BAB2316 – INTRODUCTION TO

STRATEGIC MANAGEMENT

MODULE – I STRATEGIC CONCEPTS, PROCESS

AND CSR

Sound strategy starts

with having the right goal
-Michael Porter
CONCEPTUAL FRAMEWORK FOR STRATEGIC
MANAGEMENT.

The term ‘ strategy ‘ is derived from a Greek word

stratego, which means generalship – the actual
direction of military force.
Strategy

A strategy is an action that managers take to attain

one or more of the organization’s goals.

Goal is to achieve superior performance relative to

rivals.
Strategy is the determination of the long-term
goals and objectives of an enterprise

A Plan or courses of action (Competitive

Advantage, Synergy)

Organizations policies, objectives and goals to

pursue organizational activities.
Strategy contributes to move an organization from
its current position to a desired future state;

Strategy is concerned with the resources necessary

for implementing a plan or following a course of
action;
It is connected to the strategic positioning of a
firm,

Strategy is the planned or actual co ordination

of the firm’s major goals and actions,

to align or support the firm from its environment.

In simplified terms, a strategy is the means to
achieve objectives.

Strategy is a critical input to organizational

success and

Strategy is a tool to deal with un-certainties that

organization’s face.
Strategy has helped to reduce ambiguity (un-clear
or un- certain) and

Strategy provides a solid foundation as a theory to

conduct business.

Strategy is one of the most significant concepts to

have emerged in the subject of management
studies in the recent past.
 For Conglomerates, a single strategy is not only
inadequate but also inappropriate.

The need is for multiple strategies at different

levels.

A Conglomerate is divided into various divisions

or SBUs
THREE LEVELS AT WHICH STRATEGY
OPERATES

Conglomerates, being under the same top

management,

are working in different business line with regard

to either products/services, markets or technology.

E.g. Salt to Software (Tata Group)

These divisions may also be known as profit
centers or strategic business units (SBUs).

An SBU, as defined by Sharplin, is

“any part of a business organization which is

treated separately for strategic management
purpose”.
The idea was developed by Mckinsey & Co.
(Consulting Firm) & General Electric in 1971.

General Electronics classified its businesses into 49

strategic business units (SBU’s).

E.g. To name a few: Aviation, Capital, Consumer

Electronics, Healthcare, Home Improvement, Lighting,
oil & gas, Mining, Power & water, Software,
Transportation.
Advantage of SBU:

• Quick response to environmental change,

• Increased focus on products and markets,
• Increases operational and strategic control,
allowing corporate level executives to deal with
strategic issues.
Disadvantages of SBU:

• Increased expenditure invited through doubling of

operations, personnel, and investments,

• Difficulty in maintaining a uniform corporate

image,

Over emphasis on short term performance.

LEVELS OF STRATEGY

The different levels of strategy could be at the:

 corporate level,
the SBU level and
at the functional level.
Corporate Level (Tata Group)

Corporate level strategy is an overarching plan of

action.

Development of strategies for the whole organization.

The plan deals with the objectives of the company,

allocation of resources and coordination of the SBUs

for optimal performance.
SBU Level ((Mr. Rajesh Gopinathan- CEO
of TCS)

SBU level (or business) strategy is a

comprehensive plan

providing objectives for SBUs,

Strategies that are specific to particular division.

Functional Level (Barindra Sanyal- VP, Finance)
Functional level strategy is responsible for the
specific business functions or operations
(Marketing, HR, Production, Finance).

Functional strategy deals with allocation of

resources among different operations within that
functional area.
THE CONCEPT OF STRATEGY AND THE STRATEGY
FORMATION PROCESS/ A FORMAL STRATEGIC PLANNING
PROCESS.

