sm module 1
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, ..TRANSCRIPT
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Amity Business School
Amity Business School
MBA HR Class of 2015, Semester III
Strategic Management
Module-I (Introduction)
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Strategy, the art of war, is especially the planning of movement of troops and ships,
into favorable positions; plan of action or
policy in business or policies
Oxford Pocket Dictionary
Strategy narrowly defined as the art of general (Greek StratAgos)
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Strategy is determination of long term goals and objectives of an enterprise and
the adoption of courses of action and the
allocation of resources necessary for
carrying out these goals
Alfred Chandler
Strategy & Structure
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Strategy is a set of managerial decisions and actions involved in making a major
market-creating business offering
W. Chan Kim
INSEAD Faculty
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What Business Strategy is all about is, in one word Competitive Advantage. The sole objective of Strategic Planning is to
enable a company to gain, as efficiently as
possible, a sustainable edge over its
competitors. Corporate Strategy thus
implies an attempt to alter a companys strength relative to that of its competitors
in the most efficient way
Kenichi Ohmae
The Mind of the Strategist
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Strategy is defined as those actions that a company
plans, in response to, or in anticipation of, changes in
its external environment, its customers and its
competitors.
Strategy is a way company aims to improve its
position vis--vis competition.
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Strategic competitiveness and above normal returns
Concerns managerial decisions and actions which materially affect the success and survival of business
enterprises
Involves the judgment necessary to strategically position a business and its resources so as to maximize long-
term profits in the face of irreducible uncertainty and
aggressive competition
Strategy is the linkage between a business and its current and future environment
Domain of Strategy
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Strategic management is the process of specifying the organization's mission, vision and
objectives, developing policies and plans, often in
terms of projects and programs, which are
designed to achieve these objectives, and then
allocating resources to implement the policies and
plans, projects and programs.
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Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies
Strategic management is the conduct of drafting, implementing and evaluating cross-functional
decisions that will enable an organization to
achieve its long-term objectives
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Strategic management is an ongoing process that
evaluates and controls the business and the industries in
which the company is involved; assesses its competitors
and sets goals and strategies to meet all existing and
potential competitors; and then reassesses each strategy
annually or quarterly [i.e. regularly] to determine how it has
been implemented and whether it has succeeded or needs
replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new
economic environment., or a new social, financial, or
political environment. (Lamb, 1984:ix)
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The Strategic Management Process
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Strategic Management
The Evolution
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DOMINANT
THEME
1950s 1960s-early 70s Mid-70s-mid-80s Late 80s 1990s 2000s
Budgetary Corporate Positioning Competitive Strategic
planning & planning advantage innovation
control
Financial Planning Selecting Focusing on Reconciling
control growth &- sectors/markets. sources of size with
diversification Positioning for competitive flexibility &
leadership advantage agility
Capital Forecasting. Industry analysis Resources & Cooperative
budgeting. Corporate Segmentation capabilities. strategy.
Financial planning. Experience curve Shareholder Complexity.
planning Synergy Portfolio analysis value. Owning
E-commerce. standards.
Knowledge Management
Coordination Corporate Diversification. Restructuring. Alliances &
& control by planning depts. Global strategies. Reengineering. networks
Budgeting created. Rise of Matrix structures Refocusing. Self-organiz
systems corporate Outsourcing. ation & virtual
planning organization
MAIN
ISSUES
KEY
CONCEPTS&
TOOLS
MANAGE-
MENT
IMPLIC-
ATIONS
Major Timeline
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Major Thought Schools
Alfred Chandler Corporate Strategy
John Dunning IB Strategy
C K Prahalad Inclusive Strategy
Sumantra Ghoshal Problems in T.C.E.
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Historical development of Strategic
Management
Birth of strategic management
originated in the 1950s and 60s
Alfred D. Chandler, Jr.,
Philip Selznick,
Igor Ansoff,
Peter F. Drucker
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Alfred Chandler
Strategy and Structure
structure follows strategy
Philip Selznick
Organization's internal factors with external environmental circumstances
SWOT analysis
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Igor Ansoff
market penetration strategies
product development strategies
market development strategies
horizontal and vertical integration
diversification strategies
Corporate strategy
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Peter Drucker
stressed the importance of objectives
management by objectives (MBO)
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Growth and portfolio theory
Profit Impact of Marketing Strategies (PIMS)
effect of market share
Started at General Electric, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in
the late 1970s, it now contains decades of information on the relationship between profitability and strategy
"PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom
Peters.
