CHAPTER ONE

BASIC CONCEPTS OF
STRATEGIC MANAGEMENT
 Definition - Strategy
• Strategy refers to large scale, future-oriented plans for
interacting with the competitive environment to
achieve company objectives.

• It reflects a company’s awareness of how, when and

where it should compete; against whom it should
compete; and for what purpose it should compete.
Defining Strategic Management
Strategic management
The art and science of formulating, implementing, and
evaluating cross-functional decisions that enable an
organization to achieve its objectives.
• Sometimes the term strategic management is used to
mention to :
Strategy formulation, implementation, and evaluation,
Strategic planning referring only to strategy
formulation.
Stages of Strategic Management

Strategy Strategy Strategy

formulatio implementatio evaluatio
n n n
 Stages of Strategic Management
Strategy formulation :
• Includes developing a vision and mission,
identifying an organization’s external
opportunities and threats, determining internal
strengths and weaknesses, establishing long-term
objectives, generating alternative strategies, and
choosing particular strategies to follow.
Strategy implementation
• Requires a firm to establish annual objectives,
create policies, motivate employees, and
allocate resources so that formulated strategies
can be implemented.
Also called the action stage.
 Stages of Strategic Management
Strategy Evaluation
Reviewing external and internal factors that are
the bases for current strategies, measuring
performance, and taking corrective actions .
 Stages and levels of Strategic Management

Strategy formulation, implementation, and evaluation

activities take place at three hierarchical levels in
a large organization:

• Corporate level, Business unit level, and functional

level.

• Strategic management helps a firm function as a

competitive team.
Strategic Management at large organizations

CEO
Corporate
Level Corporate Office

Business
Level 1 2 3 4 5

Functional
Level Manufacturing Accounting

Marketing R&D
 Key Terms in Strategic Management
•Competitive advantage
•Anything that a firm does especially well compared to
competitors.
•Vision statement
•answers the question “What do we want to become?”
•often considered the first step in strategic planning.
Example: Our institution aspires to be a premium choice
in Ethiopia and among the top ten Applied Science
Universities in Africa by 2030.
Key Terms in Strategic Management

Mission statements
• Stable statements of purpose that distinguish
one business from other similar firms.
• Identifies the scope of a firm’s operations in
product and market terms
• Addresses the basic question that faces all
strategists: “What is our business?”
Example

To produce competent graduates, problem solving

research and technology output and provide demand
driven community engagement through fostering an
international academic environment enriched with
democratic values thereby supporting realization of
the country’s vision
 Key Terms in Strategic Management
• External opportunities and external threats
• refer to economic, social, cultural,
demographic, environmental, political,
legal, governmental, technological, and
competitive trends and events that could
significantly benefit or harm an organization
in the future.
Key Terms in Strategic Management
• Internal strengths and internal weaknesses
• An organization’s controllable activities that
are performed especially well or poorly.
• Determined relative to competitors.
 Key Terms in Strategic Management

• Objectives
• specific results that an organization seeks to
achieve in pursuing its basic mission.
• long-term means more than one year.
• should be challenging, measurable, consistent,
reasonable, and clear.
 Key Terms in Strategic Management

• Annual objectives
• short-term milestones that organizations must
achieve to reach long-term objectives
• should be measurable, quantitative,
challenging, realistic, consistent, and
prioritized.
• should be established at the corporate,
divisional, and functional levels in a large
organization.
Key Terms in Strategic Management
• Policies
• the means by which annual objectives will
be achieved.
• include guidelines, rules, and procedures
established to support efforts to achieve
stated objectives.
• guides to decision making and address
repetitive or recurring situations.
The Strategic-Management Model

Where are we now?

Where do we want to go?

How are we going to get there?

