Strategic Planing and Social Responsbility Learning Outcomes 51. Explain the meaning and nature of Strategic Planning 52 Describe the process of Strategic Planning 53 Analyse the dimensions of External Environment SA Highlight the relationship between Strategic Planning and Corporate Social Responsibility "65 Understand the concept of Social Responsiveness ow AND NATURE OF STRATEGIC PLANNING The term ‘strategy’ has been adapted from war and is used in business to reflect the broad overall objectives and policies of an enterprise. It refers to firm’s overall plan for dealing with and existing in its environment. It most often denotes a general programme of action and deployment of emphasis and resources to attain comprehensive objectives. A strategy is made in the light of the plans of the competitors because a modern business operates in a competitive environment. For instance, a company may follow a strategy of charging lower Prices or using more salesforce than competitors or advertising more heavily than competitors. An organisation’s strategy is the match between the organisation's resources and skills and the environmental opportunities and risks it faces. It reflects, in other words, the course of action through which the organisation plans to adapt to the threats and opportunities in its environment and thereby maintain its effectiveness. According to Glueck and Jauch, “A strategy is a unified, comprehensive and integrated plan designed to ensure that the basic objectives of the enterprise are achieved.” A strategy is not just any plan. It is a plan that is unified; it ties all the parts of the enterprise together. A strategy is integrated in the sense thatall parts of the plan are compatible with each other and fit together well. What is Strategic Planning ? According to Glueck and Snyder, “Strategic planning is a set of interactive 51 Scanned with CamScannera — 52 Corporate Governance, Ethics & Social Responsibility of Business and overlapping decisions leading to the development of an effective strategy fora firm.” In the words of Robert Anthony, “Strategic planning is the process of deciding on the objectives of the organisation, on changes in these objectives, on the resources used to attain these objectives and on the policies that will govern the acquisition, use and disposition of these resources.” Strategic planning enables the management to conceptualise the purpose of the organisation taking into account the strengths and weaknesses of the organisation in the light of the external and internal environment. Stfategic planning as a management tool encompasses all aspects of the organisation’s future and it enables management to plan for a desired future and to ensure survival and growth. Itenables the management to assess objectively its internal strengths and weaknesses, identify the opportunities and threats in the environment, define goals for the future and chalk our various alternatives to teach the goal. Features of Strategic Planning (@ It emphasises the basic mission and goals of the organisation. The nature of business and the nature of customers or clients are clearly stated. (ii) It is a top management activity. It determines the basic policies and programmes of the organisation. It provides a framework for operational planning and day-to-day decision-making. (ii) Itisnormally long-term in nature. The time frame is longer than other types of planning. (iv) It provides for coherence in organisation's policies, decisions and activities over time. (2) It deals with uncertain environment by forecasting opportunities and threats in the environment. It is designed to improve the organisation’ s relations with its environment. (vi) It is a comprehensive and unified plan for the deployment of scarce . organisational resources. (vii) It sets the direction of organisational activities for the attainment of organisational objectives. Other plans lay down how this ‘direction’ is to be put into action. Significance of Strategy and Strategic Planning Strategy formulation has become an important function of modern organisations because of the following reasons : meet the challenges of environment in future. An effective strategy 1, Every business should have a strategy or an overall plan of action to Scanned with CamScannerStratogic Plaing and Social Responsibility 5.3 would enhance the likelihood of business survival and enable to meet aspirations of individuals for opportunities in the company. 2. Strategic planning clarifies the objectives of the organisation towards which its resources will be directed. All decisions and activities are guided by organisational objectives. 3. Strategy facilitates the implementation of policy and long-range plans forachieving organisational goals. It is also important in defining the kind of business in which the organisation engages and its reliance on ethical business practices. 4. The companies that do strategic planning are able to predict the outcome of planning better than other companies. 5. Strategic planning is very useful to fight competition in the market and to have control over the market. 6. Strategic planning facilitates environment scanning. It helps in reducing environmental uncertainty by identifying key factors for the success of the business. Strategic planning is the only way to anticipate future problems and opportunities and to respond to changing environment. 