Expert answer:Answer each question with min. of 200 words and ma
Answer & Explanation:Read 3.pdfThe
Internal Environment & Corporate Strategy
Case Summary
1. In a narrative format, discuss Nike from a
strategic perspective. Information concerning recent changes in the firm is
readily available online and should be accessed. Strategic issues should be
discussed in “real time.”
Case Analysis
2. Some critics—citing previous allegations of
sweatshops—have argued that Nike has not been ethical in its approach to
production in developing countries. Is this criticism warranted? Why or why
not? Additional Internet research may be required to support your position.
3. How has Nike accomplished considerable growth over the
past two decades? Can this continue? Why or why not?
Application
4. Suppose you are the CEO of Nike and the world is coping
with an economic recession. Would you change the corporate strategy? If so,
what changes would you make and why? If not, why not?
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The Organization
Chapter Outline
5
W
5-1 Organizational Direction: Mission, Goals, and Objectives
R 5-1a Global Influences on Mission
I 5-1b Goals and Stakeholders
G5-2 Social Responsibility
H5-3 Managerial Ethics
T5-4 The Agency Problem
5-4a Management Serves Its Own Interests
, 5-4b Management and Stockholders Share the Same Interests
5-5 Corporate Governance and Goals of Boards of Directors
S5-6 Takeovers
H5-7 Summary
EKey Terms
RReview Questions and Exercises
Practice Quiz
RNotes
YReading 5-1
2
7
9
3
B
U
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
94
Chapter 5
W
hereas previous chapters discussed the external analysis phase of
the strategic management process, this chapter begins to consider
internal factors. This shift from the industry level to the organizational level reflects a change in focus from similarities, or factors
that tend to affect all of an industry’s organizations in a like manner, to differences, or issues specific to a particular firm in an industry. This shift also relates
to theoretical perspectives discussed in Chapter 1, marking a movement from an
industrial organization (IO) perspective to a resource-based view of the firm.
Crafting a strategy for an organization whose purpose and resources are not
well understood by its members is a difficult task, however. This chapter discusses
the role that an organization’s unique mission and resources, as well as social
responsibility and ethics, play in the strategic management process.
5-1 Organizational Direction: Mission,
W Objectives
Goals, and
R
Mission
The reason for an
organization’s existence.
The mission statement
is a broadly defined but
enduring statement of
purpose that identifies
the scope of an organization’s operations and
its offerings to the various stakeholders.
Goals
Desired general ends
toward which efforts are
directed.
Objectives
Specific, verifiable, and
often quantified versions
of a goal.
Comparative
Advantage
The idea that certain
products may be produced more cheaply or
at a higher quality
in particular countries,
due to advantages
in labor costs or
technology
Several terms are commonly used to delineate the direction of the organizaI reason for the firm’s existence and is the broadest of
tion. The mission is the
these terms. The organization’s
goals represent the desired general ends toward
G
which efforts are directed. Objectives are specific and often quantified versions
of goals. Unlike goals, H
objectives are verifiable and specific, and are developed so
that management can T
measure performance. Without verifiability and specificity,
objectives will not provide a clear direction for strategy.
,
For example, the mission
of an Internet Service Provider (ISP) might be “to
provide high-quality, reliable Internet access to the southeastern United States
at a profit.” Management may establish a goal “to expand the size of the firm
through acquisition ofSsmall ISPs.” From this goal, specific objectives may be
derived, such as “to increase
H access numbers by 20 percent each year for the next
five years.” As another example, management’s goal may be “to be known as the
E
innovative leader in the industry.” On the basis of this goal, one of the specific
objectives may be “to have
R 30 percent of sales each year come from new products
developed during the preceding three years.”
R
Y
5-1a Global Influences on Mission
An organization’s mission may be closely intertwined with international operations in several ways. A2firm may need inputs from abroad or sell a large percentage of its products to global customers. Consider, for example, that virtually all
7 grind to a halt if imports of raw materials from other
of Japan’s industries would
nations ceased, because
9 Japan is a small island nation and its natural resources
are quite limited.