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McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff,
Style, and Supra-ordinate goals
The Mind of the Strategist was released in America by Kenichi Ohmae
Tom Peters -In Search of Excellence
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Gaining competitive advantage Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
Dave Packard and Bill Hewlett devised an active management style that they called Management By Walking Around (MBWA).
Michael Porter cost minimization strategies, product
differentiation strategies, and market focus strategies
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The Military Theorists
Business War Games by Barrie James, 1984 Marketing Warfare by Al Ries and Jack Trout, 1986 Leadership Secrets of Attila the Hun by Wess Roberts ,
1987
Philip Kotler was a well-known proponent of marketing warfare strategy
Offensive marketing warfare strategies Defensive marketing warfare strategies Flanking marketing warfare strategies Guerrilla marketing warfare strategies
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Strategic change
In 1968, Peter Drucker (1969) coined the phrase Age
of Discontinuity
In 2000, Gary Hamel discussed strategic decay
In 1978, Abell, D. described strategic windows and
stressed the importance of the timing (both
entrance and exit) of any given strategy
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Clayton Christensen (1997)
1-disruptive technology
2-agnostic marketing (no one knows how in what
quantities a disruptive product will be used before
experiencing the product)
Henry Mintzberg (1988) Strategy was much more fluid and unpredictable than people had thought
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Strategy as plan - a direction, guide, course of action - intention rather than actual
Strategy as ploy - a maneuver intended to outwit a competitor
Strategy as pattern - a consistent pattern of past behavior - realized rather than intended
Strategy as position - locating of brands, products, or companies within the conceptual framework of consumers or other stakeholders - strategy determined primarily by factors outside the firm
Strategy as perspective - strategy determined primarily by a master strategist
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Information and technology driven
strategy
Peter Drucker had theorized the rise of the knowledge worker back in the 1950s
In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization
People can continuously expand their capacity to learn and be productive
New patterns of thinking are nurtured
Collective aspirations are encouraged, and
People are encouraged to see the whole picture together.
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Senge identified five components of a learning organization. They are:
Personal responsibility
Self reliance
Mastery of Mental models
Team learning -a spirit of advocacy to a spirit of enquiry
Systems thinking
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Criticisms of strategic
management
marketing myopia
In 2000, Gary Hamel coined the term strategic convergence
Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not
dominate action. "Just do it!",
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Levels of Strategy
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FUNCTIONAL STRATEGY: Maximize Resource Productivity
It is concerned with developing & nurturing a
distinctive competence to provide a company or
business unit with a competitive advantage
CORPORATE STRATEGY: Overall Direction of Company and Management of Businesses
BUSINESS STRATEGY:
Competitive & Cooperative Strategies It occurs at Business unit or Product level.
It emphasizes on improvement of competitive
position of Corporations product & services
Functional Strategy supports Business Strategy which in turn
supports the Corporate Strategy
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ORGANIZATIONAL STRUCTURE
&
LEVELS OF STRATEGY
Business
Strategy
Corporate
Strategy
Functional
Strategy
Div-A Div-B Div-C
Prod. HR Fin. Marketing
Corporate
Head Office
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Corporate Level Strategy
What businesses are we in? What businesses should we be in?
Four areas of focus
Diversification management (acquisitions and divestitures)
Synergy between units
Investment priorities
Business level strategy approval (but not crafting)
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Business Level Strategy How do we support the corporate strategy?
How do we compete in a specific business arena?
Three types of business level strategies: Low cost producer
Differentiator
Focus
Four areas of focus Generate sustainable competitive advantages
Develop and nurture (potentially) valuable capabilities
Respond to environmental changes
Approval of functional level strategies
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Functional / Operational Level Strategy
Functional: How do we support the
business level
strategy?
Operational: How do we support the
functional level
strategy?
An example.
Business L.S.: Become the low cost producer of
widgets
Functional L.S. (Mfg.): Reduce manufacturing
costs by 10%
Operational (Plant #1): Increase worker
productivity by 15%
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A Simple Organization Chart
(Single Product Business)
Business
Research and
Development Manufacturing Marketing
Human
Resources Finance
Functional
Level
Strategy
Business
Level
Strategy
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A Simple Organization Chart
(Dominant or Related Product Business)
Multibusiness
Corporation
Corporate
Level
Business 1
(Related)
Business 2
(Related)
Business 3
(Related)
Business
Level
Research and
Development Manufacturing Marketing
Human
Resources Finance
Functional
Level
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An example of an Unrelated Product Business
(Note: By itself, an SBU can be considered a related
product business)
A
(Multi-business)
Corporation
Ex.: G.E. (General
Electric Corp.)
Strategic Business
Unit 1
S.B.U.