5.2 THE PROCESS OF STRATEGIC PLANNING Strategic planning involves not only the statement of organisational goals, but also specifying the ways of accomplishing them. As show in Fig. 5.1, the broad steps in strategic planning are described below : 1. Determination of Mission or Purpose. The strategic planning process begins with spelling out the business mission or tentative purpose that might be pursued in future. An organisation’s mission is its raison d'etre or reason for its existence. It represents a long-term vision of what the organisation seeks to doand the reasons why it exists. It serves as a source of inspiration from which flows the life of the organisation. A clear statement of organisation's mission would help to identify the functions it performs for the society and also its basic character and philosophy. Mission is often stated in abstract terms such as : “Our business is service”; “To provide dependable, standard drugs to the public at low prices”; "To serve the nation through research and development and effective utilisation of human, physical and technological resources”; and so on. To achieve the mission of the organisation, the top management determines the major objectives and goals for whose service the organisational resources will be utilised. The terms ‘objectives’ and ‘goals’ have been often used interchangeably in the management literature. However, Russel Ackoff has made a distinction between the two terms as follows : ‘Objectives are desired states or outcomes. Goals are objectives that are scheduled for attainment during the plan period’. Thus, objectives are open- Hissin Scanned with CamScanner54 Corporate Governance, Ethics & Social Responsibility of Business ended and have no time frame. For example, the survival objective of a firm is never completely attained since failure is always a future possibility. Objectives are stated in broad and general terms whereas goals are much more specific and stated in terms of results to be attained. For instance, the goal of a firm may be expressed as 100 per cent growth in net sales in the next three years. Environmental Scanning : Opportunities and Threats Organisational Analysis Strengths and Weaknesses Developing Strategic Altermatives Evaluation of Strategic Alternatives Fig. 5.1. The Process of Strategic Planning 2. Environmental Scanning. Environmental analysis is the diagnostic phase of strategic planning. External environment of a firm consists of economic, social, technological, market and other forces which affect its functioning. The firm’s external environment is dynamic and uncertain. The management must ‘systematically monitor it to determine threats and opportunities for the firm ___ in future. For example, emergence of strong competition in the market may _ pose a threat and development of new technology may help to reduce cost d prodi ent provides the setting for the functioning of the It is imperative for the management to gain a good tion. The management should try to find g questions : the economic, social and political trends to be considered ? tary policy, social changes, anti-pollution or energy ‘Scanned with CamScannerStratogic Plaing and Social Responsibility 5.5 (6) What are the trends in the market for company’s products and services ? For instance, demand is likely to remain static, decrease or increase. (©) What technological changes are anticipated ? New products with additional uses may become popular. (@ Whatcompetition will be faced ? The competitors should be identified and their strengths and weaknesses analysed. Anappraisal of external environment will enablea business identify present and future opportunities, threats, constraints and crises which it can exploit or may have to tackle, as the case may be. The forecasts made of the relevant aspects of the external environment will provide the background for internal forecasting of sales and profit trends. 3. Organisational Analysis. In order to analyse organisational strengths and weaknesses, it is essential to know the current domain of the firm. It includes : @ the range of products or services provided by the firm. (@) geographic coverage of the firm — local, national or international. ii) firm's differential advantage, i.c., the special competitive strength the firm stresses such as fuel efficiency of its car over the cars of the competitors. Organisational analysis involves a review of financial position, productive Capacity, marketing effectiveness, the extent of research and development, the utilisation of labour force and so on. The planner should analyse the organisation's operational, financial and managerial strengths. Operationally, does the firm have any competitive edge over rival firms ? Financially, does the firm have adequate funds to finance the strategic plans ? ae en does the firm has managerial talents to carry out the strategic plans 4. Developing Strategic Alternatives. Strategic alternatives may be (and analysed i in the light of organisation's strengths and weaknesses and the opportunities and threats it faces. This involves SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis described earlier. After the identification on the environmental opportunities and threats and the organisational strengths and weaknesses (and the reformulation of the objectives, if need be), the next tasks in the strategic planning process are the consideration of the strategic alternatives and the choice of the most appropriate strategy /strategies. A company may be confronted with several alternatives such as : (@ Should the company continue in the same business or get out of it fully or partially ? Hite Scanned with CamScanner56 Corporate Governance, Ethics & Social Responsibility of Business (ii) If it should continue in the same business, should it grow by expanding the existing units or by establishing new units or by acquiring other units in the industry ? (iii) Ifitshould diversify, should it diversify into related areas or unrelated areas ? If a TV manufacturing company takes up the production of VCPs, VCRs, washing machines, refrigerators, vacuum cleaners, etc, it is a case of diversification into related areas. If the same company diversifies into areas like textiles, cement, sugar, etc., it is a case of growth in unrelated areas. (2) Should it grow by vertical integration ? ¢.g., take over of a raw material supplier by a leather goods manufacturer. (2) Should it go in for combination with its competitors ? e.g., merger of two or more companies engaged in the production and distribution of soft drinks. 