Benefits to a Firm That Does Strategic
Planning
 Financial Benefits
• Businesses using strategic-management concepts
show significant improvement in sales,
profitability, and productivity compared to firms
without systematic planning activities.
 Nonfinancial Benefits

• It allows major decisions to better support

established objectives.
• It allows more effective allocation of time and
resources to identified opportunities.
• It creates a framework for internal
communication among personnel.
Why Some Firms Do Not Do Strategic Planning
• Lack of knowledge in strategic planning
• Poor reward structures
• Waste of time
• Too expensive
• Laziness
• Fear of failure
• Overconfidence
 CHAPTER TWO
THEORIES OF STRATEGIC
MANAGEMENT
Organizational Strategy and Strategic Management

Organization’s strategy deals with how to

make best decisions in order to leverage
internal (i.e. organizational resources) and
external (i.e. resources positioned in the
market) in order to achieve competitive
advantages. Organizational strategy is a “game
plan” management has for positioning the
company in its chosen market. arena,
competing successfully, pleasing cu
 Cont’d
• An organization's strategy deals with how to
make management's strategic vision for the
company a reality-it represents the game plan
for moving the company into an attractive
business position and building a sustainable
competitive advantage.
• Organization’s strategy is a process of
improving organization’s strategic management
function.
Cont’d
• The term strategic management refers to
the managerial process of forming a
strategic vision, setting objectives, crafting
a strategy, implementing and executing the
strategy, and then over time initiating
whatever corrective adjustments in the
vision, objectives, strategy, and execution
are deemed appropriate.
• The term competitive advantage refers to “the
strategies, skills, knowledge, resources or
competencies that differentiate a business from
its competitors.
• There is a relationship between organizational
strategy, strategic management and competitive
advantage as the organizational strategic process
involves all organizational resources, skills,
knowledge and competences used in connection
with present organizational positioning for
moving towards a desired state of the business in
order to build and sustain competitive
advantages.
Thus, the organizational strategy is a continuous
process of searching best options for achieving
sustainable competitive advantages. The firm
exists not only for generating maximum returns
for its stakeholders, but, also, as a “vehicle” for
generating sustained competitive advantages, i.e.
securing returns at higher rates comparing to its
competitors.
 Cont’d
The organizational strategy is, also, a
continuous process of fitting the internal
organizational resources and capabilities with
the external opportunities and threats. The
strategic fit plays a vital role in crafting,
implementing and executing company
strategies. “Strategic fit indicates how well the
firm's mission and strategies fit its internal
capabilities and its external environment.”
Strategic Management Theories
The most influential pioneers in strategic
management are considered to be Alfred
Chandler, Philip Selznick, Igor Ansoff, and Peter
Drucker.
• Alfred Chandler considered that a long-term
organizational strategy “was necessary to give a
company structure, direction, and focus.” He
pointed to one of the main key elements of the
organizational strategy, i.e. "determination of the
basic long-term goals and objectives of an
enterprise.
 Cont’d

• Philip Selznick argued that it should be a connection

between internal, organizational influencing factors
and external environment. This idea originated the
“SWOT Analysis” developed by “Learned, Andrews,
and others at the Harvard Business School General
Management Group.” “SWOT Analysis” is a
comparative assessment based on balancing
strengths and weaknesses as internal, organizational
influencing factors, on one side, and opportunities
and threats as influencing factors coming from
external, business environment, on the other side.
• Igor Ansoff reinvented the vocabulary of strategy,
“developing a strategy grid that compared market
penetration strategies, product development strategies,
market development strategies and horizontal and
vertical integration and diversification strategies.” He
pointed out that the organization should systematically
develop and follow one of these strategies for leveraging
organizational resources and achieving sustained
competitive advantages. Ansoff developed, also, the
method of “gap analysis” emphasizing the importance
of bridging the gap “between where we are currently and
where we would like to be, then develop what he called
“gap reducing actions”.
 Cont’d