STRATEGIC PLANNING

Strategy is the outcome of a formal planning

process

Top management plays the most important role in

this process.
Board of Directors- TCS
 Cyrus Mistry, Chairman
Non-Independent, Non-Executive
 N Chandrasekaran, Chief Executive Officer and Managing Director
Non-Independent, Executive
 Aarthi Subramanian, Global Head of Delivery Excellence Group
Non-Independent, Executive
 Aman Mehta, Independent, Non-Executive
 Venkatraman Thyagarajan, Independent, Non-Executive
 Prof. Clayton M Christensen, Independent, Non-Executive
 Dr. Ron Sommer, Independent, Non-Executive
 Dr. Vijay Kelkar, Independent, Non-Executive
 Ishaat Hussain, Non-Independent, Non-Executive
 Phiroz A Vandrevala, Non-Independent, Non-Executive
 O.P.Bhatt, Independent, Non-Executive
  A MODEL OF THE STRATEGIC PLANNING
PROCESS

 The formal strategic planning process has five main

steps:

1. Select the corporate mission and major corporate goals.

2. Analyze the organization’s external competitive

environment to identify opportunities and threats.
3. Analyze the organization’s internal operating
environment to identify the organization’s
strengths and weaknesses

4. Select strategies that build on the organization’s

strengths and correct its weaknesses in order to
take advantage of external opportunities and
counter external threats.

5. Implement the strategy.

Analyzing the organization’s external and internal
environment and then selecting an appropriate
strategy is normally referred to as strategy
formulation.

In contrast, strategy implementation typically

involves designing appropriate organizational
structures.
Organizational structure allocates responsibilities
for different department, workgroup and
individual.

Organizational structure envisage control systems

and priority needs.
The strategic plans generated by the planning
process generally look out over a period of one to
five years,

with the plan being up- dated, or rolled forward,

every year.
VISION, MISSION AND PURPOSE

VISION OR MISSION STATEMENT

The first component of the strategic management
process is crafting the organization’s vision or
mission statement.
DEFINING VISION

Vision has been defined in several ways.

Kotler defines it as a “description of something

(an organization, a corporate culture, a business, a
technology, an activity) in the future”.
Miller and Dess view ‘Vision is a broad, all-
inclusive and forward thinking concept’.
The Vision is a formal declaration of what the
company is trying to achieve over the medium to
long term.

Vision’s purpose is to provide a platform for think

strategically.
The Boeing Company states that its vision for
Boeing “people working together as a global
enterprise for aerospace leadership”.
 How will Boeing get there?

Operate as One Boeing

Deliver customer value
Lead with innovation
Fuel growth through productivity
Leverage global strength
Microsoft’s vision is “to empower people
through great software, any time, any place, on
any device”.

Similarly, Microsoft wants its software to run on

“any device”, not just personal computers or
servers, and at “any time, any place”.
Vision statement emphasizes the company’s
ambitions to have its software running on all
computing devices,

including videogame terminals, hand-held

computers, smart phones, embedded processors,
and set-top-boxes.
1.Infosys
Vision
"To be a globally respected corporation that
provides best-of-breed business solutions,
leveraging(power to influence) technology,
delivered by best-in-class people."
TCS
Our vision is to be one of the top 10 global
companies by the year 2010.
THE BENEFITS OF HAVING A VISION
Good visions are inspiring(influence) and
exhilarating (raise the spirits)

Good vision helps in the creates a shared sense of

purpose.

Good visions are competitive, original and unique.

They make sense in the market place as they are
practical.
Good visions foster (encourage) risk taking and
experimentation.

Good visions represent integrity: they are truly

genuine and can be used to the benefit of people.
MISSION

Mission speaks fully about, what an organization

is and why it exists.
Infosys
Mission
"To achieve our objectives in an environment of
fairness, honesty, and courtesy towards our clients,
employees, vendors and society at large."
TCS
Our mission reflects the Tata Group's
longstanding commitment to providing excellence:

To help customers achieve their business

objectives by providing innovative, best-in-class
consulting, IT solutions and services.

To make it a joy for all stakeholders to work with

us.
Definition of Mission

Thompson (1997) defines mission as the essential

purpose of the organization,

concerning particularly why it is existence,

the nature of the businesses it is in and

the customer it seeks to serve and satisfy.

Hunger and Wheelen (1999) say that mission is the
‘purpose or reason for the organization’s
existence’.
FORMULATING THE MISSION.