2
Company 1 Co. 2 Co. 3 Division 1 Div. 2 Div. 3
SBU: a single
business or collection
of related businesses
that is independent
and formulates its
own strategy
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Corporate Strategy
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Corporate Strategy
Approach to future that involves
(1) examination of the current and anticipated factors associated with customers and competitors (external environment) and the firm itself (internal environment),
(2) envisioning a new or effective role for the firm in a creative manner, and
(3) aligning policies, practices, and resources to realize that vision.
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Corporate Strategies I. Directional
The firms overall direction toward growth, stability, or retrenchment
II. Portfolio
The industries or markets in which the firm compete through its products and
business units
III. Parenting
The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business units
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I. Directional Strategies
A. Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B. Stability Strategies
1. Pause
2. No Change
3. Profit
C. Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
i. Forward Integration
ii. Backward Integration
Corporate Strategies
(Grand Strategies)
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Growth Strategies Related to expansion of companys activities, such as increasing sales or adding products
Concentration- within one product line or industry
Vertical Growth- Growth can be achieved through vertical growth by taking over a function previously provided by a supplier or by a distributor. This may be done to reduce cost, gain control over a scarce resource, guarantee quality of a key input, or obtain access to a new customer. This is logical for a corporation with a strong competitive position in a highly attractive industry
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Vertical Integration
When a firms grand strategy is to acquire firms that supply it with inputs (such as raw
materials) or are customers for its outputs
(such as warehouses for finished products),
vertical integration is involved
The main reason for backward integration is the desire to increase the dependability of the
supply or quality of the raw materials used as
production inputs
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Horizontal Integration
When a firms long-term strategy is based on growth through the acquisition of one or more
similar firms operating at the same stage of
the production-marketing chain, its grand
strategy is called horizontal integration
Such acquisitions eliminate competitors and provide the acquiring firm with access to new
markets
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Integration
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Full Integration Company produces all of a particular input
from its own operations. Disposes of all of its completed products through its own
outlets.
Taper Integration In addition to company-owned suppliers, the company will
also use other suppliers for inputs or independent outlets in addition to company-owned outlets.
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Full and Taper Integration
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A company pursues vertical integration to strengthen the business model of its original or core business or to improve its competitive position:
Increasing Profitability Through Vertical Integration
1. Facilitates investments in efficiency-enhancing
specialized assets Allows company to lower the cost structure or
Better differentiate its products
2. Enhances or protects product quality To strengthen its differentiation advantage through either forward or
backward integration
3. Results in improved scheduling Makes it easier and more cost-effective to plan, coordinate, and
schedule the transfer of product within the value-added chain
Enables a company to respond better to changes in demand
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Problems with vertical Integration
Companies may disintegrate or exit industries adjacent to the industry value chain when encountering disadvantages from the vertical integration:
Vertical integration can weaken business model when: Company-owned suppliers lack incentive to reduce costs Changing demand or technology reduces ability to be competitive
Cost structure is increasing. Company-owned suppliers develop a higher cost structure than those
of the independent suppliers
Bureaucratic costs of solving transaction difficulties
The technology is changing fast. Vertical integration may lock into old or inefficient technology
Prevent company from changing to a new technology that could strengthen the business model
Demand is unpredictable.
Creates risk in vertical integration investments.
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Alternatives to Vertical Integration: Cooperative Relationships
Short-term contracts and competitive bidding May signal a companys lack of commitment to its supplier
Strategic alliances and long-term contracting Enables creation of a stable long-term relationship
Becomes a substitute for vertical integration
Avoids the problems of having to manage a company located in an adjacent industry
Building long-term cooperative relationships
Hostage taking creating a mutual dependency
Credible commitments a believable promise or pledge
Maintaining market discipline power to discipline supplier
Periodic contract renegotiation Parallel sourcing policy
Strategic Alliances are long-term agreement between two or more companies to jointly develop new products or processes that benefit all companies concerned.
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Strategic Outsourcing
Company is choosing to focus on a fewer number of value-creation activities
In order to strengthen its business model Companys typically focus on noncore or nonstrategic activities
In order to determine if they can be performed more effectively and efficiently by independent specialized companies
Virtual Corporation
Describes companies that have pursued extensive strategic outsourcing
Strategic Outsourcing allows one or more of a companys value-chain activities or functions to be performed by independent specialized companies that focus all their skills and knowledge on just one kind of activity.
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Strategic Outsourcing of Primary Value
Creation Functions
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Benefits of Outsourcing
1. Reducing the cost structure The specialist company cost is less than what it would cost to perform the
activity internally.
