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These thee views are on the purpose and cooperate social responsibility (CSR) of an organization. What people expect an organization to achieve and what influence people can have over an organizations purpose. It is important to understand their expectations, how these might differ from each other and extend to which they likely to influence the organization’s purpose and strategy. Collectively these people are called organizational stakeholders. Stakeholders, are those individuals or groups who depend on the organization to fulfill their own goals and on whom, in turn, the organization depends. Important external stakeholders would usually include shareholders, financial institutions, customers and suppliers. CSR involves a business identifying its stakeholder groups and incorporating their needs and values within the strategic and day-to-day decision-making process.
First, Milton Friedman is in the view that the sole purpose of a business is to maximize profit. He believes that the only corporate social responsibility a company has is to increase profit. This is where an organization in the view that the only responsibility of business is the short-term interest of shareholders or private owners of small companies. It dismisses or only just meets the minimum obligations on internal aspects such as employee welfare, working conditions, and job satisfaction and eternal aspects like environment issues, human rights, community activities and markets also that the market will regulate itself without any need for externally induced controls. Purchase or sale of a product will be determined and/or regulated by the market in compliance with the free choice of individuals. Ideally, there would be no need for external ethical controls. This is especially evident in small private companies because they are only answerable to a limited stakeholder groups.
The Second, stakeholder view by Charles Handy, is to achieve financials benefits to the shareholders or owners through profits but in contrast to the earlier view profits will not be the sole responsibility of an organization. He would not define business exclusively in terms of individualist self-interest of profit maximization but, rather, in terms of a behavioral efficiency of benefit to both individuals and society that is operates. The justification for social action is that of an organizations reputation is important to its long-term financial growth. An effective CSR policy will infuse all aspects of operations. It’s believed that actions businesses take today to incorporate CSR throughout the organization represent a real point of differentiation and competitive market advantage on which future success will be manifested. This takes the view that organizations not only have responsibility to their shareholders but also have a responsibility for well-balanced relationship with other stakeholders both internal and external. As the companies stakeholder interest gets wider organizations social responsibility gets wider. There is a direct relationship between clarity of purpose and integrity of purpose to be fully effective, staff must be happy and confident as well as clear about what they are asked to do. Customers must be happy that they are purchasing good quality products/services from an honest company. The community must be happy that it is supporting a principled and sound organization. (Contemporary Strategic Management- R.Pettinger, page 317)
The third view, Society and shareholders are becoming one and the same, Performance of an organization should be measured in a much more pluralistic way than just through its financial bottom line, the attitudes of these companies are more socially progressive than others. If the mangers concentrate on the success of their organization by undertaking unethical activities that damage the society that will not bring into line with the stakeholder expectations. It’s in the best interest in the society if all the firms are behaving responsibly which results in success of the economic system as a whole. CSR covers all aspects of a business’ day-to-day operations. Everything an organization does in some way interacts with one or more of its stakeholder groups, and companies today need to build a sound brand with respect to all stakeholders. Whether as an employer, producer, buyer, supplier, or investment, the attractiveness and success of a company today is directly linked to the strength of its brand. CSR affects all aspects of all operations within a corporation because of the need to consider the needs of all constituent groups. Each area builds on all the others to create a composite of the corporation in the eyes of all stakeholder groups. Companies in this view retain uneconomical production in the aim of preserving jobs. As the stakeholder diversity of expectations get wider companies will adapt this approach.
Organizations are often finding themselves in a dilemma where they need to be financially profitable to meet the shareholder demand and trying to protect and improve the interest in the society. They need to balance their own interests with that of their employee and communities. This includes considerations as to how the conflicting demand of different stakeholders will be reconciled. Also, we can view that wider the stakeholder interest expand the social responsibility get much more important to an organization. (Exploring Cooperate Strategy 7th Edition, – G.Johnson, K.Scholes & R.Whittington page 190) In general, the goal of any economic system should be to further the general social welfare. The purpose of business should extend beyond the maximization of efficiency and profit. Increasingly, society expects businesses to have an obligation to the society in which they are located, to the people they employ, and their customers, beyond their traditional bottom-line and narrow shareholder concerns
What are the implications of these differing views for manager’s development of organizational strategy?
