Chapter 1

The Strategic Management Process

Strategic Management
An Integrated Approach

Charles W. L. Hill
Gareth R. Jones
PowerPoint Presentation by Charlie Cook

Fifth Edition
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Social responsibility of business

1. Responsibility to shareholders
To safe guard the capital of the shareholders and to

provide a reasonable dividend, the company has to strengthen and consolidate its position. Hence, it should develop and improve its business and build up its financial independence. To provide dividend, the company should earn sufficient profit. Adequate reserves should be built up so that it will be able to declare a reasonable dividend during a lean period as well.
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By innovation and growth the company should consolidate and improve its position and help strengthen the share prices.

the shareholders are interested not only in the protection of their investments and the return on it but also in image of the company.

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2. Responsibility to the employees

The payment of fair wages; The provision of the best possible working conditions; The establishment of fair work standards and norms; The provision of labour welfare facilities to the extent possible and desirable; Arrangements for proper training and education of the workers;
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Reasonable chances and proper system for accomplishment and promotion; Proper recognition, appreciation and encouragement of special skills and capabilities of the workers; The installation of efficient grievance handling system; An opportunity for participating in managerial decisions to the extent desirable.
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3. Responsibilities to customers
To improve the efficiency of the functioning of the business so as to (a) increase productivity and reduce prices. (b) improve quality and (c) smoothen the distribution system to make goods easily available. To do research and development, to improve quality and introduce better and new products. To take appropriate steps to remove the imperfections in the distribution system, including black-marketing or profiteering by middlemen or anti-social elements. To supply goods at reasonable prices even when there is a sellers market.
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To provide the required after-sales services. To ensure that the product supplied has no adverse effect on the consumer. To provide sufficient information about the products, including their adverse effects, risks, and care to be taken while using the products. To avoid misleading the customers by improper advertisements or otherwise. To provide an opportunity for being heard and to redress genuine grievances. To understand customer needs and to take necessary measures to satisfy these needs.
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4. Responsibility to the community

Taking appropriate steps to prevent environmental pollution and to preserve the ecological balance. Rehabilitating the population displaced by the operation of the business, if any. Assisting in the overall development of the locality. Taking steps to conserve scare resources developing alternatives wherever possible.
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Improving the efficiency of the business operation. Contributing to research and development. Development of backward areas. Promotion of ancillarisation and small scale industries. Making possible contribution to furthering social causes like the promotion of education and population control. Contributing to the national effort to build up a better society

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ARGUMENTS FOR AND AGAINST SOCIAL INVOLVEMENT ARGUMENTS FOR SOCIAL INVOLVEMENT BUSINESS
1.

2.

3.

Business which survives using the resources of the society has a responsibility to the society. Business which is an integral part of the social system has to care for the varied needs of the society. Business which is resourceful has a special responsibility to the society.

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4. Social involvement of business would foster a harmonious

and healthy relationship between the society and business to the mutual benefit of both. 5. Social responsibilities like recycling of waste may have favourable financial effects. 6. Social involvement may create a better public image for the company which may help it in attracting customers, efficient personnel and investors. 7. Social involvement may discourage additional government regulation and intervention.

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Arguments Against Social Involvement of Business

Business should confine its own business. There are government and social Organisation to carry out social activities. Involvement in social activities could adversely affect the economic health of business enterprises. If the cost of social involvement of the business is ultimately passed on to customers, there is no point in exalting the social involvement of business.
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4. Many companies involve themselves in social activities because of the tax exemptions on the income spent on special social purposes. 5. If the social involvement of business enterprises causes an increase in the price of its products, it could affect its competitiveness both in domestic and international markets. 6. Social involvement of business could lead to an increase in the dominance or influence of business over the society.
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Social Audit
Meaning : 1. Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. 2. Social audit enable the public as well as the company to evaluate the social performance of the company.

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Bauer and Fenn defines:

A commitment to systematic assessment of and activities on some meaningful, definable domain of the companys activities that have social impact. According to Ahmed Belkaoui, social audit much like the financial audit - is an identification and examination of activities of the firm in order to assess, evaluate measure and report the impact on the immediate social environment.
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Social audit involves:

1. Identification of the firms activities having potential social impact; 2. Assessment and evaluation of socila costs and social benefits of such activities. 3. Measurement of the social cost and benefits and 4. Reporting that is presenting in a proper format and manner, the social performance of the firm.
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Objectives and Benefits of Social Audit

the basic objective of social audit is to evaluate the social dimensions of the performance of the company. Another principal objective which follows the objective mentioned above is to take measures to improve the social performance of the company on the basis of the feedback provided by the social audit. Social audit increases the public visibility of the organization.
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 If the social audit reveals a socially commendable performance of the company, it will help boost the public image of the company.

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Methods of Social Audit

Social Process Audit

This involves the determination of objectives of social programmes and social cost benefit analysis of the programmes with a view to determining whether these objectives have been met.
under the financial statement format audit, the social information is presented in the conventional financial statement format, i.e. balance sheet and /or income statement.