2. Enhanced differentiation The quality of the activity performed by the specialist is greater than if the
activity were performed by the company.
3. Focus on the core business Distractions are removed.
The company can focus attention and resources on activities important for value creation and competitive advantage.
Strategic outsourcing may be detrimental when: Holdup company becomes too dependent on specialist provider Loss of information company loses important customer contact or competitive information
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Horizontal Integration
Single-Industry Strategy
Focus resources Its total managerial, technological, financial and functional resources and capabilities are devoted to competing successfully in one area.
Stick to its knitting Company stays focused on what it does best, rather than entering
new industries where its existing resources and capabilities add little value.
Horizontal Integration is the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope.
Staying inside a single industry allows a company to:
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Benefits of Horizontal Integration Profits and profitability increase when horizontal integration:
1. Lowers the cost structure Creates increasing economies of scale Reduces the duplication of resources between two companies
2. Increases product differentiation Product bundling broader range at single combined price Total solution saving customers time and money Cross-selling leveraging established customer relationships
3. Replicates the business model In new market segments within same industry
4. Reduces industry rivalry Eliminate excess capacity in an industry Easier to implement tacit price coordination among rivals
5. Increases bargaining power Increased market power over suppliers and buyers Gain greater control
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Problems with Horizontal Integration
A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value. Implementing a horizontal integration is not an easy task.
Problems associated with merging very different company cultures
High management turnover in the acquired company when the acquisition is a hostile one
Tendency of managers to overestimate the benefits to be had in the merger
Tendency of managers to underestimate the problems involved in merging their operations
The merger may be blocked if merger is perceived to: Create a dominant competitor
Create too much industry consolidation
Have the potential for future abuse of market power
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I. Directional Strategies
A. Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B. Stability Strategies
1. Pause
2. No Change
3. Profit
C. Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
i. Forward Integration
ii. Backward Integration
Corporate Strategies
(Grand Strategies)
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Horizontal Growth i. Exporting
ii. Licensing
iii.Franchising
iv.Joint Ventures
v. Acquisitions
vi.Green Field Development
vii.Production Sharing
viii.Turnkey operations
ix.Management contracts
x. Build, Operate, Transfer (BOT)
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I. Directional Strategies
A. Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B. Stability Strategies
1. Pause
2. No Change
3. Profit
C. Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
i. Forward Integration
ii. Backward Integration
Corporate Strategies
(Grand Strategies)
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Market Development
Market development commonly ranks second only to concentration as the least costly and least risky of all the grand strategies
It consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by adding channels of distribution or by changing the content of advertising or promotion
Frequently, changes in media selection, promotional appeals, and distribution are used to initiate this approach
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Product Development
Product development involves the substantial modification of
existing products or the creation of
new but related products that can
be marketed to current customers
through established channels
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Innovation
These companies seek to reap the initially high profits associated with customer acceptance of a new or greatly
improved product
Then, rather than face stiffening competition as the basis of profitability shifts from innovation to production or
marketing competence, they search for other original or
novel ideas
The underlying rationale of the grand strategy of innovation is to create a new product life cycle and
thereby make similar existing products obsolete
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Diversification Strategies Diversification is a form of corporate strategy for a
company. It seeks to increase profitability through greater sales volume obtained from new products and new markets.
Diversification can occur either at the business unit level or at the corporate level.
At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in.
At the corporate level, it is entering a promising business outside of the scope of the existing business unit.
Diversification usually requires a company to acquire new skills, new techniques and new facilities
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Concentric diversification
When there is a technological similarity between the
industries, which means that the firm is able to leverage its technical know-how to gain some advantage.
For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product which helps the particular company to earn profit.
However, there's one more example, Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Nestle is an example of technological-related concentric diversification.
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Horizontal diversification
The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers.
In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced.
Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firm's dependence on certain market segments.
For example company was making note books earlier now they are also entering into pen market through its new product.
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Conglomerate diversification (or lateral diversification)
The company markets new products or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers.
The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons of adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger.
Even if this strategy is very risky, it could also, if successful, provide increased growth and profitability.
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Rationale of diversification
According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification. The first one relates to the nature of the strategic objective: diversification may be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.
The second dimension involves the expected outcomes of diversification: management may expect great economic value (growth, profitability) or first and foremost great coherence and complementary to their current activities (exploitation of know-how, more efficient use of available resources and capacities). In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion.
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Risks Diversification is the riskiest of the four strategies
presented in the Ansoff matrix and requires the most careful investigation. Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required. Therefore, the company puts itself in a great uncertainty.
Moreover, diversification might necessitate significant expanding of human and financial resources, which may detracts focus, commitment and sustained investments in the core industries. Therefore a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth.