• Peter Drucker, another pioneer in strategic

management, emphasized the strategic importance of
organizational objectives. Any firm should clarify its
objectives, according to his theoretical approach.
Otherwise the organization would face difficulties in
developing and implementing a certain strategic
direction. He developed his famous theory called
“management by objectives (MBO)”. The
organization should, firstly, develop a set of clear
objectives and, then, articulate the entire
organizational activity according to these objectives.
 Core Competences and Competitive Advantages
• Firms should capitalize those unique organizational
capabilities in order to gain competitive advantages. C.
K Prahalad and Gary Hamel introduced the concept of
“core competency” defined as “an area of specialized
expertise that is the result of harmonizing complex
streams of technology and work activity." A core
competence is a process of “employing” “knowledge,
skills, attributes, and behavioral traits required for
individual and organizational success.” Core
competences “can be anything from product
development to employee dedication.”
 Cont’d

• A firm’s core competence should normally bring in

long-term advantage to the company as a
prerequisite for achieving sustainable competitive
advantages. Core competence provides “potential
access to a large variety of markets, increases
perceived customer benefits and it is hard for
competitors to imitate.
• Core competences differentiate a company
strategically, i.e. make firm’s presence unique in the
market.
• Individual and team’s abilities to perform different
tasks within the firm are not organizational core
competences. Organizational capability of aggregating
and leveraging all of these abilities, “where synergy is
created that has sustainable value and broad
applicability" generates core competences.
• Michael Porter, the most influential strategist,
introduced many new concepts, frameworks, theories
used for explaining why some organizations are more
competitive than others and why some nations became
more competitive than others. He wrote one of the most
influential treaties on the competitive advantages of
nations: “The Competitive Advantage of Nations”.
 Nations and Competition
• “Nations don’t compete. Companies compete. Nations
can make it hard or easy for them to do so.” The
principal aim of a nation is to raise the standard of living
for its citizens. The ability of any nation to employ
capital and labor at improved productivity rates is the
key issue when addressing the problem of competition.
• Nations do have a growing role in sourcing skills and
knowledge that underpin competitive advantage within a
globalized and more international business environment.
Porter argues that the intensity of domestic competition
is a key issue in fueling success on a global stage.
The four forces of competitive advantage
Porter introduces the concept of “national diamond”
which is made up of four forces:
• “Factor conditions” – data communication, research
activities performed by various institutions, specialized
skills available in a particular industry sector or field of
activity.
• “Demand conditions” – A head start of any industry or
economic sector in a globalized business environment is
based on a strong level of domestic competition.
.
 Cont’d

• “Related and supporting industries” – “Industries

which are strong in a particular country are often
surrounded by successful related industries.”
• “Firm strategy, structure, and rivalry” – “Domestic
competition fuels growth and competitive strength.”
• Porter refers, also, to the concept of “clusters of
industries” as how nations succeed in terms of
competitiveness:
• “Nations succeed not in isolated industries, but in
clusters of industries connected through vertical and
horizontal relationships.”
Chapter Three: Strategy Formulation and Implementation

• Strategic management
• the process of formulating and
implementing strategies.
• Strategy Formulation
• the process of creating strategies
• Strategy Implementation
• the process of putting strategies into action.
Strategy Formulation vs. Execution

Formulation: Execution:
Assessing the The use of
external managerial and
environment and organizational
internal problems tools to direct
to create goals and Resources
strategy toward
accomplishing
strategic results
 Basic questions related with strategy formulation
• What are the purpose(s) and objective(s) of the
organization?
• Where is the organization presently going?
• What critical environmental factors does the
organization currently face?
• What can be done to achieve organizational
objectives more effectively in the future?
 Thinking Strategically

• The long-term view of the organization and

competition
• Thinking strategically impacts performance and
financial success
• Today’s environment requires everyone to think
strategically
 Strategic Management

The set of decisions and actions used to formulate

and execute strategies that will provide
competitively superior fit (competitive advantage)
between the organization and its environment to
achieve organizational goals
 Purpose of Strategy
•Explicit strategy is the plan of action that describes
resource allocation and activities for dealing with
the environment, achieving a competitive
advantage, and attaining the organization’s goals.
•Competitive advantage is the organization’s
distinctive edge for meeting customer needs.
•Strategies should:
 Exploit Core Competencies
 Build Synergy
 Deliver Value
 Target Customers
Levels of Strategy in Organizations