5. Evaluation of Strategic Alternatives. Each strategic alternative has its own merits and demerits which need to be analysed carefully. The management should examine various alternatives in the light of forecasted opportunities and constraints and also its strengths and weaknesses. For the choice of best alternative, the management can also use quantitative tools of analysis such as PERT, CPM, ratio analysis, linear programming, etc. In evaluating alternatives, it is also important to focus on a particular product or service and on those competitors who are direct rivals in offering it. A strategy that does not exploit a particular advantage of the organisation over its rivals should be rejected. 6. Choice or Formulation of Strategy. The last state in strategic planning is the choice of an appropriate strategy for the attainment of specified objectives. The management should select that strategic alternative which is best suited to the organisation's capabilities. In other words, it must utilise the existing strengths of the organisation to the maximum extent. New capabilities can also be acquired. But a strategic plan fully relying on the resources or skills yet to be acquired may fail in actual practice. Some other factors which influence the choice of a strategic alternative include : degree of risk acceptable to the management, timing of the decision, expectations of owners of business and attitude of top managers. After the strategy has been finalised, it must be incorporated into the operations of the organisation. It must be translated into appropriate operational and tactical plans, programmes, budgets, etc., so that it could be implemented. After the strategy has been put into practice, its effectiveness should be reviewed to know if it has been able to achieve the intended results. SWOT Analysis __ The SWOT approach is a distillation of the steps and considerations that should be taken to formulate an effective corporate strategic plan. The term SWOT is the acronym for strengths, weaknesses, opportunities and threats Scanned with CamScannerStratogic Plaing and Social Responsibility 57 which are discussed below. Strength, and weaknesses are related to the internal Sreiine of the organisation whereas opportunities and threats exist in the external environment. (i) Strengths. These denote all the good or advantageous aspects of the firm. Examplesare exceptional customer goodwill and brand loyalty, adequate financial resources, dynamic managers, enthusiastic sales force, etc. (ii) Weaknesses. Weaknesses represent retarding influences on the success of the organisation. These must be thoroughly and honestly probed. Examples are obsolescence of machinery, lack of arrangement for management succession at the higher level, inadequate research and development activities, etc. Remedies must be sought to remove them. Git) Opportunities. Opportunities may come about fortuitously or by » undertaking some research. It may be noted that opportunities are usually external whereas strengths and weaknesses emanate chiefly frominside the organisation. The opportunities should be recognised and grasped firmly when they arise. For example, there may be a ___ new market (ornew customers) which must be tapped by supplying sity abut 1e required products and services. Or there may be an opportunity gadis me Over a competitor which must be made use of. Pitt Zivix: 5 Extipir 5.1. Swot Anatysis + Expanding markets « International customers * Government orders * Increased competition * Availability of cheaper materials i Like op, ities, threats are most often from outside. deitadbited ionic gbonasinns on the organisation may be mainly due — toweak er-de tal conflicts, lack of financial rath -and so on. Some examples of threats are changing se eR transnationals, and economic and __ Political uncertainty. Inaddition, there may be some internal threats hi ‘Management complacency and inadequate financial 0 cency results from the assumption that things will sand so that management does not plan to change. inancial resources may not be opr aca pag and lack of goodwill Scanned with CamScanner5.8 Corporate Governance, Ethics & Social Responsibility of Business 5.3 DIMENSIONS OF EXTERNAL ENVIRONMENT Environment may broadly be classified into (i) Economic and (ii) Non- economic. Economic environment comprises fiscal policy, monetary policy, industrial policy, price-income policy, economic system (free enterprise, socialist, communist, etc.), structure and quality of economic development, international economic relations and business and economic plans. Non- economic environment comprises social, political, legal, cultural and educational factors affecting business operations. Both act and interact with one another. In other words, economic environment has non-economic implications and non-economic environment has economic implications. Economic Environment The broad national economic environment is set by the nature of economic system embodying the nature of property rights, ownership of means of production, production relations, role of planning, functioning of price mechanism, etc. Judged from these angles, the economic system of a country may be characterised as capitalist (free enterprise), socialist, communist, or mixed. The structural anatomy comprises the structure of nationai output, the