3
Organizational mission and international involvement are also connected
through the economicBconcept of comparative advantage, the idea that certain
products may be produced more cheaply or at a higher quality in particular
U
countries due to advantages in labor costs or technology. Chinese manufacturers, for example, have enjoyed some of the lowest global labor rates for unskilled
or semiskilled production in recent years. As skills rise in the rapidly emerging
nation, some companies have succeeded in extending this comparative advantage to technical skill areas as well. The annual salary for successful engineers in
China rose to around $15,000 in 2007, a level well below their comparably skilled
counterparts in other parts of the world.1
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
The Organization
Global involvement may also provide advantages to the firm not directly related
to costs. For political reasons, a firm often needs to establish operations in other
countries, especially if a substantial proportion of sales is derived abroad. Doing
so can also provide managers with a critical understanding of local markets. For
example, Ford operates plants in western Europe, where manufacturing has
helped Ford’s engineers design windshield wipers for cars engaged in high-speed
driving on the German autobahns.2
95
Source: Ablestock.com
5-1b Goals and Stakeholders
At first glance, establishing a mission, goals, and objectives for a firm appears
to be fairly simple; however, because stakeholders have different perspectives
on the purpose of the firm, this task can become quite complex. Stakeholders
are individuals or groups who are affected by or can influence an organization’s operations. Firm stakeholders include such groups as shareholders,
members of the board of directors, managers, employees, suppliers, creditors,
Wshareholders traditionally represent
and customers (see Table 5-1). As owners,
the dominant group of stakeholders. TopRmanagers, too, should be concerned
not only with the shareholders’ primary objective of profits, but also with
those of other stakeholders.3 Ideally, theImission, goals, and objectives should
emphasize goals of the shareholders, and
G balance the pressures from other
stakeholders.4
It is not difficult to see how stakeholder H
goals can conflict with one another. For
example, shareholders are generally interested
T in maximum profitability, whereas
creditors are more concerned with long-term survival so that their loans will be
repaid. Meanwhile, customers desire the ,lowest possible prices, even if offering
them would result in losses for the firm. Hence, top management faces the difficult
task of attempting to reconcile these differences while pursuing its own set of goals,
S
which typically includes quality of work life and career advancement.
Stakeholders
Individuals or groups
who are affected by or
can influence an organization’s operations.
H
E
TA B L E
Su g g e s t e d G o a ls o f S t a k e holde r s
5-1
R
R
Stakeholders
Goals
Customers
The company shouldY
provide high-quality products and servGeneral public
Suppliers
Employees
Creditors
Shareholders
Board of directors
Managers
ices at the most reasonable prices possible.
The company should provide goods and services with minimum environmental 2
costs, increase employment opportunities, and contribute to social and charitable causes.
The company should7establish long-term relationships with
suppliers and purchase
9 from them at prices that allow the
suppliers to remain profitable.
The company should3provide good working conditions, equitable compensation, and opportunities for advancement.
B
The company should maintain a healthy financial posture and
a policy of on-time payment
U of debt.
The company should produce a higher-than-average return on
equity.
Current directors should be retained and shielded from a legal
liability.
The company should allow managers to benefit financially
from the growth and success of the company.
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
96
Chapter 5
This balancing act is evident when one considers the clash that can occur
when top management goals are pitted against those of the board of directors.
Although both groups are primarily accountable to the owners of the corporation, top management is responsible for generating financial returns and the
board of directors is charged with oversight of the firm’s management. Some have
argued, however, that this traditional shareholder-driven perspective is too narrow,
and that financial returns are actually maximized when a customer-driven perspective is adopted, a view that is consistent with the marketing concept.5 Consumer
advocate and 2000 U.S. presidential candidate Ralph Nader has argued for more
than thirty years that large corporations must be more responsive to customers’
needs.6
Firms create value for various parties, including employees through wages and
salaries, shareholders through profits, customers through value derived from
goods and services, and even governments through taxes. Firms that seek to
maximize the value delivered to any single stakeholder at the expense of those
of other groups can jeopardize their long-term survival and profitability.7 For
W
example, a firm that emphasizes
the financial interests of shareholders over the
monetary needs of employees
can alienate employees, threatening shareholder
R
returns in the long run. Likewise, establishing long-term relationships with
I
suppliers may restrict the firm’s ability to remain flexible and offer innovative
products to customers.