47
The Strategic Management Process

48
Planning steps and Plan Formulation

Problems and Opportunities

Planning Objectives &
Constraints
Inventory and Forecast
Management Measures
Plan Formulation

Evaluation Alternative Plans

Comparison
Reformulation

Selection
Elements of Strategic Planning: Environmental
Scanning
• Provides management with accurate forecasts of
trends relating to external changes in geographic
areas where firm is doing business or considering
doing business.
• Changes relate to economy, competition, political
stability, technology, demographic and consumer
data.
 Elements of Strategic Planning

Evaluate MNC’s current managerial, technical, material,

and financial strengths and weaknesses
• Assessment then used to determine ability to take
advantage of international market opportunities
• Match external opportunities (gained in environmental
scan) with internal capabilities (gained through internal
resource analysis)
• Key question for MNC: Do we have the people and
resources that can help us develop and sustain
necessary Key Success Factors, or can we acquire
them?
 SWOT Analysis
•Formulating strategy often begins with an
audit of internal and external factors.
• Internal Strengths and Weaknesses
• External Opportunities and Threats
•Information is acquired from reports,
surveys, discussions, and meetings.
SWOT: Audit Checklist

54
 Formulating Corporate-Level Strategy:
Portfolio Strategy.

Strategic Business Units (SBUs) have a unique

mission, products, and competitors.
Companies manage the mix (portfolio) of SBUs
for synergy and competitive advantage.
Organizations should not become too dependent
on one business.
 Agency Theory, Agency Cost

• A Manager (CEO) is an agent for shareholders.

• Owners of the firm are clients of the manager.
• The manager is supposed to work for the best interest
of the shareholders, that is, to maximize shareholders’
wealth – increase the stock price, by boosting the
profit, increasing revenue and/or decreasing cost.
• In reality, a manager works for his own best interest,
not for the shareholders.
• When this problem occurs, we call it “agency cost
(problem) .”
 M & A, Corporate Strategy, Agency Cost
• Merge & Acquisition is an example of corporate
strategy.
• Like any other strategy, M & A should focus on
synergy, efficiency, shareholders’ wealth
maximization.
• However, some M & As create Agency Cost.
 Agency Cost, Stock Option
• How do shareholders know whether the manager
(CEO)’s corporate strategy works or not?
oIf the stock price does not go up after the M &
A announcement, the strategy is not working.
• Managing (Controlling) a manager:
Shareholders can use a carrot-and-stick approach
to control the manager.
oCarrot  Stock Option: A widely used carrot
to motivate the manager to work hard for the
best interest of shareholders.
oStick  Termination
 Formulating Corporate-Level Strategy:
The BCG Matrix

•Organizes business along two dimensions

• Business growth rate
• Market share.

•Four categories for corporate portfolio

• The combination of high/low market share and
high/low business growth.
The BCG Matrix
Boston Consulting Group (BCG)
• BCG Matrix
• Analyzes business opportunities according to growth rate
and market share
 Formulating Corporate-Level Strategy:
Diversification Strategy
• Moving into new lines of business
• Expand into new valuable products and services
• Why does a firm attempt to diversify its business?
• Manage/control/minimize the risk
• A Case in Point:
• DELTA (Airline Company) vs. SHELL (Oil Company)
• When oil price goes up, DELTA stock goes down, but
SHELL stock goes up.
• If DELTA merges/acquires SHELL (diversification),
DELTA can lower the risk of uncertainty (a sudden spike
of oil price due to the war in the Middle East)
Formulating a Corporate Level Strategy
Unrelated Diversification Strategy –
• Expansion into new lines of business
• Can be a difficult strategy
• Many companies are giving up on unrelated diversification
• Unattractive to investors; hard to value the firm
• Hard to measure the profit, cost of capital
• Hard to measure the firm value
• Hard to measure the firm’s stock price
• Hypothetical Example: GM enters a clothing business.
 Formulating a Corporate Level Strategy
Vertical integration (VI)
• Vertical integration expands into businesses that
supply to the business or are distributors
• Benefits of VI: Securing supply & distribution
chains  cost savings  efficiency
• Limitations of VI: Less competition  less
productive  inefficiency [Soviet Economic
Model]
• Hypothetical Examples:
• Starbucks in VI
• GM in VI
 Formulating Business-Level Strategy