occupational distribution of labour force employed, the capital formation, the trade composition, etc. These factors highlight the structural equilibrium (balance) or disequilibrium (imbalance) between different sectors like agriculture, industry, services, etc. The national economy functions through the interaction of different sectors. The business sector enters into transactions with all other sectors; these transactions define the economic environment of business. The economic environment of a firm also includes all markets in which it buys and sells, raises funds, gets labour, etc. The business is invariably influenced by the conditions of various markets. For instance, if there is uncertainty in the capital market, it will not be advisable to issue shares and debentures to the public because of risk of under-subscription. Social Environment It provides the system of values for the society which in turn affects the functioning of the business. Sociological factors include : caste structure, mobility of labour, customs and conventions, cultural heritage, view towards scientific methods, respect for seniority, etc. All these have a bearing on business. For instance, the nature of goods and services in demand depends upon people's attitudes, customs, socio-cultural values, etc. In India, the attitudes of people have changed with respect to food and clothing as a result of industrialisation, employment of women in factories and offices and increased level of education. This has resulted in the growth of food processing and garment manufacturing units. ‘Scanned with CamScannerStratogic Plaing and Social Responsibility 59 Social environment determines the code of conduct the business should follow. If a business follows unethical practices, various social groups and Government will intervene to discipline it. For instance, if an industrial unit is not paying fair wages to workers, trade unions and Government will intervene. If it is indulging in adulteration, hoarding or black marketing, there are consumer forums and several government agencies to take action against it. Politico-Legal Environment It provides the legal framework within which the business is to function. The viability of business depends upon the ability with which it can meet the challenges arising out of the politico-legal environment. The politico-legal environment of a country is influenced by political organisations, political stability. Government's intervention in business, constitutional provisions affecting business, foreign policy, etc. All these factors have a bearing on business. For instance, bottling and sale of Coca Cola was discontinued in India in the late seventies because of the government policy of restricting the growth of multinational companies in the country. In 1989, the Government allowed another multinational company, Pepsi to enter the Indian market to give boost to the food processing industry. Again in 1991, the Government tevised its Industrial Policy which liberalised licensing, imports and exports and inflow of foreign capital and technology into the country. This has created new challenges and opportunities for the Indian business. ity of the Government is also an important factor from the point of view of growth of business. Businessmen prefer to start new units in those “states where there is political stability and where rule of law prevails. Legal environment determined by various laws and court decisions also put pressure on the business and managers. For instance, in 1992, several tanneries in Kanpur were ordered to be closed down by the Supreme Court as they were polluting the Holy Ganges. In August 1993, the Supreme Court passed an order for the closure of iron founderies around the famous Taj Mahal because air pollution caused by them had an adverse impact on the beauty of the Taj Mahal. Technological Environment In any country, the state of technology plays an important role in determining the type and quality of goods and services to be produced and the type of plant and equipment to be used. In the modern world, the pace of technological changes is very fast. Technological environment influences organisations in terms of investment in technology, consistent application of technology and the effects of technology on markets. Therefore, every big organisation has to be actively engaged in technological forecasting. Advancements in automation and information technology will create challenging situations for the organisations in the future. fi Scanned with CamScanner5.10 Corporate Governance, Ethics & Social Responsibility of Business Exnerr 5.2, Evements of External Environment p Political stability. Government's ideology. Economic Environment 1. Nature of economy. oS 2. Economic policies of the 4, Government's intervention in government business. 3. Nature of Market. 5. Trade unions and other 4. Types of Business firms. Sree SONS. 5. Per Capita Income. 6. Constitutional provisions. Social Enviroriment: 7. Legal framework. 1, Attitudes of people. Saeeetidecisions: * 2. Cul al heritage. Technological Environment ‘ 1, State of technological ren ta ss development. 4. Caste and occupational structure, 2. Pace of change e technology. Re ae aloe rica cna 3. Sources of technology. Politico-legal Environment 4. Cost of technology transfer. litical as 5. State of Research and ade Meal oreanisations, development. 