An important first step in the process of

formulating a mission statement is to come up with
a Business definition
Business Definition
Essentially, the definition answers these questions:
“What will it be?
What should it be?
The responses guide the formulation of a mission
statement.
To answer the question, “What is our business?”
Derek Abell, a prominent business scholar, has
suggested that a company should define its
business in terms of three dimension:

who is being satisfied (what customer groups),

What is being satisfied (What customer needs),

how customer needs are being satisfied (by what
skills, knowledge, or distinctive competencies).

 Abell’s approach stresses the need for a

customer-oriented rather than a product oriented
business definition.
A study of Boston-based Bain and company
revealed that mission statements are one of the
most popular management tools used by
companies.
COMMUNICATING THE MISSION

High visibility of the mission statements posted

on multiple locations is an effective tactic to aid
mission familiarity and recognition by employees.
There are several methods to communicate the
mission statement within the organizations, such as
annual reports,
posters,
employee manuals,
company information kits,
word-of-mouth publicity,
seminars and workshops,
newsletters and advertisements
Characteristics of a mission statement:

(i).It should be feasible.

A mission should always aim high but it should not be an
impossible statement.

 It should be realistic and achievable – its followers must

find it to be credible.

 But feasibility depends on the resources available to

work towards a mission.
In the 1960s, the U.S. National aeronautics
and space administration (NASA) had a mission
to land on the moon.

It was a feasible mission that was ultimately

realized.
(ii). It should be precise.

A mission statement should not be so narrow as

to restrict the organization’s activities,

nor should it be too broad to make itself

meaningless.
Observe how Hero cycles defines its mission: “ It’s
our mission is to strive for a synergy (combined
effect) between technology, systems and human
resources, to produce products and services that
meet the quality, performance and price aspirations
of our customers.

While doing so, we maintain the highest standards

of ethics and social responsibilities”.
(iii). It should be clear.

A mission should be clear enough to lead to

action.

It should not just be meant for publicity purposes.

Corporate positioning statement far emphasizing

their identity and character.
For example, India Today saw itself as “the
complete news magazine” and now visualizes its
mission as ‘making sense of India’.
Better still is the HUL’s mission to ‘ add
vitality(liveliness) to life’ leading to various
strategic actions of being the largest consumer
goods company in India.
(iv). It should be motivating.

A mission statement should be motivating for

members of the organization and of the society and

Employees should feel it worthwhile working for

such an organization or being its customers.
Bank of Baroda’s strategic vision 2010, includes
the mission of ‘pursuing best global practices for
delivering added value to customers’ in order to
achieve its vision of becoming a “technology-
enabled customer-centric financial services
organization”.
v. It should be distinctive.

A mission statement which is indiscriminate is

likely to have little impact.

If all two wheeler manufacturers defined their

mission in a similar fashion,

there would not be much of a difference among

them.
But if one defines it as providing two wheelers that
would provide value for money, for years, it
creates an important distinction in the public mind.

Bajaj Auto adopted its popular mission of

providing ‘value for money, for years’ and now
believes in ‘inspiring confidence’.
Vi. It should indicate the major components of
strategy

 A mission statement, along with the

organizational purpose should indicate the major
components of the strategy to be adopted.
The mission of HCL Info systems is:

“We enable business transformation and enrichment of

lives by delivering sustainable world class technology
Products, Solutions & Services in our chosen markets
thereby creating superior shareholder value.”

It provides clear indication of the emphasis in the

strategies of the company on providing cutting edge
technology and customer-orientation.
(VII). It should indicate how objectives are to
be accomplished.

Besides indicating the broad strategies to be

adopted, a mission statement should also provide
clues regarding the manner in which the objectives
are to be accomplished.
 LG electronics had its mission of
becoming ‘ 2 by 10 ‘,
that is, double the sales volume and profit by year
2010’ through setting its mid-term and long-term
goal to rank among the top three electronics,
information and telecommunication firms in the
world by 2010.
0
GOALS & OBJECTIVES

A Goal is a desired future state or objective that a

company attempts to realize.
Well – constructed goals have four main
characteristics:

1. They are precise and measurable

Measurable goals give managers a yardstick or
standard against which they can judge their
performance.
 2. They address crucial issues.