Strategy within the business units (SBU): How do

we compete?
Business-level strategies are developed by
Porter’s Five Forces.
Porter’s Five Competitive Force Model
Porter’s Competitive Strategies

67
Formulating Functional-Level Strategy

Action plans used by major departments

 Marketing
 Production
 Finance
 Human Resources
 Research and Development
 Marketing Strategy
Marketing strategy deals with pricing, selling
product development and distributing a product.
Using a market development strategy, a
company or business unit can (1) capture a
larger share of an existing market for current
products through market penetration or (2)
develop new market for current products.
 Financial Strategy
Financial strategy provides competitive advantage
through lower cost of funds and flexibility to raise
capital to support a business strategy. It attempts to
maximize the financial value of the firm.
A firm’s financial strategy is influenced by its corporate
diversification strategy. For example, equity financing is
preferred for related diversification while debt financing
is preferred for unrelated diversification.
 Research and Development
(R&D) Strategy
R&D strategy deals with product and process
innovation and improvement. One of the R&D
choices is to be either a technological leader in
which one pioneers an innovation or a
technological follower in which one imitates the
products of competitors.
 Operations Strategy
Operations Strategy determines how and where a
product or service is to be manufactured. It also
deals with the optimum level of technology the
firm should use in its operations processes.
A firm’s manufacturing strategy is often affected
by a product’s life cycle. As the sales of a
product increase, there will be an increase in
production volume. Increasing competition in
many industries has forced companies to switch
from traditional mass production to continuous
improvement system.
 Purchasing Strategy
Purchasing Strategy deals with obtaining raw
materials, parts and supplies needed to perform
the operations function. The basic purchasing
choices are multiple, sole and parallel sourcing.
Under multiple sourcing, the purchasing
company orders a particular part from several
vendors. Multiple sourcing is considered
superior to other purchasing approaches because.
(1) it forces suppliers to compete for the business of
an important buyer, thus reducing purchasing costs;
(2) if one supplier could not deliver, another usually
could, thus guaranteeing that parts and supplies
would always be on hand when needed.
• Unfortunately the common practice of accepting the
lowest bid often compromised quality.
 HRM Strategy

HRM Strategy addresses the following two

issues:
i. Whether a company or business unit should
hire a large number of low-skilled
employees who receive low pay, perform
repetitive jobs and most likely to quit after a
short time (e.g., McDonald’s restaurant
strategy) or
ii. Hire skilled employees who receive high pay
and are cross-trained to participate in self-
managing work teams.
Multinational corporations are increasingly using
self-managing work teams in their foreign affiliates
as well as in home country operations. Research
indicates that the use of work teams leads to
increased productivity, higher employee satisfaction
and commitment.
 New Trends in Strategy

•Strategic Flexibility – managers must be

prepared to change and adjust strategy quickly
•Strategic Partnerships – collaboration with
other organizations is important: Sharing
Resources & Information:
•Global Strategy – organizations pursue a
distinctive focus for global business
Global Corporate Strategies

78
 Strategy Execution
“Strategy is easy, but execution is hard”
• Most important but most difficult part
• Strategy must be skillfully executed

• Alignment requires all aspects of the organization to focus on

strategy goals
• Everyone is moving in the same direction
• S.E. needs more dynamic approaches

• S. E. requires vision, intuition and employee participation

• S. E. is done through changes in leadership, org. structure,

information and control systems, and human resources.
4 Tools for Putting Strategy into Action