5.4 Strategic Planning and CSR It is now a hard fact that the society expects the managements of all corporations to take such decisions which are not harmful to the society, but contribute to the well being of the society. This fact must get due consideration at various stages of strategic planning. The top management while deciding the objectives, goals and policies of the company must also be conscious of the needs and aspirations of various stakeholders including shareholders, employees, customers, suppliers, government, community and society at large. This would help the management to draw meaningful programmes of social responsibility while implementing the stragetic plans. tg lal practice, a corporation may face tremendous problem in ponsibility in view of varying expectations and as well as diverse economic, competitive, political the corporation operates, To overcome such plans. In order to fulfil its social e the following steps : Social Impact. The top management Scanned with CamScannerStratogic Plaing and Social Responsibility 5.11 should make critical evaluation of the beneficial and harmful effects of its operations on the local community where it has its unit or is planning to set up. Such assessment should be done with reference to expenditure incurred including labour costs, local purchases, taxes, other costs of doing business, technology transfer, manpower, provision of social infrastructure, development of and aid to local suppliers and industry, impact on government revenues and community life, effect on industry, and use of natural resources. It may be difficult to make the evaluation on an objective basis in view of paucity of information. However, it would be pertinent to indicate standards against which performance can be appraised, ¢.g., usage rates at similar firms in the country. 2. Assessment of Social Environment. A firm should scan the social environment existing within the outside the country. In this scanning attempt should be made to determine corporate social activities not required or Suggested by government and which are not directly linked to enhancing the efficient operations of the firm, e.g., increasing the health and nutrition practices of employees families, maintaining roads and setting up schools and subsidising teachers’ salaries in local schools, etc. Surveys of the values, and preferences of policy makers and stakeholders including government, politicians, workers, indigenous managers, union officials suppliers, customers, community leaders, business leaders, media people, academics, etc., should be undertaken in order to determine precisely their attitudes toward the firm. 3. Formulating Objectives and Goals. Every firm should set social objectives for the corporate group as a whole as wellas for its subsidiaries. The focus of these objectives should be on fostering public welfare activities and resolution of local problems including pollution, unemployment, poverty, illiteracy, etc. The following guidelines should be kept in view while formulating a strategy : @ The firm should avoid conflict by withdrawing particularly when its stakes and power are relatively low and when interest interdependence and relations are relatively negative. (ii) The firm may accommodate by yielding to the negotiating rival’s when issues involved are of more importance to others than tothe firm itself. This strategy will be useful when stakes and power are relatively low but interest interdependence and relation are relatively positive. (iii) The firm may seek collaboration in reaching positive solution particularly when its stakes and power are relatively positive. 4, Developing Operational Plans and Social Programmes. In order to implement the strategy the operational plans and programmes have to be chalked out. This also requires identification of critical areas in which social activities will have to be performed and develop need based programmes for implementation. Scanned with CamScanner5.12 Corporate Governance, Ethics & Social Responsibility of Business 5. Monitoring Social Programmes. For the effective discharge of social responsibility, the top management continuously monitor various operations of the business to avoid any harmful effects for the society. Itshould also review from time to time the programme made in carrying at various social programmes such as environmental beautification, generation of employment opportunities, contribution to community education programme, providing medical facility to the poor etc. 5.5 SOCIAL RESPONSIVENESS Social responsiveness may be defined as the level of interest exhibited by an organisation in discharging social responsibility. Itis generally the top management which takes the major decisions regarding the choice of social concerns, definition of the scope of activities, and resource allocation to social responsibility functions. These decisions are based on the views, opinions, personal values, and considerations of the business ethics of the top management. Having decided, in principle, to discharge social responsibility, thetop management should seek to align its social responsiveness with strategic management. By such an alignment is meant the reflection of social responsiveness in all the phases of strategic management. Thus, the role of strategy in laying down mission and objectives, strategy formulation and implementation, and evaluation will be affected by social responsiveness. While making strategic plans, the top management has to understand social expectations and design policies to respond appropriately to the social expectations, such policies may also be called social response strategies as they attempt to harmonies the corporate objectives and social expectations. Review Questions _- 1, What is meant by strategic planning ? Discuss its characteristics. 2. Define strategic planning and discuss its significance. _ 3. Explain in brief the steps involved in the process of strategic planning. uss the effect of politico-legal environment on the working of a business firm. ‘the relationship between strategic planning and corporate social responsibilty. Scanned with CamScanner