referred to the social responsibility of  Being known as a socially responsible
business as a “fundamentally subversive doctrine” firm may provide a company with social
and stated that: capital, the goodwill of key
stakeholders, that can be used for
There is one and only one social responsibility
competitive advantage.
of business—to use its resources and engage in
activities designed to increase its profits so long  A survey of more than 700 global
as it stays within the rules of the game, which is companies by The Conference Board
to say, engages in open and free competition reported that 60% of the managers
without deception or fraud. state that citizenship activities had led
to (1) goodwill that opened doors in
local communities and (2) an enhanced
Carroll’s Four Responsibilities of Business reputation with consumers.

1. Economic responsibilities Benefits of Being Socially Responsible

 produce goods and services of value to  May enable firm to charge premium prices and
society so that the firm may repay its gain brand loyalty
creditors and increase the wealth of its
 May help generate enduring relationships with
shareholders
suppliers and distributors
2. Legal responsibilities
 Can attract outstanding employees
 defined by governments in laws that
 Can utilize the goodwill of public officials for
management is expected to obey
support in difficult times
3. Ethical responsibilities
Other examples of benefits received from being
 follow the generally held beliefs about socially responsible are:
behavior in a society
 Their environmental concerns may enable them
4. Discretionary responsibilities to charge premium prices and gain brand loyalty
(for example, Stoneyfield Yogurt, Whole Foods,
 purely voluntary obligations a
and Ben & Jerry’s Ice Cream).
corporation assumes
 Their trustworthiness may help them generate
Responsibilities of Business
enduring relationships with suppliers and
distributors without requiring them to spend a
lot of time and money policing contracts.

 They can attract outstanding employees who

prefer working for a responsible firm (for
example, Procter & Gamble and Starbucks).

 They are more likely to be welcomed into a

As shown in Figure 3–1, Archie Carroll proposed that the managers of
business organizations have four responsibilities: economic, legal, ethical, and foreign country (for example, Levi Strauss).
discretionary.
 They can utilize the goodwill of public officials
Responsibilities of a Business Firm for support in difficult times.
 Social capital
Characteristics of Sustainability  The first step in stakeholder analysis is to
identify primary stakeholders.

 Primary stakeholders
Environmental
 have a direct connection with the
corporation and who have sufficient
bargaining power to directly affect
corporate activities
Social Economic
 include customers, employees,
suppliers, shareholders and creditors

 The second step in stakeholder analysis is to

As pointed out in Chapter 1, sustainability includes identify the secondary stakeholders.
much more than just ecological concerns and the
natural environment. Crane and Matten point out that  Secondary stakeholders
the concept of sustainability should be broadened to  have an indirect stake in the corporation
include economic and social as well as environmental but are also affected by corporate
concerns. activities
Corporate Stakeholders  include NGOs, activists, local
 Stakeholders communities, trade associations,
competitors and governments
 have an interest in the business and
affect or are affected by the  The third step in stakeholder analysis is to
achievement of the firm’s objectives estimate the effect on each stakeholder group
from any particular strategic decision.
 Enterprise strategy
Stakeholder Input
 an overarching strategy that explicitly
articulates the firm’s ethical relationship  Once stakeholder impacts have been identified,
with its stakeholders managers should decide whether stakeholder
input should be invited into the discussion of
A corporation’s task environment includes a large the strategic alternatives.
number of groups with interest in a business
organization’s activities. These groups are referred to as  A group is more likely to accept or even help
stakeholders because they affect or are affected by the implement a decision if it has some input into
achievement of the firm’s objectives. Which group’s which alternative is chosen and how it is to be
interests should have priority? implemented.

In order to answer this question, the corporation may Reasons for Unethical Behavior
need to craft an enterprise strategy—an overarching  Unaware that behavior is questionable
strategy that explicitly articulates the firm’s ethical
relationship with its stakeholders.  Lack of standards of conduct

Stakeholder Analysis  Different cultural norms and values

 Stakeholder analysis  Behavior-based or relationship-based

governance systems
 the identification and evaluation of
corporate stakeholders  Different values between business people and
stakeholders
 usually done in a three-step process
Moral Relativism Encouraging Ethical Behavior

 Moral relativism  Code of Ethics

 claims that morality is relative to some  specifies how an organization expects

personal, social or cultural standard and its employees to behave while on the
that there is no method for deciding job
whether one decision is better than
A code of ethics:
another.
1. clarifies company expectations of employee
At one time or another, most managers have probably
conduct in various situations
used one of the four types of moral relativism—naïve,
role, social group or cultural—to justify questionable 2. makes clear that the company expects its
behavior. people to recognize the ethical dimensions in
decisions and action
 Naïve relativism
 Whistleblowers
 based on the belief that all moral
decisions are deeply personal and that  employees who report illegal or
individuals have the right to run their unethical behavior on the part of others
own lives
 U.S. corporations have attempted to
 Role relativism support whistleblowers
 based on the belief that social roles Guidelines for Ethical Behavior
carry with them certain obligations to
that role  Ethics

 Social group relativism  the consensually accepted standards of

behavior for an occupation, trade or
 based on a belief that morality is simply profession
a matter of following the norms of an
individual’s peer group  Morality

 Cultural relativism  one’s rules of personal behavior based

on religious or philosophical grounds
 based on the belief that morality is
relative to a particular culture, society  Law
or community  the formal codes that permit or forbid
Kohlberg’s Levels of Moral Development certain behaviors and may or may not
enforce ethics or morality
Kohlberg proposes that a person progresses through
three levels of moral development.  Utilitarian approach

 Preconventional level  proposes that actions and plans should

be judged by their consequences
 concern for one’s self
 Individual rights approach
 Conventional level
 proposes that human beings have
 considerations for society’s laws and certain fundamental rights that should
norms be respected in all decisions
 Principled level  Justice approach
 guided by an internal code of ethics
  decisions must be equitable, fair and
impartial in the distribution of costs and
benefits to individuals or groups

Cavanagh’s questions to solve ethical problems:

1. Utility: Does it optimize the satisfactions of the

stakeholders?

2. Rights: Does it respect the rights of the

individuals involved

3. Justice: Is it consistent with the canons of

justice?

Kant presents two principles (called categorical

imperatives) to guide our actions:

1. A person’s action is ethical only if that person is

willing for that same action to be taken by
everyone who is in a similar situation.
2. A person should never treat another human
being simply as a means but always as an end.