Strategy is concerned with the long-term direction, the direction that the organization should be taking and the type of action required to achieve its objectives. Different views given on the Illustration 4.6 can have a fundamental effect on the purpose or the direction of an organization, which will result in a difference in strategies that are pursued. The expectations and the power of the stakeholders will influence the strategic decision-making. Additionally, companies adopting CSR is important to the development of organizations business strategy because, wherever possible, consumers want to buy products from companies they trust; suppliers want to form business partnerships with companies they can rely on; employees want to work for companies they respect; and NGOs, increasingly, want to work together with companies seeking feasible solutions and innovations in areas of common concern. Satisfying each of these stakeholder groups allows companies to maximize their commitment to another important stakeholder group, their investors, who benefit most when the needs of these other stakeholders are meet. Therefore, CSR policy adapted will a key issue in developing company strategy.
At the macro environment level, the stakeholder expectation range from laissez-faire organization at one extreme to organizations as shapers of society at the other. The extend to which organization will exceed its minimum obligations to stakeholders and society at large will be a key issue that mangers have to understand in strategy creation. Company may looking at value maximizing by increasing profits will influence the strategic planners in developing its strategies by concentrating on overall cost reduction throughout the value chain, product or service differentiation, or concentrating on a ‘Nish’ market – focus. On the other hand companies following stakeholder theories will develop strategies trying to fulfill obligations to the society at large.
At individual level, cultural aspect, behavior and actions of individuals within and organization is clearly important for the management of the organization. With the first view by Milton Friedman, Profit maximization does not accommodate individual beliefs; individual satisfaction who ever does one respond to a situation where there is a conflict between the personal beliefs and the company business decisions has no recourse but to resign. This will affect management that formulating strategy with there, own beliefs and values.
Additionally, companies have to consider
Internal factors such as the capability of the organization to follow the proposed plan strategy. Each of the above views will attract varied staff to the organization.
Operational factors the technological production process and the method of production process will change the strategic decision out come on each of the above views taking to an example which technology will be affected. Is the company looking at only product output or does it look at impact on job loss or environment letdowns.
External factors this is about social, community, or outside pressure from interested parties such as employee federations on employee safety measures or trade unions on minimum wage.
The result would be different stakeholder interests and there interactions heavily influence the strategic choice, the whole strategy making process is subject to constant review. The end result is ideally an organization strategy that is both effective and acceptable. (Contemporary Strategic Management- R. Pettinger page 317)
“Stakeholders represent more challenges than opportunities” Appraise the conflicting needs, power, and influence of stakeholders.
Different stakeholder groups varied expected needs and the power they have over the organizations would affect the purpose and choices that I will seek. Internal Influence is likely to occur only because individuals share expectations with others by being a part of a stakeholder group, which may be departments, geographical locations or different level of hierarchy. Individuals may belong to more than one stakeholder group and stakeholder groups will gather together differently depending on the issue in hand because inside an organization few individuals have sufficient power to determine and make a impact on their alone. External stakeholders from the market environment such as shareholders, suppliers, distributors, sometimes, external stakeholders may seek influence through their link with the internal stakeholders. For example sub-contacted distribution will pressure on the marketing and advertizing strategies. Stakeholders from the social/political environment like policy makers, regulators, government agencies and the stakeholders in the technological environment such as owners of competitive technologies with conflicting expectations, each environment seeking different outcomes in different situations, sometimes different outcomes in one situation. For example new technological advancement that brings in competitor advantage clearly falls inline with the technological group whilst the non-bio degradable waste it generates contradicts to social and political stakeholder expectations resulting in massive outraged environmentalist and political pressure.