To maintain focus, managers should select a

limited number of major goals to assess the
performance of the company.

The goals that are selected should be crucial or

important ones.
 3. They are challenging but realistic.

They give all employees an incentive to look for

ways of improving the operations of an organization.

If a goal is un-realistic in the challenges it poses,

employees may give up;

a goal that is too easy fail to motivate managers and

other employees.
4. To specify a time period.

Goals should be achieved when that is appropriate.

Time constraints tell employees that success

requires a goal to be attained by a given date, not
after that date.
Deadlines can inject a sense of urgency into goal
attainment and act as a motivator.

However, not all goals require time constraints.

Well – constructed goals also provide a means by

which the performance of managers can be
evaluated.
 VALUES
The values of a company state

how managers and employees should conduct

themselves,

how they should do business, and

what kind of organization they should build to help a

company achieve its mission.
INFOSYS
Values
We believe that the softest pillow is a clear
conscience. The values that drive us underscore
our commitment to:
Customer Delight: To surpass customer
expectations consistently
Leadership by Example: To set standards in our
business and transactions and be an exemplar for
the industry and ourselves
Integrity and Transparency: To be ethical, sincere
and open in all our transactions

Fairness: To be objective and transaction-oriented,

and thereby earn trust and respect

Pursuit of Excellence: To strive relentlessly,

constantly improve ourselves, our teams, our
services and products to become the best
TCS

Our values – Leading change.

Integrity.
Respect for the individual.
Excellence
Learning and sharing.
Values help drive and shape behavior within a
company,

values are commonly seen as the bedrock (the

central principles) of a company’s organizational
culture: the set of values, norms, and standards
that control how employees work to achieve an
organization’s mission and goals.
 PROFITABILITY: MAXIMIZING RETURNS
TO SHARE HOLDERS.

A central goal of most corporate is to maximize

the shareholder returns,

which means increasing the long-run returns

earned by shareholders from owning shares in the
company.
A company’s share holders are its legal owners
and the providers of risk capital-

Shareholders receive their rewards or returns from

assuming this risk in two ways:
1. from dividend payments and

2. the market value of a share price increase

 A company can best maximize shareholders

returns by pursuing strategies that maximize its
own profitability.
EXTERNAL ANALYSIS
The second component of the strategic
management process is an analysis of the
organization’s external operating environment.

The essential purpose of the external analysis is to

identify strategic OPPORTUNITIES and
THREATS in the organization’s operating
environment that will affect how it pursues its
mission.
Three interrelated environments should be
examined at the stage:

the immediate or industry environment in which

the organization operates,

the country or National environment, and

the wider socio economic or macro environment.

INDUSTRY ENVIRONMENT

Analyzing the Industry environment requires an

assessment of the competitive structure of the
organization’s industry,

including the competitive position of the

organization and its major rivals.
 INDUSTRY COMPETITION.

 A company sees its competitors as all companies

making the same product or class of products.

VW would see itself as competing against all other

automobile manufacturer.
Industry environment also requires analysis of the
nature, stage, dynamics and history of the industry.

Many markets are now global markets, analyzing

the industry environment also means assessing the
impact of globalization on competition within an
industry.
NATIONAL ENVIRONMENT

Country-specific forces facilities the attainment of

a competitive advantage in the global market
place.