Financial Statement Format Audit

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Macro Micro Social Indicator Audit

The Macro- Micro social indicator audit attempts to evaluate the micro indicators (I.e., the companys performance) against a set of macro indicators such as national policies.

Constituency group audit

Under this audit the preferences and attitudes of various constituencies (like employees, creditors, suppliers and customers) are identified and measured and the firms performance is evaluated against the citeria developed for each groups.

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Partial social audit

Partial social audit evaluates any particular aspects of social performance of the organization including social performance. Comprehensive audit attempts to evaluate the total performance of the organization including social performance. In contradistinction to the audits mentioned above, this is an external evaluation of the companys performance by public groups like consumer organizations, social welfare organizations or media
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Comprehensive Audit

Corporate Rating Approach

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Overview
Why do some firms succeed while others fail?
A central objective of strategic management is to

learn why this happens.

What is strategy?
An action a company takes to attain superior

performance.

What is the strategic management process?

The process by which managers choose a set of

strategies for the enterprise to pursue its vision.

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Strategic Planning
Rational planning by top management?
Basic Strategic Planning Model
Defining the Mission and Setting Top-Level Goals External Analysis of Opportunities and Threats Internal Analysis of Strengths and Weaknesses Selection of Appropriate Strategies Implementation of Chosen Strategies
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The Main Components of the Strategic Planning Process

FIGURE 1.1
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Mission and Goals

Mission
Sets out why the organization

exists and what it should be doing.

Major goals
Specify what the organization hopes

to fulfill in the medium to long term.

Secondary goals
Are objectives to be attained that lead to superior

performance.
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External Analysis
Identify strategic opportunities and threats in the operating environment.

Immediate (Industry)

Macroenvironment

National

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Internal Analysis
Identify strengths
Quality and quantity of resources available
Distinctive competencies

Identify weaknesses
Inadequate resources
Managerial and

organizational deficiencies

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SWOT and Strategic Choice

Strengths and Weaknesses Opportunities and Threats (SWOT Analysis)

Strategic Choice
Business Functional Global Corporate

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Business-Level Strategies
Cost leadership
Attaining, then using the lowest total cost basis as a

competitive advantage.

Differentiation
Using product features or services to distinguish the

firms offerings from its competitors.

Market niche focus

Concentrating competitively on

a specific market segment.

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Functional-Level Strategies
Focus is on improving the effectiveness of operations within a company.
Manufacturing Marketing

Materials management
Research and development Human resources

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Global-Level Strategies
Multidomestic International Global Transnational

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Corporate-Level Strategies
Vertical integration Diversification Strategic alliances Acquisitions New ventures Business portfolio restructuring

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Strategy Implementation
Designing organizational structure Designing control systems
Market and output controls Bureaucratic controls Control through organizational culture Rewards and incentives
Controls Structure

Matching strategy, structure, and controls

Congruence (fit) among strategy,

structure, and controls

Strategy

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Managing Strategic Change

The only constant is change. Success requires adapting strategy and structure to a changing world. The feedback loop in Corporate strategic planning.
Operational Business

Functional
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Strategic Managers
General managers
Responsible for the overall (strategic) performance

and health of the total organization.

Operations managers
Responsible for specific business

functions or operations.

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Strategic Managers for All Levels

FIGURE 1.2
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Strategic Leadership
Vision, eloquence, and consistency Commitment to the vision Being well informed Willingness to delegate and empower Astute use of power Emotional intelligence

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Strategy as an Emergent Process

Strategy making in an unpredictable world
Creates the necessity for flexible strategic approaches.

Strategy making by lower-level managers

Strategy evolves through autonomous action.

Serendipity and strategy

Accidental discoveries and happenstances can have dramatic

effects on strategic direction.

Intended and emergent strategies

Realized strategies are combinations of intended and

emergent strategies.
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Intended and Emergent Strategies

FIGURE 1.3
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Source: Reprinted from Strategy Formation in an Adhocracy, by Henry Mintzberg and Alexandra McGugh, published in Administrative Science Quarterly, Vol. 30, No. 2, June 1985, by permission of Administrative Science Quarterly.

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Strategic Planning in Practice

Planning under uncertainty
Scenario planning for dynamic environmental change

Ivory tower planning

Lack of contact with operational realities The importance of involving operating managers

Procedural justice in the decision-making process Engagement, explanation, and expectations

Planning for the present: Strategic Intent

Recognition of the static nature of the strategic fit model Strategic intent in focusing the organization on winning by

achieving stretch goals

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Improving Strategic Decision Making

Cognitive biases systematically influence the rationality of decision makers.

FIGURE 1.5
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Groupthink and Strategic Decisions

Pitfalls of groupthink
Failing to question underlying assumptions.
Coalescing around a single person or policy. Filtering out conflicting information.

Developing after-the-fact rationalizations.

Having an emotional (nonobjective)

commitment to an action.

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Techniques for Improving Decision Making

Two decisionmaking processes that counteract cognitive biases and groupthink.

FIGURE 1.6
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