Additionally, the ability of individuals or stakeholder groups to persuade an organization to follow a certain course of action will have influence over organizations purpose and strategic decisions. The individual or group, who holds the position or the hierarchy, carries the power with in the organization. For example the Managing Director uses his formal powers to participate and sponsor a local tennis tournament for young teenagers tennis players. The type of relationship which organization might establish with the external stakeholders will determine the extent of power over the organization. Is the, organization accountable to one stakeholder, or group? Stakeholders are not usually homogeneous it contain a variety of subdivisions/groups with different level of power, too much subdivision makes decision-making challenging and confusing. The reliance on resources in terms of shareholders, lenders or heavy dependence on one supplier or customer will give them the power over the firm. Hence, company will have to prioritize or find a correct match to satisfying the entire stakeholder group.
These raise some difficult issues for mangers in deciding and implementing strategic change due to high level of varied expectations and power of diverse stakeholder groups with conflicting thoughts. But usually managers are in a powerful position within organization to influence the expectation of other stakeholders. They have access to information and channels of influence, which are not available to many other stakeholders. Even though stakeholder represents challengers to the manager who work on strategy, the real power behind the throne lies on the managers in constructing strategies to suit their own purpose and managing stakeholder expectations to ensure acceptance by the entire society.
How can Organizations manage shareholder conflicts and handle issues of ethics, corporate governance and regulation?
Conflicts of interests are more or else likely to arise between different groups in the governance chain (governance chain is where a typical reporting structure giving the flow of reports and actions from the beneficiaries of an organization to the mangers making the decisions) for individual managers or the owners (shareholders) or directors as they seek to balance these various interests. Directors and the managers have an obligation to fulfill their role in their capacity to the organization, but their own self-interests might be in expense of shareholder expectations. This is where the importance of both the role of the board and the disclosure of information to other stakeholders were developed, through corporate governance regulations. Directors’ responsibility to shareholders is a very important issue. The guiding principle in UK is that boards of directors are responsible to shareholders but must also be responsible for relationship with other stakeholders and take into account their interests.
Additionally, the way in which targets, budgets and rewards are structured has an influence the way in which managers and other people perform and, return will decide the extent to which the shareholder best interest being perused. In general governance chain challenges directors and managers to be knowledgeable about the expectations of the shareholders/owners, to constantly work towards achieving their needs and keep them informed, but self-interests of directors and managers might differ from the shareholder expectations, the power between the different players in the governance chain pursuing their own interests make it difficult, not only that very different levels of access to information make it even more difficult, on the contrary self interest need to be encouraged to achieve the interest of the beneficiaries as well.
This is where the corporate governing bodies usually come in to play, through initially concerned on the internal financial controls and external disclosure of information later on broadening of internal control requirement beyond simply financial controls and looked at the role and effectiveness of non-executive directors. These implications by the government meant that director’ and mangers must be more proactive in addressing the interests of the beneficiaries requiring them to change there behavior of following self-interest, where large number of whom have focused in increasing their personal financial rewards often disregarding the consequences of their behavior on the final beneficiaries of the company performance. (Exploring Corporate Strategy 7th Edition-G.Johnson, K.Scholes & R.Whittington Page 170-171)
Critically analyze the contents and relevance of the mission statement for each of the three different organizations (page 165), with regards to their goals, values and objectives.
Mission statement is an image that a business must have of its aims and goals translated into written form. It gives specific sight of the direction and purpose of an organization. For many corporate leaders it is a vital part of their attempt to motivate employees and to set priorities.
(The economist Guide to management ideas and gurus’- Tim Hindle). A clear, thoughtful mission provides employees with a shared sense of purpose, direction and opportunity. To define its mission, a company should address Drucker’s classic questions: What is our business? Who is our customer? What is of value to the customers? What will the business be? Successful companies continuously ask them and answer them thoughtfully and thoroughly. (Marketing Management – P.Kotler, K.Keller, M.Brady & M.Goodman Page 88) Some organizations use the term ‘vision statement’ some even have both vision and mission statements (Tata Steel). A vision and a mission can be one and the same but the concepts through are not necessarily the same. Broadly vision refers to future intentions and mission delivering present ones. If there is substantial disagreement within the organization or with stakeholders as to its mission vision it may result in real problems in strategic direction of the organization. Mission statements are at their best when they reflect a vision, which provides a direction for the company.
