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Knowledge is power and the Internet has brought that power to the consumer. Electronic Commerce is reshaping the global market. (Wheelen & Hunger, 2008) Instead of the traditional focus on products features and costs, the Internet is shifting the basis for competition to a more strategic level in which the traditional value chain of an industry is drastically altered. Not only does the consumer have access to more products information and the ability to choose from almost anywhere, businesses are also utilizing the Internet to form new B2B relationships. The old days of doing face to face sales and shipping are gone. Now more than ever, business practices and all aspects of an organization are out in the open to be scrutinized for responsible and ethical behavior. It is this transparency that forces today's corporations to conform to their organizational culture and environment.
In the wake of several corporate scandals involving questionable accounting practices and illegal actions by the Chief Executive Officer (CEO) and other self appointed or hand-picked Directors manipulated by senior executives, there has been a major effort by shareholders to take back control of the Board of Directors. The focus is to elect a well balanced and informed board that is capable of making sound decisions based on the overall good of the corporation and not allow personal greed to cloud the issues at hand. Great care has gone into providing a voice for all the stakeholders from the investors to the workers that provide the labor for the corporation. Prior to the scandals it was common to see corporations such as Tyco, Enron and WorldCom, just to name a few, that had poor strategic management because the mission or vision of the corporation was basically fed to the board from the top down. The CEO would simply tell the board of directors what the vision of the corporation was and where it was going. Even though some success was achieved in this fashion, eventually disaster struck leaving the corporation bankrupt and most of all destroying the lives of hundreds or thousands of workers who lost their jobs, pensions, and stock options, essentially their life savings.
Shareholders are now very much aware of the consequences of unchecked senior executives and have exerted their authority to elect directors that have a legal duty to protect their interests and as representatives of the shareholders, the directors have the authority and responsibility to establish corporate policy that is in the best interest of all stakeholders. This means that the corporation is fundamentally governed by the board of directors overseeing top management, with the concurrence of the shareholder. The term Corporate Governance (CG) refers to the relationship among these three groups in determining the direction and performance of the corporation. (Wheelen & Hunger, 2008)
The benefits of strategic management give a corporation a clearer sense of vision for the firm, a sharper focus on what is strategically important and a better understanding of a rapidlly changing envirionment. (Wheelen & Hunger, 2008) This alone is a testiment to how important corporate governence is. What better way to understand your envirionment than to have a board of directors comprised of all aspects of your business and community working together to make sound strategic decisions. Some of the latest management tools such as Lean Six Sigma and Total Quality Management place a lot of emphasis on not making decisions that will affect the workforce or the corporate climate in a negitve way. All of these management techniques are captured by the U.S. Army's leadership principles of taking care of Soldiers and accomplishing the mission that is likened to a scale. Finding the balance between the two is where you want to be because too much in any direction can tip the scale and make it unbalanced. Good corporate governance operates by these same principles and basically keeps the balance between senior executives, the board, the workforce, and the shareholders as well as creating a code of ethics for the corporation to live by.
Internal cohesivness through corporate governance is only part of the equation to creating a better corporation. The other half belongs in the external envirionment. The concept of Corporate Social Responsibilty (CSR) proposes that a private corporation has responsibilities to society that extend beyond making a profit. (Wheelen & Hunger, 2008) This relationship between corporations and society is not the relationship between corporations and shareholders but the relationship between corporations and stakeholders, and places great importance on the relationship with stakeholders. The relationship between corporations and society can influence the views of corporations and others. (Kurihama, Vol. 1, No. 2 December 2007) In light of the overview presented above, there is a discernable overlap between CG and CSR. More specifically, when considering the broader conception of CG, it is clear that good governance entails responsibility and due regard to the wishes of all key stakeholders and ensuring companies are answerable to all stakeholders. There is thus a clear overlap between this conception of CG and the stakeholder conception of CSR that considers business as responsible vis-à-vis a complex web of interrelated stakeholders that sustain and add value to the firm. (Dima Jamali*, Sep2008) In other words, being socially responsible creates a good image for the corporation and in turns promotes long term health of the business. This is directly in line with Archie Carroll's four responsibilities of business, economic, legal. ethical, and discretionary. Going back to my above analogy of a two part strategic vision, Carroll's proposal can match the first two business responsibilties to corporate governance and the latter to social responsibility. Research has shown that corporations that are performing all four of these business responsibilities are increasing their financial performance.