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I. Directional Strategies
A. Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B. Stability Strategies
1. Pause
2. No Change
3. Profit
C. Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
i. Forward Integration
ii. Backward Integration
Corporate Strategies
(Grand Strategies)
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Stability Strategies
This strategy is essentially a continuation of existing
strategies. Such strategies are typically found in
industries having relatively stable environments. The firm
is often making a comfortable income operating a
business that they know, and see no need to make the
psychological and financial investment that would be
required to undertake a growth strategy.
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Pause Strategy This strategy in effect, a time-out, an opportunity to rest
before continuing a growth or retrenchment strategy. It may be a very appropriate strategy to enable a company to consolidate its resources after prolonged rapid growth in an industry that faces an uncertain future. It is typically a temporary strategy to be used until the environment becomes more hospitable or to enable a company to consolidate its resources after prolonged rapid growth. This was the strategy Dell Computer Corporation followed in the early 1990s after its growth strategy had resulted in more growth than it can handle. Dell did not give up on its growth strategy, but merely put it temporarily in limbo until company could hire new managers, improve the structure, and build new facility
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No Change Strategy
It is a strategic decision to do nothing new, a choice to continue current operations and policies for the foreseeable future. Rarely articulated as a definite strategy, no change strategy's success depends on a lack of significant change in a corporations situation. The corporation has probably found a reasonably profitable and stable niche for its products. Most small-town businesses probably follow this strategy before a Wal-Mart moves into their areas
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Profit Strategy
It is a decision to do nothing new in a worsening situation, but instead to act as
though the companys problems are only temporary. It is an attempt to artificially
support profits when a companys sales are declining by reducing investment and short-
term discretionary expenditures.
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I. Directional Strategies
A. Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B. Stability Strategies
1. Pause
2. No Change
3. Profit
C. Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
i. Forward Integration
ii. Backward Integration
Corporate Strategies
(Grand Strategies)
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Retrenchment Strategies Management may pursue retrenchment strategies
when the company has a weak competitive
position in some or all of its product lines resulting
in poor performance- when sales are down and
profits are becoming losses. These strategies
generate a great deal of pressure to improve
performance. The CEO is under extreme pressure
to do something quickly or be fired. In an attempt to
eliminate the weaknesses that are dragging the
company down, management my follow turnaround
or becoming a captive company to selling out,
bankruptcy or liquidation.
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Turnaround Strategy
The firm finds itself with declining profits
Among the reasons are economic recessions, production inefficiencies, and innovative breakthroughs by competitors
Strategic managers often believe the firm can survive and eventually recover if a concerted effort is made over a period of a few years to fortify its distinctive competences. This is turnaround.
Two forms of retrenchment:
Cost reduction
Asset reduction
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Elements of Turnaround
A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient
magnitude to warrant explicit turnaround actions
The immediacy of the resulting threat to company survival is known as situation severity
Turnaround responses among successful firms typically include two stages of strategic activities: retrenchment
and the recovery response
The primary causes of the turnaround situation have been associated with the second phase of the turnaround
process, the recovery response 7-77
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Captive Company
This strategy involves giving up independence in exchange for some security by becoming another company's sole supplier, distributor, or a dependent subsidiary.
Example- J B Mangharam now a captive company of Britannia
Simpson Industries of Birmingham, Michigan agreed to have its engine parts facilities and books inspected and its employees interviewed by a special team from GM. In return, nearly 80% of the companys production was sold to GM through long term contracts.
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Sell out or Divestment If a company in a weak position is unable or
unlikely to succeed with a turnaround or captive company strategy, it has few choices other than to try to find a buyer and sell itself (or divest, if part of a diversified corporation)
When Monsanto realized that its well known chemical business had been overshadowed by advances in biotechnology and in agricultural products such as Roundup, it sold its chemical unit.
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Bankruptcy or Liquidation When a company has been unsuccessful in
or has none of the previous three strategic
alternatives available, the only remaining
alternative is liquidation, often involving a
bankruptcy. There is a modest advantage of
a voluntary liquidation over bankruptcy in
that the board and top management make
the decisions rather than turning them over
to a court, which often ignores stockholders'
interests.
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Corporate-Level Strategies
Firm
Status
Valuable
strengths
Critical
weaknesses
Environmental Status Abundant
environmental
opportunities
Critical
environmental
threats
Corporate
growth
strategies
Concentric Diversification
(Economies of
Scope)
Conglomerate
Diversification
(Risk Mgt.)