Country Specific PESTDN

WIDER SOCIO ECONOMIC/ MACRO
ENVIRONMENT

Analyzing the Socio Economic reports of various

agencies: World Bank, IMF

Analyzing the macro environment consists of

examining macro economic, social, political, legal,
International, and technological that may affect the
organization.
INTERNAL ANALYSIS

Internal analysis, the third component of the

strategic management process, serves to pinpoint
the STRENGTHS and WEAKNESSES of the
organization.
Identifying the quantity and quality of a
company’s resources and

capabilities and ways of building unique skills and

distinctive competencies (USP)

i.e., Quality, Efficiency, Innovation, Customer

responsiveness (competitive advantage)
Building and sustaining a competitive advantage
requires a company to achieve superior efficiency

company’s strength (efficiency) leads to superior

performance,

whereas company weaknesses translate into

inferior performance.
SWOT ANALYSIS AND THE BUSINESS
MODEL

The next environment of strategic thinking

requires a series of strategic alternatives, or
choices of future strategies to pursue,

Based on internal strengths and weaknesses and its

external opportunities and threats.
Thinking strategically requires managers to
identify the set of strategies that will create and
sustain a competitive advantage.
 FUNCTIONAL – LEVEL STRATEGY

Derived at improving the effectiveness of

operations within a company,

such as manufacturing, marketing, materials

management, product development, and customer
service.
 BUSINESS- LEVEL STRATEGY

Addressing the business overall competitive theme,

the way it positions itself in the market place to gain

a competitive advantage,

example cost leadership, focusing on a particular

segment of the industry (Niche markets)
 GLOBAL STRATEGY

Addressing how to expand operations outside the

home country to grow and prosper in a global
level.
A well-designed global strategy can help a firm to
gain a competitive advantage.

This advantage can arise from the following

sources:
Efficiency
 Economies of scale from access to more customers and
markets (Suzuki, Honda)

 Exploit another country's resources - labor, raw materials

(Hyundai, Ford, BMW)

 Extend the product life cycle - older products can be sold

in lesser developed countries (Nissan’s Datsun Go)

 Operational flexibility - shift production facilities (BMW)

Strategic

 First mover advantage and only provider of a

product to a market (Maruti Suzuki started in 1982)

 Maruti Suzuki has 150 Variants

 Produce one car every 12 seconds

 Sells 1.5 million cars every year.

 CORPORATE – LEVEL STRATEGY, which
answers the primary questions:

what businesses should we be in to maximize the

long-run profitability of the organization, and

 how should we enter and increase our presence in

these businesses to gain a competitive advantage?
How should the firm allocate its resources among
existing businesses?

What level of diversification should the firm

pursue; i.e.,

which businesses represent the company's future?

SWOT analysis helps managers to craft a business
model that will allow a company to gain a
competitive advantage in its industry.

Competitive advantage lead to increased

profitability.
STRATEGY IMPLEMENTATION

Having chosen a set of strategies to achieve a

competitive advantage and increase performance,

managers must put that strategy into action:

strategy has to be implemented.
Strategy implementation is broken down into three
main components:
(1) Corporate performance, governance, and
ethics;

 (2) implementing strategy in a single industry;

and

(3) implementing strategy across industries and

countries.
THE FEEBACK LOOP
The feedback loop indicates that strategic planning is ongoing;
it never ends.

 Once a strategy has been implemented, its execution must be

monitored

to determine the extent to which strategic goals and objectives

are actually being achieved and

to what degree competitive advantage is being created and

sustained.
This information and knowledge pass back up to
the corporate level through feedback loops and

become the input for the next round of strategy

formulation and implementation.
CORPORATE GOVERNANCE

Corporate governance is the set of processes,

customs, policies, laws

affecting the way a company is directed,

administered or controlled.
Four main types of governance mechanisms for
aligning stock holder and management interests;

The board of directors,

Stock based compensation,
Financial statements, and
The take- over constraint.
THE BOARD OF DIRECTOR

The Board of directors is the centerpiece of the

corporate governance system in the U.S and U.k

Board members are directly elected by stock

holders, and

under corporate law they represent the stock holders

interests in the company.
Hence, the board can be held legally accountable
for the company’s action.

It’s position at the apex level of decision making

within the company allows it to monitor
corporate strategy decisions and

ensure strategic decisions are consistent with stock

holder interests.
 If the board senses that corporate strategies are
not in the best interest of the stake holders, it can
apply sanctions,

such as voting against management nominations to

the board of directors or

submitting its own nominees.