As an example, General Mills has a long-standing commitment to good corporate governance practices. These practices provide an important framework within which our board of directors and management pursue the strategic objectives of the company and ensure its long-term vitality for the benefit of shareholders. "Our corporate governance policies have evolved over many years. The board of directors' Corporate Governance Committee reviews these principles and practices annually and, when appropriate, recommends changes to the board. The fundamental premise of our principles, however, is the integrity and independent nature of the board and its overarching responsibility to our shareholders. General Mills believes that a substantial majority of its board members should be independent, non-employee directors. The board has adopted criteria for independence based on those established by the New York Stock Exchange. Director affiliations and transactions are regularly reviewed to ensure there are no conflicts or relationships with the company that might impair a director's independence from the company and our auditors. All board committees are composed entirely of independent, nonemployee directors, and all directors stand for re-election annually. We also value diversity on our board of directors. As of the writing of this report, General Mills had five women and three minority directors on its 13-member board. Board meetings and background materials sent to director's focus on the company's key strategic, leadership and performance issues. Executive sessions without management directors present are scheduled at each board meeting. The chair of the Corporate Governance Committee acts as presiding director at executive sessions. All directors are governed by the company's Director Code of Conduct. The Corporate Governance Committee of the board ensures compliance with the Director Code." (General Mills, 2009)
It is plain to see that General Mills has totally embraced Archie Carroll's four responsibilities and created social capital withing the community. Their choice to compose the board of directors of outside directors that don't work for the company ensure that they are getting sound corporate governance. Furthermore, General Mills has partnered itself with many organizations withing the community, charities, and government agencies in an attempt to improve their standing within the communities as well as the community itself and they are committed to such admirable cause like protecting the envirionment through reducing green house gasses, natural resource consumption, and air polution reduction. Three years ago, the company established global five-year goals to reduce Energy consumption rate by 15 percent, Greenhouse gas emission rate by 15 percent, Solid waste generation rate by 15 percent, and Water usage rate by 5 percent. We're achieving reductions on two of the four goals. "We've reduced our water use rate by 3 percent and our solid waste generation rate by 6 percent. But we have faced challenges in meeting our energy and related greenhouse gas emission goals (almost all of our greenhouse gas emissions are derived from our energy use). Our energy consumption and greenhouse gas emission rates have remained about the same. At the same time, it's become clear that these goals represent a small subset of the company's total environmental impact considering other factors across the entire food chain, particularly agriculture. So we are focusing more attention on sustainable agriculture to leverage our decades of experience in this area." (General Mills, 2009)
General Mills' mission statement is "Nourishing Lives." To fulfill that mission, they believe they must do more than achieve financial success. "We must also make substantial contributions to society and to the environment that sustains our lives. That commitment to integrate economic, social and environmental factors into a sustainable business strategy is at the core of who and what we are." (General Mills, 2009) General Mills exemplifies corporate governance and social responsibility and those added together ensure good strategic management.
Environmental scanning is one of the four basic elements of Strategic Management. The definition of environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation. (Wheelen & Hunger, 2008, p. 10) Although they are not numbered, the basic elements follow a logical order to assist businesses in developing a strategic plan for their firm. Needless to say, a firm cannot begin to formulate a strategy without first understanding the strategic factors in their external and internal environments. These strategic factors can be identified using a SWOT analysis. SWOT is an acronym for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are identified from within the company or their internal environment and opportunities and threats stem from the external environment.
There are many important reasons to do environmental scanning. Because of rapid changes in today's market and new and emerging business practices, it is easy to a firm to lose touch with technology, regulations, and rising trends. Environmental scanning reduces the chance of being surprised and results in better anticipatory management. (Albright, May/ Jun 2004 Vol. 38 Issue 3) In other words, environmental scanning promotes a proactive plan instead or a reactive one. Research has found a positive relationship between environmental scanning and increased profits in firms that conducted good scanning to formulate a strategy that ensures a good strategic fit between what the environment wants and what the firm has to offer, as well as between what the corporation needs and what the environment can provide. (Wheelen & Hunger, 2008, pgs 72,73) Without taking into account relevant environmental influences, a company cannot expect to develop its strategy. It was the environmental influences emerging out of the energy crisis that were responsible for the popularity of smaller, more fuel-efficient automobiles and that brought about the demise of less efficient rotary engines. It was the environmental influence of a coffee bean shortage and geometric price increases that spawned the "coffee-saver" modification in Mr. Coffee automatic drip coffee makers. Shopper and merchant complaints from an earlier era contributed to the virtual elimination of deposit bottles; recent pressures from environmental groups, however, have forced their return and have prompted companies to develop low-cost, recyclable plastic bottles. Another environmental trend, Americans' insatiable appetite for eating out (in 1990, restaurant sales accounted for $0.44 of every $1 spent on food; this number is expected to reach $0.63 by the year 2000), worries food companies such as Kraft. In response, Kraft is trying to make cooking as convenient as eating out (e.g., by providing high-quality convenience foods) to win back food dollars. (unknown, 2007)
The most difficult aspect of environmental scanning is merging it with strategic management. Since Strategic management is really long term planning on the direction the firm is going and environmental scanning is really paying attension to what is going on inside your organization and outside in your market, predicting long term enviromental changes can be difficult for strategic planners to do. An environmental uncertainty is the degree of complexity plus the degree of change existing in an organization's external environment. (Wheelen & Hunger, 2008) Decision makers understand that a changing environment can either help or hurt a company depending on the decisions made. For example, makers of the Java Log, Robustion Products, Inc, noticed a two very important trends in the external environment that allowed them to launch a very successful product and company. Rod Spurles, one of the founders of Robustion Products, Inc, used his knowledge and experience from a former employer and coupled that with the incite that the gourmet coffee industry was growing very fast as well as the fact that society was becoming more environmentally conscience. Spurles identified the need to do something with used coffee grounds so he used knowledge of heat sources to invent the Java-Log which is essentially made from these recycled coffee grounds. This product burns hotter that wood and produces less carbon dioxide. The product was an instant success because Spurles correctly scanned the environment.