Corporate
retrenchment
strategies
Can still go for business-level growth
(economies of scale)
Corporate
stability
strategies
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Vision, Mission and Business Definition
Whether you are starting a new company or
improving an existing one, you should define its
purpose for existence. Then it is important to have
a mission, plans and a vision for your company or
business enterprise.
Questions you may have include:
What factors are in the purpose of a business?
How do you define a mission?
What about a business concept?
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Vision/Mission Statements Statements that explain who we are
Type of organization Products/services Needs we fill
Statements that explain our direction, our purpose, our reason for being What difference do we make?
Statements that explain what makes us unique Values People Combination of products and services
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Major Components of the
Strategic Plan / Down to Action
Mission
Vision
Goals
Objectives
Measures
Why we exist
What we want to be
Indicators and
Monitors of success
Desired level of
performance and timelines
Planned Actions to
Achieve Objectives
O1 O2
AI1 AI2 AI3
M1 M2 M3
T1 T1 T1
Specific outcomes expressed in
measurable terms (NOT activities)
Strategic Plan
Action Plans
Evaluate Progress
Targets
Initiatives
What we must achieve to be successful
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VISION : Desired future state; the
aspiration of the Organization
What are our Dreams and Aspirations?
What do we want to look like in 5, 10, 15 years?
Where do we want to go?
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A Vision is
How the organization wants to be perceived in the future what success looks like
An expression of the desired end state Challenges everyone to reach for something significant inspires a compelling future
Provides a long-term focus for the entire organization
A guiding philosophy
Consistent with organizational value
Influenced by the strengths and weaknesses of the
business
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Components of a Vision Statement
Core ideology
Core Values - timeless guiding principles
Core Purpose - reason for being
Envisioned future
Big Hairy Audacious Goals (BHAG) - clearly articulated goals
Vivid description - a graphic description of what success and the future will be like
Recognition of service to stakeholders
Owners/creditors
Employees
Customers
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Essentials of good Business Vision
Statement
Should significantly stretch the resources and capabilities of the firm
Should inspire people in the organization to achieve things they never thought possible
Should unite people in the organization toward the pursuit of one common goal
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MISSION :It is the unique purpose or reason for organizations existence.
Overriding purpose in line with the values
or expectations of the stakeholders
Who are we?
What business are we in?
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The mission statement of an organization is normally short, to the point, and contains the following elements:
Provides a concise statement of why the organization exists, and what it is to achieve;
States the purpose and identity of the organization;
Defines the institution's values and philosophy; and
Describes how the organization will serve those affected by its work.
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Importance of Mission
Mission
Resource Allocation
Unanimity of Purpose
Organizational Climate
Focal point for work
structure
Benefits from a strong mission
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Mission
Elements
Customers
Markets
Employees
Public
Image Self-Concept Philosophy
Survival
Growth
Profit
Products
Services
Technology
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Mission Statements Fleetwood Enterprises will lead the recreational vehicle and manufactured
housing industries (2, 7) in providing quality products, with a passion for
customer-driven innovation (1). We will emphasize training, embrace
diversity and provide growth opportunities for our associates and our
dealers (9). We will lead our industries in the application of appropriate
technologies (4). We will operate at the highest levels of ethics and
compliance with a focus on exemplary corporate governance (6). We will
deliver value to our shareholders, positive operating results and industry-
leading earnings (5). (Comment: Statement lacks two components:
Markets and Concern for Public Image)
We are loyal to Royal Caribbean and Celebrity and strive for continuous improvement in everything we do. We always provide service with a friendly
greeting and a smile (7). We anticipate the needs of our customers and
make all efforts to exceed our customers expectations (1). We take ownership of any problem that is brought to our attention. We engage in
conduct that enhances our corporate reputation and employee morale (9).
We are committed to act in the highest ethical manner and respect the
rights and dignity of others (6). (Comment: Statement lacks five
components: Products/Services, Markets, Technology, Concern for
Survival/Growth/Profits, Concern for Public Image)
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We aspire to make PepsiCo the worlds (3) premier consumer products company, focused
on convenient foods and beverages (2). We
seek to produce healthy financial rewards for
investors (5) as we provide opportunities for
growth and enrichment to our employees (9),
our business partners and the communities (8)
in which we operate. And in everything we do,
we strive to act with honesty, openness, fairness
and integrity (6). (Comment: Statement lacks
three components: Customers, Technology,
and Self-Concept)
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Vision vs. Mission
The vision is more broad and future oriented the goal on the horizon
The mission is more focused how you will get to the horizon
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GOAL: General statement of Aim or
Purpose.
It is an open ended statement of what one
wishes to accomplish with no quantification
and no time frame for completion.