81
Approaches of Strategy Implementation

• Commander approach
• Organizational change approach
• Collaborative approach
• Cultural approach
 Commander Approach
• Manager determines “best” strategy
• Manager uses power to see strategy
implemented
Three conditions must be met
• Manager must have power
• Accurate and timely information is available
• No personal biases should be present
Commander Approach
• Limitations
• Can reduce employee motivation and
innovation
• Advantages
• Managers focus on strategy formulation
• Works well for younger managers
• Focuses on objective rather than subjective
Organizational Change Approach
• Focuses on the organization
• Behavioral tools are used
• Includes focusing on the organization’s
staffing and structure
• Often more effective than Commander
• Used to implement difficult strategies
 Organizational change approach
Limitations
• Managers don’t stay informed of changes
occurring within the environment
• Doesn’t take politics and personal agendas
into account
• Imposes strategies in a “top-down” format
• Can backfire in rapidly changing industries
Collaborative Approach
• Enlarges the Organizational Change Approach
• Manager is a coordinator
• Management team members provide input
• Group wisdom is the goal
• Advantages
• Increased quality and timeliness of information
• Improved chances of effective implementation
• Limitations
• Contributing managers have different points of
view and goals
• Management retains control over the process
 Cultural Approach
• Includes lower levels of the company
• Breaks down barriers between management and
workers
• Everyone has input into the formulation and
implementation of strategies
• Works best in high resource firms
Advantage
More enthusiastic implementation
Limitations
Workers should be informed, intelligent
Consumes large amounts of time
Strong company identity becomes handicap
Can discourage change and innovation
Six Silent Killers of Strategy

89
 Chapter Four
Strategy Review, Evaluation, and Control
The best formulated and best implemented
strategies become obsolete as a firm’s external
and internal environments change.
Therefore, it is essential for strategists to
systematically review, evaluate, and control the
execution of strategies.
Strategy Evaluation is vital to an organization’s
well being. Timely evaluations can alert
management to potential or actual problems
before a situation becomes critical.
The best formulated and best implemented
strategies become obsolete as a firm’s external
and internal environments change. Therefore, it
is essential for strategists to systematically
review, evaluate, and control the execution of
strategies.
Strategy Evaluation includes three basic
activities:
(1) Examining the underlying bases of a
firm’s strategy.
(2) Comparing expected results to actual
results.
(3) Taking corrective actions to ensure that
performance conforms to plans.
Strategy Review, Evaluation, and Control
Strategy Evaluation
• Adequate and timely feedback is the
cornerstone of effective Strategy Evaluation.
• Strategy Evaluation is important because
organizations face dynamic environments in
which key external and internal factors can
change quickly and dramatically.
• Strategy Evaluation is essential to ensure that
the stated objectives of an organization are
being achieved,
Strategy Review, Evaluation, and Control