GTop management is charged with the task of resolving
opposing stakeholder demands, recognizing that the firm must be managed to
H
balance the demands of various stakeholder groups for the long-term benefit of
T 8
the corporation as a whole.
,
5-2 Social Responsibility
Social Responsibility
The expectation that
business firms should
serve both society and
the financial interests of
shareholders.
An organization’s direction is governed in part by its value system. An organizaS
tion’s values can be seen through its stance on service to society, as well as its supH
port for high ethical standards
among its managers. These factors are discussed
in this section.
E
Social responsibility refers to the expectation that business firms should serve
both society and the fiR
nancial interests of the shareholders. A firm’s stance on
social responsibility can
Rbe a critical factor in making strategic decisions. If social
responsibility is not considered, decisions may be aimed only at profit or other
Y concern for balancing social objectives that the firm
narrow objectives without
might embody. The degree to which social responsibility is relevant in strategic
decision making is widely debated, however.
From an economic2perspective, businesses have always been expected to
provide employment 7
for individuals and meet consumer needs within legal
constraints. Today, however, society also expects firms to help preserve the
9 products, to treat their employees equitably, and to
environment, to sell safe
be truthful with their3customers.9 In some cases, firms are even expected to
provide training to unemployed workers, contribute to education and the arts,
B
and help revitalize urban areas. Firms such as Home Depot, Coca-Cola, UPS, and
U earned high marks for social responsibility, whereas
Johnson & Johnson recently
Bridgestone and Philip Morris were at the bottom of the list.10 Figure 5-1 illustrates
the approach to social responsibility at Johnson & Johnson, a firm whose corporate reputation ranked number one in 2002 and 2003 in the Harris Interactive
survey.11
Many economists, including such notables as Adam Smith and Milton Friedman,
have argued that social responsibility should not be part of management’s
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
The Organization
FIGURE
5-1
J o h n s o n & J o h n s o n Cre do
W
R
I
G
H
T
,
S
H
E
R
R
Y
2
7
Source: Reprinted by permission of Johnson & Johnson
9
3
B
decision-making process. Friedman has maintained
that business functions best
U
when it concentrates on maximizing returns by producing goods and services
within society’s legal restrictions. According to Friedman, corporations should
be concerned only with the legal pursuit of profit, while shareholders are free
to pursue other worthy goals as they individually see fit. Even if one accepts
Friedman’s argument, firms should act in a socially responsible manner for two
primary reasons.
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
97
98
Chapter 5
Source: Ablestock.com
Source: Ablestock.com
First, acting responsibly can reduce the likelihood of more costly government
regulation. Historically, regulations over business operations often were enacted
because certain firms refused to act responsibly. Had some organizations not
damaged the environment, sold unsafe products, or engaged in discrimination
or misleading advertising, legislation in these areas would not have been necessary. Government regulation is always possible when companies operate in a
manner contrary to society’s interests, even if doing so is clearly within the legal
jurisdiction of the firm.
Second, stakeholders affected by a firm’s social responsibility stance—most
notably customers—are also those who must choose whether to transact business
with the firm. Prospective customers have become more interested in learning
about a company’s social and philanthropic activities before making purchase
decisions. Those who believe a firm is not socially responsible may take their business elsewhere. The social responsibility debate aside, many executives—especially those in large firms—have concluded that their organizations must at the
minimum appear to be socially responsible or face the wrath of angry consumers.
W concerned about both the actual behavior of the firm
As such, they are greatly
and how it is perceived.
R Evidence suggests that consumers want the firms that
produce the products and services they buy not only to support public initiatives,
I
but also to uphold the same values in terms of the day-to-day decisions of running
12
nition, a firm that is socially responsible is one that is able
the company. By defiG
to generate both profits and societal benefits; but exactly what is good for society
H
is not always clear.13 For example, society’s demands for high employment and
T goods and services must be balanced against the polthe production of desired
lution and industrial wastes
, that may be generated by manufacturing operations.
The decisions made to balance these concerns, however, can be quite difficult to
make (see Strategy at Work 5-1).