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Describes a future end-state desired outcome that is supportive of the mission and vision.
Shapes the way ahead in actionable terms. Best applied where there are clear choices about the future.
Puts strategic focus into the organization specific ownership of the goal should be assigned to someone
within the organization.
May not work well where things are changing fast goals tend to be long-term for environments that have
limited choices about the future.
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Developing Goals Cascade from the top of the Strategic Plan Mission, Vision, Guiding Principles.
Look at your strategic analysis SWOT, Environmental Scan, Past Performance, Gaps .
Limit to a critical few such as five to eight goals. Broad participation in the development of goals: Consensus from above buy-in at the execution level. Should drive higher levels of performance and close a critical performance gap.
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OBJECTIVE : Quantification or more precise
statement of objective
Definable: It should defined to compare the performance
Quantifiable: It should be expressed in terms of Value Or Market share
( Avoid Vague terms such as increase, improve or maximize)
Achievable:
e.g. To increase sales of product globally by 30% in real terms within 5yrs.
To increase market share for the product in the India from 10%-15% over 2yrs
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Relevant - directly supports the goal
Compels the organization into action
Specific enough so we can quantify and measure the results
Simple and easy to understand
Realistic and attainable
Conveys responsibility and ownership
Acceptable to those who must execute
May need several objectives to meet a goal
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GOALS OBJECTIVES
Very short statement, few
words
Longer statement, more
descriptive
Broad in scope Narrow in scope
Directly relates to the
Mission Statement
Indirectly relates to the
Mission Statement
Covers long time period
(such as 10 years)
Covers short time period (such
1 year budget cycle)
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GOAL OBJECTIVE STRATEGY
To be
No. 1
in the
market
Increase
market
share by
15% in
three years
i) Increase product
promotion
ii) Design product pricing
iii) Penetration
iv) New market
development
v) Product-Service mix
vi) Quality improvement
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Business Definition
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A Business Definition is a clear statement of the business the firm is engaged in or is planning to enter.
What is our Business in precise way:
We are in the beauty enriching Business (Helen and Curtis)
We are in the Business of Computing Technology (Intel)
We are Watch makers of the nation (HMT)
We are in the transportation business (TELCO)
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Business Definition
Abells Framework
http://www.12manage.com/methods_abell_three_dimensional_business_definition.html
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Business Definition Statements
Define the space that the business wants to create for itself in competitive terrain
Broadly specifies the opportunities that the business may exploit within the space and the threats it may encounter from rival firms in course of time
Must be defined in broad ways, keeping changing customer tastes and aspirations in mind
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Product Oriented V/S market Oriented
Company Product Definition Market Definition
Railways We run railways We are a people and
Goods mover
Oil Company We Sell Gasoline We supply energy
Film Producing
Company
We make movies We make entertainment
Air conditioning
company
We make air
conditioners
We provide climate
control in the home
Publishing Company We produce and sell
books
We distribute
information
Copying Company We make copying
equipments
We help improve office
productivity
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VALUES
What do we prize?
What drives our business?
What are our criteria for making ethical decisions?
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Guiding Principles and Values
Every organization should be guided by a set of values and beliefs
Provides an underlying framework for making decisions part of the organizations culture Values are often rooted in ethical themes, such as honesty, trust, integrity, respect, fairness, . . . .
Values should be applicable across the entire organization Values may be appropriate for certain best management practices best in terms of quality, exceptional customer service, etc.
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Examples of
Guiding Principles and Values
We obey the law and do not compromise moral or ethical principles ever! We expect to be measured by what we do, as well as what we say.
We treat everyone with respect and appreciate individual differences.
We carefully consider the impact of business decisions on our people and we
recognize exceptional contributions.
We are strategically entrepreneurial in the pursuit of excellence, encouraging original
thought and its application, and willing to take risks based on sound business
judgment.
We are committed to forging public and private partnerships that combine diverse
strengths, skills and resources.
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Stakeholders
Individuals and groups who have an interest in a firms performance and an ability to influence its actions
Interest in performance coupled with ability to influence the firm through their decision to support
the firm or not companies have important relationships with their stakeholders.
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112
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ETHICS
The word ethics is derived from the Greek word ethos meaning character and latin word mores meaning customs
To better understand ethics let us understand and contrast the definition of ethics and law
Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society.
Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society
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What are ethics
The principle of conduct professional ethics
A system or philosophy of conduct
A discipline dealing with what is good and bad- moral duty and obligation
A set of moral principles or values.
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Relation between ethics and law
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Reflection in a companys operations of the values and moral principles used in the communities in which they operate
Successful markets and corporate performance are founded on a commitment to basic ethical principles aligned as much as possible to the interests of individuals, corporations and society.