Mission statements help organizations to focus their strategy by defining boundaries within which each organization to operate. Tata Steel, for example, has said it is ‘strive to strengthen India’s industrial base through effective utilization of staff and material by using high technology and productivity’. It is not, evidently, going to enter the business with trend setting designs for European market or providing a safer India. The Metropolitan Police, for example needs to nurture and safe guard the sociality the goal should be to achieve ‘A safer London’ its mission has said ‘working together for a safer London’ shows the overall goal and the specific outcome it need to achieve. Villeroy & Boch, for example, have a different goal a different objective from that of the earlier two, they are in a constantly changing market needing them to be innovative trend setting company which highlighted in there mission statement ‘to be the leading European lifestyle brand with high competence and trend setting for high end design and living’ therefore, company mission statement helps to focus their strategy though emphasizing on goals and specific objectives it need to achieve. A recurring problem has been that managers and employees lower down the hierarchy’s lack of commitment, competencies, continues improvement, and unclear communication as to how day to day work contribute to the overall strategic direction may lead the mission statement to become a bland idealistic blur.
Mission statement defines the scope along which an organization’s performance is to be measured and judged. Other than, making profit. Tata Steel, for example, said that it considered itself successful through ‘continue to improve the quality of life of there employees and the community they serve, upholding the spirit and values of Tata’s towards national building’. Organizations often acknowledge their responsibility to other stakeholders as well, mentioning their attitude to employees Villeroy & Boch, for example, says ‘in the long run a strong market position can only be achieved by having innovative and committed employees. Our priority task is to motivate them and cultivate their team spirit, encourage them to achieve personal and joint goals’ or to customers Metropolitan Police, for example, says ‘we will have pride in delivering quality policing. There is no greater priority, we will build trust by listening and responding’. Apart from the financial profits objective, others are difficult to quantify or express in measurable terms ‘to revitalize the core business for a sustainable future’ is highly relevant to Tata Steel and today’s environment, but it may become absurd if it has to be expressed in some measurable way. Nonetheless it’s an important goal that Tata need to achieve.
It suggests standards for individual ethical behavior. For example, Villeroy & Boch had what it called “Five values – One philosophy”. Among them were: ‘Responsibility’- ‘we feel obligated not only to our employees, shareholders and customers, but also to the environment and society’ Metropolitan Police is a non-profit entity in the solely view to be socially responsible. Tata Steel, for example, points out to ‘overall, the company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values’ it shows that Tata is socially align with the Indian government and pressure groups in creating, developing and maintaining democratic social life style in India. Even though, ethical values are embedded in a organizations mission it’s not its core expectation or the most essential for the management to focus its attention, except for The Metropolitan Police, this will surface after meeting its number of priority requirements, for example, in the event of a choice between making a loss or closing down where people will lose jobs company will prioritize not to loose money.
Goals are things companies intend to achieve.
Objectives are the steps we take along the way toward achieving Goals.
Tactics are elements of going about accomplishing Objectives.
Strategy is the overarching plan to use our unique competitive advantages to achieve our stated Goals through the use of specific and measurable Objectives and Tactics in pursuit of mission.
Business lays out a set of tactics and objectives to be achieved that move towards the achievement of the strategic goals. The strategic goals guide the choice of objectives and the tactics employed. They provide direction for the business.
Evaluate theories for and against systematic development of mission statements, values and objectives and suggest how you would have improved on the mission statement of the three organizations with reference to their purpose, strategy, values and behavioral standards.