In addition, the board has the legal authority to
hire, fire, and compensate corporate employees,
including, most importantly, the CEO.
The Board is also responsible for making sure that
audited financial statements of the company
present a true picture of its financial situation.
Thus, the board exists to reduce the un balance
between stock holders and managers and

 to monitor and control management on behalf of

stock holders.
The typical Board of Directors is composed of a
mix of inside and outside directors.

Inside directors are senior employees of the

company, such as the CEO.
Board of Directors- TCS
 Cyrus Mistry, Chairman- Non-Independent, Non-Executive (Insiders)
 N Chandrasekaran, Chief Executive Officer and Managing Director
Non-Independent, Executive (Insiders)
 Aarthi Subramanian, Global Head of Delivery Excellence Group
Non-Independent, Executive (Insiders)
 Aman Mehta, Independent, Non-Executive (Outsiders)
 Venkatraman Thyagarajan, Independent, Non-Executive (Outsiders- VC of GSK)
 Prof. Clayton M Christensen, Independent, Non-Executive (Outsiders- Professor at
Harvard)
 Dr. Ron Sommer, Independent, Non-Executive (Outsiders- Chairman of Deutsche
Telecom)
 Dr. Vijay Kelkar, Independent, Non-Executive (Outsiders)
 Ishaat Hussain, Non-Independent, Non-Executive (Insiders)
 Phiroz A Vandrevala, Non-Independent, Non-Executive (Insiders)
 O.P.Bhatt, Independent, Non-Executive (Outsiders)
Insiders are required on the board because they
have valuable information about the company’s
activities.

Without such information, the board cannot

adequately perform its monitoring function.
Insiders are full-time employees of the company
their interests tend to be aligned with those of
management.

Outside directors are needed to bring objectivity

(unbiased or impartial) to the monitoring and
evaluating processes.
Critics of the existing governance system charge
that inside directors often dominate the outsiders
on the board.

Insiders can use their position within the

management hierarchy to exercise over what kind
of company-specific information the board
receives.
Some observers contend that many board are
dominated by the company CEO,

particularly when the company CEO is also

chairman of the board.

To support this view, they point out that both

inside and outside directors are often the personal
nominees of the CEO.
Today, there are clear signs that many corporate
boards are moving away from merely rubber-
stamping top management decisions and

BOD’s beginning to play a much more active role

in Corporate Governance.
Infosys corporate governance philosophy
 Our corporate governance philosophy is based on the following
principles:

 Satisfy the spirit of the law and not just the letter of the law.

 Corporate governance standards should go beyond the law

 Be transparent and maintain a high degree of disclosure levels.

When in doubt, disclose

 Make a clear distinction between personal conveniences and

corporate resources
Communicate externally, in a truthful manner, about
how the Company is run internally

Comply with the laws in all the countries in which we

operate

Have a simple and transparent corporate structure driven

solely by business needs

Management is the trustee of the shareholders' capital

and not the owner.
 STOCK-BASED COMPENSATION.

According to agency theory, one of the best ways to

reduce the scope of the agency problem is

principals (employer) to establish incentives for

agents (employees)

to behave in their best interest through pay-for-

performance systems. (ESOPs)
In the case of stockholders and top managers,
stockholders can encourage top managers to
pursue strategies that maximize a company’s long-
run ROIC, and

thus the gains from holding its stock (share price

increases), and

by linking the pay of those managers to the

performance of the stock price.
The most common pay-for-performance system
has been to give managers stock options (ESOP):

the right to buy the company’s shares at a

predetermined (advance) price.
Infosys has offered 22,794 restricted stock units to its
CEO and Managing Director Vishal Sikka.

In an announcement to stock exchanges, the company

said the grant price is Rs 5 per unit and

will vest ( legal Power) over a period of 4 years

subject to continued employment and

achievements of key performance indicators.

The idea behind stock options is to motivate
managers to adopt strategies that increase the share
price of the company,

for in doing so they will also increase the value of

their own stock options.
Many top managers often earn huge bonuses from
exercising stock options that were granted several
years previously.