Ethical standards may be expressed in a companys formal conduct requirements, or contained in generally stated principles that guide a companys preferred conduct or behavior.
Most companies have put in place a code of ethics for its employees to conduct themselves in a particular manner while doing business.
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Purpose of Ethics
Ethics are the guiding principles.
Where the proposed business activity/ operation of the company borders on the
unknown, the company needs to apply the
ethics principle to decide on the project.
Ethics help make relationships mutually pleasant and productive- imbibes a sense of
community among members- a sense of
belongingness to society.
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Why have a code of ethics?
To define acceptable behavior
To promote high standards of practice
To provide a benchmark for self-evaluation
To establish a framework for professional behavior and responsibilities
As a vehicle for occupational identity
As a mark of occupational maturity.
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Code of ethics -transition
Original
Compliance
Enforcement
Punishment
Directive
Secretive
Integrity
Inspiration
Motivation
Educational
Open
Revised
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Creating the Ethical Imperative
Written code of ethics
Employee commitment
Employee training
Discipline process
Full disclosure
Building expectations
Resolution process conflict management
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THE INFOSYS MODEL
A formal code of business conduct and ethics.
To be signed and adhered to by employees.
Action against any employee for violation thereof.
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THE INFOSYS MODEL -Contents
General standards of conduct
Management of conflicts of interest
Prohibition of exploitation of corporate opportunities
Protection of companys confidential information
Obligations under securities laws
Use of assets
An entire section on responsibilities to customers and stakeholders.
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Definitions and Relationships Corporate social responsibility (CSR) is the
process by which businesses negotiate their
role in society
In the business world, ethics is the study of morally appropriate behaviors and decisions,
examining what "should be done
Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior
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Main Concepts of CSR
Social Contract (Donaldson, 1982; Donaldson and Dunfee, 1999) There is a tacit social contract between the firm and society; the
contract bestows certain rights in exchange for certain
responsibilities.
Stakeholder Theory (Freeman, 1984) A stakeholder is any group or individual who can affect or is affected by the achievement of an
organization's purpose. Argues that it is in the companys strategic interest to respect the interests of all its stakeholders.
CSR (Carrol, 1979)
Firms have responsibilities to societies including economic, legal,
ethical and discretionary (or philanthropic).
- See also DeGeorge (1999) on the Myth of the Amoral Firm
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Maximize
firms profits to the exclusion
of all else
Balance
profits and
social
objectives
Do what it takes
to make a profit;
skirt the law; fly
below social
radar
Fight social
responsibility
initiatives
Comply;
do what is
legally
required
Integrate social
objectives and
business goals
Lead the industry
and other
businesses with
best practices
Do more than
required; e.g.
engage in
philanthropic
giving
Articulate
social value
objectives
Corporate Social Responsibility Continuum
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CSR are Grounded by Opposing Objectives
(Maximize Profits to Balance Profits with Social
Responsibility) and so Activities Range Widely
Do what it takes to make a profit; skirt the law; fly below social radar
Fight CSR initiatives
Comply with legal requirements
Do more than legally required, e.g., philanthropy
Articulate social (CSR) objectives
Integrate social objectives and business goals
Lead the industry on social objectives
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Main Concepts of CSR
CSR = political economy
The rights and responsibilities assigned to private industry.
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Key Issues in CSR
Labour rights:
child labour
forced labour
right to organise
safety and health
Environmental conditions
water & air emissions
climate change
Human rights
cooperation with paramilitary forces
complicity in extra-judicial killings
Poverty Alleviation
job creation
public revenues
skills and technology
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Context Globally
Liberalization of markets reduction of the regulatory approach
Emergence of global giants, consolidation of market share
Development of the embedded firm and the global value chain
Development of supplier networks in developing countries
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Key drivers of CSR
Around the world
NGO Activism
Responsible investment
Litigation
Gov initiatives
Developing Countries
Foreign customers
Domestic consumers
FDI
Government
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CSR Management:
Systems approach
Sustainable business development does not come
about of its own accord. Rather, commitment to
sustainability demands that corporate processes
be reliably controlled and that everyone's actions -
in finance as much as in environmental and social
areas - be coordinated. Prerequisites for this are
binding guidelines, unambiguous corporate
goals and a clear organizational structure.
- Deutsche Telekom
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Plan, Do, Check, Act method Plan
Consult stakeholders
Establish code of conduct
Set targets
Do
Establish management systems and personnel
Promote code compliance
Check
Measure progress
Audit
Report
Act
Corrective action
Reform of systems