Social responsibilitySis a prominent issue in some industries. Pharmaceutical
manufacturers, for example, spend billions of dollars to develop drugs for treating
HThe costs of the drugs, however, can determine the extent
a wide range of ailments.
to which patients will benefi
E t from them. In the United Kingdom, government officials called on physicians to stop prescribing various drugs for Alzheimer’s disease,
R ts but arguing that they do not justify the cost.14 The same
acknowledging their benefi
S T R A T E G Y
R
YA
T
W O R K
5 – 1
GMAbility: Social Responsibility in Action
2
The public emphasis that General Motors places on
7
social responsibility is quite noteworthy. The company’s
“GMAbility” initiative (www.gm.com/company/gmabil9
ity) highlights a number of GM activities. For exam3
ple, according to its 2001 sustainability report, GM
has taken action to reduce emissions and water B
and
energy consumption, while increasing its community
U
support and number of partnerships. GM is also active
in a variety of recycling, education, hazardous waste
collection, and pollution prevention programs.
GM has partnered with The Nature Conservancy, an
international environmental organization. GM spends
$1 million annually to assist in the preservation of land
and water systems in North America, Latin America,
the Caribbean, and the Asia/Pacific region.
GM also participates in a variety of philanthropic
activities, such as violence reduction programs in
schools, Special Olympics, and community development.
For example, GM partnered with Sun Microsystems
and EDS to contribute more than $211 million in computer-aided design, manufacturing, and engineering
(CAD/CAM/CAE) software, hardware, and training to
Virginia Tech.
Sources: R. Alsop, “Perils of Corporate Philanthropy,” Wall Street
Journal, 16 January 2002, B1, B4; General Motors, www.gm.com/
company/gmability, accessed March 14, 2002.
9781111219802, Strategic Management: Theory and Practice, John Parnell – © Cengage Learning
The Organization
realities can be true for medical procedures, especially in emerging economies. The
pay-as-you-go system for medical treatment in China ultimately can deny costly lifesaving treatment for the majority of its citizens who lack health insurance.15
In some instances, society’s expectations of an organization may increase as
the firm grows. For example, various constituencies have charged Wal-Mart with
socially irresponsible behavior in recent years. Critics allege that the mega-retailer
often competes unfairly, does not always follow fair hiring and promotion practices, and even contributes to local economic problems by abandoning strip-mall
locations when larger stores are constructed. In 2004, CEO Lee Scott signaled a
more assertive approach to countering such claims. As Scott put it, “When we’re
wrong, we change, so our detractors don’t have a foothold in attacking us. Where
we are right, we will fight and take each issue to the wall.”16
A broader notion of social responsibility, sustainable strategic management
(SSM), has received increased attention in recent years. SSM refers to the strategies and related activities that promote superior performance from both market
and environmental perspectives. Hence, an ideal strategy should seek market
sustainability by meeting buyer demandsW
and environmental sustainability by
proactively managing finite resources. Organizations
able to meet this challenge
R
are more likely to perform well and benefit society over the long term.
I
G
5-3 Managerial Ethics
H ethics are often grouped together
Although social responsibility and managerial
in the popular business press, the termsTare not synonymous. Whereas social
responsibility considers the firm’s ability to address issues beyond the financial
,
concerns of the shareholders, managerial ethics refers to an individual’s responsibility to make business decisions that are legal, honest, moral, and fair. Strategic
decisions should not require managers or other employees to perform activities
S
inconsistent with their ethical convictions concerning the role that they may be
H at Work 5-2). The ethics test in
expected to play in firm activities (see Strategy
Figure 5-2 provides an assessment of employees’
ethics.
E
Sustainable Strategic
Management (SSM)
Strategies and related
activities that promote
superior performance from both market
and environmental
perspectives.
Managerial Ethics
An individual’s responsibility to make business
decisions that are legal,
honest, moral, and fair.
R
S T R A T E G
RY
A T
W O R K
5 – 2
Y
Good Neighbor
or Good Business?
After creating considerable destruction in the Caribbean,
Hurricane Ivan hammered the Gulf Coast of2the United
States in September 2004. Because meteorologists
7
had forecast the magnitude of the storm several days
prior, many Americans soon to be affected9turned to
rivals Lowe’s and Home Depot for plywood to board up
3
their homes, for power generators, and for other supplies. Both retailers stepped into high gear toB
meet consumer needs.
U
Neither chain raised prices amidst the storm preparation and mos …
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