These stock options do motivate managers to

improve company performance.
Ex CEO of Infosys, Nandan Nilekani blue chip share
of Rs.5 on par value ended at Rs.3,305 on the Bombay
Stock Exchange (BSE) – Year 2014

Nilekani said he still owned 1.45 percent (8.35 million

shares) of the company's equity while Rohini had 1.3
percent (7.5 million shares).

Nilekani’s worth Rs.7,770 crores (US $ 1.50 billion)

 FINANCIAL STATEMENTS AND AUDITORS

 Publicly trading companies are required to file

quarterly and annual reports.

The purpose of this requirement is to give

consistent, detailed, and accurate information
about how efficiently and effectively the agents of
stockholders, the managers, are running the
company.
Managers should not misrepresent this financial
information,

the accounts has to be audited by an independent

and accredited accounting firm.

If the system works as intended, stockholders can

have a lot of faith that the information contained in
financial statements accurately reflects the state of
affairs at a company.
Financial Statements information can enable a
stockholder to calculate the profitability of a
company in which she invests and

to compare its ROIC against that of competitors.

Vast majority of companies do file accurate
information in their financial statements

although most auditors do a good job of reviewing

that information,

there is substantial(large) evidence that a minority

of companies have abused the system, aided in part
by the compliance of auditors.
This was clearly an issue at Enron, Where the CFO
and others misrepresented the true financial state of
the company to investors

by creating off-balance-sheet partnerships that hid the

true state of Enron’s indebtedness from public view.

Enron’s auditor, Arthur Anderson, also apparently

went along with this deception(misled) in direct
violations of its fiduciary(trustee) duty.
There has been numerous examples in recent years
of managers gaming financial statements to present
a distorted (misrepresent) picture of their
company’s finances to investors.
This typical motive has been to inflate the earnings or
revenues of a company,

thereby generating investor enthusiasm and propelling

the stock price higher,

which gives managers an opportunity to cash in stock

options grants for huge personal gain,

obviously at the expense of stockholders who have been

mislead by the reports.
THE TAKE OVER CONSTRAINT

The risk of being acquired by another company is

known as the take- over constraint.
If Managers ignore stockholders interests and the
company is acquired,

senior managers typically lose their independence

and probably their jobs as well.
SOCIAL RESPONSIBILITY

Strategic planning, through environmental scanning,

provides answers to what an organization can do.

Personal values justify what an organization wants to

do.

Social responsibility, along with business ethics, tells

what an organization desired to do.
DIFFERING VIEWS ON SOCIAL
RESPONSIBILITY

The issue of social responsibility (CSR) evokes

varying-and often, extreme-responses from
academicians and business people.

The end, the body of opinion clearly does not favor

including social responsibility in business
considerations.
Under this view, which has been propounded(put
forward an idea) notably by the economists Adam
Smith and Milton Friedman,

the only responsibility of business is to perform

the economic functions efficiently and

provide goods and services for society and earn

maximum profits.
It is felt that business performs its economic
functions and

leaves the social functions to other institutions of

society such as the government.
At the other extreme, there is an opposite view
which favors the position that it is imperative
(essential or vital) for business to be socially
responsible.
This is based on the argument that business
organizations are a part of society and have to
serve primarily, social interests,

rather than narrow economic objectives such as

profit generation.
In doing so, they have to deal with social concerns
and issues and

have to allocate resources for solving social

problems.
In between the two extreme views, there is
considerable support for the opinion that all
business organizations should not attempt to solve
all of social problems.
In other words, the economic goals and social
responsibility objectives need not be contradictory
to each other and

should be achieved simultaneously.

CSR Policy in India
The introduction of Section 135 in the Companies Act
2013, India became the first country to have statutorily
mandated CSR for specified companies.
The Act requires companies with a net worth of ₹500
crore or more, or
turnover of ₹1,000 crore or more, or
a net profit of ₹5 crore or more during the immediately
preceding financial year,
to spend 2 per cent of the average net profits of the
immediately preceding three years on CSR activities.