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
 Strategy Review, Evaluation, and Control
Consistency
Strategy should not present inconsistent goals and
policies
Consonance
Need for strategists to examine sets of trends, as
well as individual trends
Feasibility
Neither overtax resources nor create unsolvable
subprob
Advantage
Creation or maintenance of competitive advantage
Strategy Review, Evaluation, and Control
Strategy Evaluation Should
Initiate managerial questioning of expectations
and assumptions
Trigger a review of objectives & values
Stimulate creativity in generating alternative
strategies and formulating criteria for evaluation
Be performed on a continuing basis, rather than
at the end of specified periods of time or just
after problems occur.
Strategy Review, Evaluation, and Control
Review of Underlying Bases of Strategy –
• Develop revised IFE Matrix
• Develop revised EFE Matrix
Monitor Strengths & Weaknesses;
Opportunities & Threats
Are our strengths still strengths?
Has our organization added additional strengths?
Are our weaknesses still weaknesses?
Has our organization developed other
weaknesses?
Strategy Evaluation Framework
Strategy evaluation activities in terms of key
questions that should be addressed, alternative
answers to those questions, and appropriate
actions for managers to take. Note that
corrective actions are needed except when (1)
external and internal factors have not changed
significantly and (2) the firm is making
satisfactory progress toward achieving its
objectives.
Strategy Evaluation Matrix
Strategy Review, Evaluation, and Control
Measuring Organizational Performance
• Compare expected to actual results
• Investigate deviations from plan
• Evaluate individual performance
• Examine progress toward stated objectives
Quantitative Criteria for Strategy Evaluation
Strategists use financial ratios to:
• Compare a firm’s performance over different
time periods
• Compare a firm’s performance to competitors’
performance
• Compare a firm’s performance to industry
averages
Strategy Review, Evaluation, and Control
Some key financial ratios that are useful for
evaluating strategies are:
• Return on • Debt to equity
investment (ROI) • Earnings per share
• Return on equity (EPS)
(ROE) • Sales growth
• Profit margin • Asset growth
• Market share
 Taking Corrective Action
• Taking corrective action is the final strategy
evaluation activity. It requires making changes
to competitively reposition a firm for the future.
Examples of changes that may be needed are
altering an organization’s structure, replacing
one or more key employees, selling a division,
devising new policies, issuing stock to raise
capital, allocating resources differently, or
revising the firm’s mission.
• Taking corrective action is necessary to keep an
organization on track toward achieving its
objectives.
 Strategy Review, Evaluation, and Control
The Balanced Scorecard is a strategy evaluation
tool. It uses both quantitative and qualitative
measures to evaluate strategies.
A Balanced Scorecard analysis requires firms to
answer these questions:
1. How well is the firm continually improving
and creating value along measures such as
innovation, technological leadership, product
quality, operational process efficiencies, etc.?
2. How well is the firm sustaining or improving
upon its core competencies and competitive
advantages?
3. How satisfied are the firm’s customers?
 The Balanced Scorecard
The firm examines six key issues in evaluating its
strategies: (1) customers, (2) managers/employees,
(3) operations/processes, (4) community/social
responsibility, (5) business ethics/natural
environment, and (6) financial.
• The basic form of a Balanced Scorecard may differ
for different organizations.
 CHAPTER FIVE
SOCIAL RESPONSIBILITY AND BUSINESS
ETHICS
 Social Responsibilities of a Business Firm
• The concept of social responsibility proposes
that a private corporation has responsibilities to
society that extend beyond making a profit.
• For example, a decision to retrench by closing
some plants and discontinuing product lines
affects not only the work force, but also the
customers and the community.
 Carroll’s four responsibilities of business

Economic responsibilities – to produce goods

and services of value to society so that the firm
can repay its creditors and shareholders.
Legal responsibilities – defined by
governments in laws that management is
expected to obey. For example, U.S business
firms are required to hire and promote people
based on their credentials rather than race,
gender, or religion.
 Carroll’s four responsibilities of business

Ethical responsibilities – to follow the

generally held beliefs about behaviour in a
society. For example, society generally expects
firms to work with the employees and the
community in planning for lay-offs.
Discretionary responsibilities – purely
voluntary obligations a corporation assumes.
Examples are philanthropic contributions,
training the hard-core unemployed and
providing day care centers.
 Business Ethics
Bold Consistent Vision – Deliver a
compelling, shared vision that is simple to
understand and is consistently communicated
to the rest of the world.
Focus - Understand your priorities, never get
distracted, and systematically refresh your
objectives.
Customer Satisfaction – Make each customer
an evangelist, only agree to what you can
deliver, and always deliver what you agree to.
 Business Ethics
Relentlessness – Always inspire yourself, your
co-workers, your teams to a higher state of
performance, speed, quality, completeness and
ultimately competitiveness.
Respect – Be professional with every interaction
with employees, customers and vendors. Treat
them with the utmost respect, honesty, directness
and follow through.
Extraordinary Teamwork – Every person has a
role on the team. Communicate with and count
on everyone to play their part flawlessly. When
they don’t, coach and encourage, rather than
criticize.
 Business Ethics
Accountability – Deliver on your
commitments, be transparent about progress
and outcomes, and be equally willing to reap
the rewards or pay the consequences of your
performance.
Intelligence – Out-think the
competition. Constantly drive
creative ideas. Listen for and bring the best
ideas and
practices to the company
Open and Honest Communication – Speak
your mind and demand the same from all
others you work with. Insist that bad news
travels faster than good news.
Listen Well, Act Quickly – Listen well,
entertain the ideas of others; seek advice, then
act decisively.
Thank You!