One or more stakeholders may expect corporate values, vision, mission and objectives of the organizations. But in some instances these statements might be formal requirements of corporate governance. Illustration 4.5 is an example – The Metropolitan Police of the Government of London. Regardless of the reason it must be highlighted that these statements may not be accurate reflection of the priorities within the organization. (Exploring Corporate Strategy – Johnson, Scholes & Whittington 7th Edition page 207-209)
Development of mission statement, corporate values and objectives is a carefully articulated process where a managers setting a project team to survey throughout the organization to check validity and usefulness of a such goal, gathering of information from current stakeholders and their perception of the organization, recommendations for improvements and suggestions to amend and update through consultation with workforce and customers and communication throughout the company in a appropriate way. They answer the question ‘What business are we in?’ or ‘Why we exist?’ and reflect basic function in a society in terms of products and services (Mintzberg) it creates the core values – the principles that guide an organizations actions for example ‘We will build trust by listening and responding’ – The Metropolitan Police, it describes the unique purpose and direction of an organization for example ‘To be the leading European lifestyle brand’ – Villeroy & Boch, it helps to differentiate from its competition for example ‘the company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirm its faith in democratic values’ – Tata Steel, reflects benefits to customers and state key values to all stakeholders for example ‘to continue to improve the quality of life of our employees and the communities we serve’ – Tata Steel give value to its employees, ‘Earning oriented growth, high and constant rates of return and appropriate dividends’ – Villeroy & Boch shows companies direction towards growth and profitability to its shareholders. Although, most companies operate with a wide range of goals and objectives the central goal of most organizations is to maximize shareholder returns, and to extend shareholder returns fully it requires being highly profitable and high growth. However, it is important that top managers not to overemphasize current profitability to detriment of long-term profitability and profit growth. The overzealous pursuit of current profitability to maximize short term performance can encourage much misguide managerial action cutting expenditure judged to be non essential in the short run for example, Research and development expenditure, marketing expenditure. Although cutting current expenditure increases current profit levels, the under investment will result in, lack of innovation and diminishing marketing can jeopardize long term profitability and profit growth. (Essential Strategic Management – Hill, Jones Page 31) The organizations mission, and objectives guide this expenditure. The company’s mission statement directs the pursuit of long-term goals and sustaining organizations competitive advantage and profitability over time. Therefore, a well thought out mission will identify all stakeholder groups and weight their relative rights and abilities to affect the firm’s success. (Formulation, implementation and control of competitive strategy – Pearce, Robinson page 68-69)
As mentioned above both vision and mission is inspirational, it talks about the future and present intentions of an organization. They try to motivate personal – employees to seek and achieve the articulated vision. It tries to attract the future investment through its existing shareholders and perspective investors. However, if organizations demonstrably fail to live up or keep the statements to mere showpiece and doesn’t put out in practice it will be a de-motivator for the work force as well as it will fail to impress stakeholders. For example if Tata Steel doesn’t act to improve the quality of life of its employees what will happen to the workforce? Well it might result in high labor turnover or low productivity that will boil down to company failure. Same way if Villeroy & Boch neglects its environmental obligations the long term growth and profitability might be affected. Therefore, organizations need to strike a balance. Additionally, mission statement need to be continuous in that they summarize an organizations purpose. The values and objectives need to be evaluated at different level of time and restated as ones are achieved.
Need to create a sense of pride, as employees need to be empowered that they are working for an India’s number one and currently a top global player in the industry. The company wants to effectively utilize its staff but it lacks in emphasizing and focusing its core resource fully. Further, Tata Steel has failed to define an overarching aim like what Valleroy & Boch – ‘To be the leading European lifestyle brand’ it sets the company attitude and culture through a clear direction.
THE METROPOLITAN PLOICE
It describes its main activity, function in society, the unique purpose and scope of its operation – ‘for a safer London’ the mission statement works well for a purpose oriented establishment but I would have included the human rights responsibility to the community. To develop a balanced properly respected society. Further, to depart from racism and discrimination from the officers. As well as try to incorporate the objectives to reduce overall drug and crime rate and the fear of crime.
VILLEROY & BOCH
The company has established clear future intentions with focusing on limited number of goals, excellent future stability, has pointed out companies major policies, value and culture. Villeroy & Boch, have define its major competitive spheres by identifying its market segment, industry and competencies. The five values have provided reassurance to its shareholders, confidence to the society and customers, given a knockout punch by sending signals of strengths to its competitors and have created sense of pride and value for its employees. Only thing that I view is it not brief. Ideally a mission statement should be brief and flexible. If it’s too long and bulky it tends to loose its essence.
The key is the prime purpose of a mission statement it is important for organizations to live up to the promises they declare.
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