Edgar Schein, a professor at the MIT Sloan School of Management, is generally associated with the term "corporate culture". He believes that organizational culture is the key to achieving excellence within an organization. Additionally, he believes it is the leader's responsibility to creating and managing organizational culture and associates it with the learning levels, productivity, and strategic development. (Schein, 1985) Organizational culture consists of the end states of its terminal values and instrumental values as well as a product of the environment. (Jones, Gareth R., 2010) In other words, the manager's views and philosophy coupled with the needs of the customers and the employee's own personal beliefs set the tone for an organization. Knowing that these factors don't always agree is the challenge that managers face in order to create a balance between them which will enable organizational success. (Smith 2010)
The problem is how to align the organizational goals with the culture. Generally, an organizations culture is initially formed by the ideals from the owner / managers. This is a culture of what will make the organization successful and meet the organization's goals. The trick is to get the employees to feel connected to the organization though its culture. Sometimes, organizational culture will change to adapt to the employees and sometimes employees will adapt to the organization. Whatever the case, the two have to be in agreement to promote success. If not, employees may not share the same values, norms, or culture of that the management and the organization as a whole. This will most definitely detract from the efficiency of the organization because the employees feel separated from everything happening around them.
An organization can do a corporate culture ethics audit and determine what the culture is and then decide if they need to change it to coincide with the stakeholder's values and ethics. It is never easy to change a corporate culture because Most change initiatives focus on the operational and technical side. What they too often ignore, or, at best, give lip service to, is the human side-the behavioral side of change. Anyone who has ever attempted to implement a change of any kind has experienced the phenomenon of resistance to change by people and institutions. It is easier to decide on change than to get people to change. People and organizations are creatures of habit, and changing habits is much harder than changing structures or systems. It seems that organizations, like people, had personalities, and to ignore or not deal with an organization's personality trails could be fatal to your change efforts. Today, people recognize those personality traits as corporate culture, and the business world is slowly beginning to appreciate the power of cultural habits. Most change initiatives have at least token elements of "change management." Unfortunately, most organizations don't address cultural barriers as vigorously or systematically as needed. It has long been known that the only way to ensure the maximum success of any broad-based change initiative is to systematically deal with the corporate culture. (unknown, Beyond Lean Six Sigma, 2009)
Alfred Chandler concluded that structure follows strategy by studying large corporations such as DuPont, GM, Sears, and Standard Oil. (Wheelen, Hunger, 2008, pg 219) In other words, changes in corporate strategy prompt changes in the structure of the organization. Chandler's results showed a pattern that moved these large corporations from a centralized structure to a decentralized structure. As the corporations got very large and continued to add more product lines, acquire their own sources of supply, and distribute their goods through their own networks, the complexity of the business forced the once centralized management to shift authority to the independent operations with the expertise to make the right decisions for that arm of the company. This is decentralized control or structure.
General Motors is a good example of a company that changed its organization structure to follow a new strategy. The automobile industry early on pretty much pushed a product to the consumer. In the 1920's it was realized that the environment was changing and GM decided decentralize the management of their different auto divisions by maintaining the policy management with the corporate headquarters and decentralizing the management of policy implementation of each of the divisions such as Chevrolet and Buick. Each division was free to make any decision necessary to grow their line as long as it met corporate policy and standards.
The latest research supports Chandler's ideas that structure follows strategy. As mentioned previously, changes in a company's environment usually prompt a change in the firm's strategy which will eventually result in a change to the organizational structure. It just makes sense to realign the company to put the right people in the right place to make a new strategy successful. The easiest way to best explain this is to think of a company that has made the strategic decision to become an international corporation with products and services being produced in foreign countries. What makes more sense, having the management team here in the United States making decisions about all aspects of the overseas division or allowing the overseas division with local knowledge to gain control of the management function? It is pretty easy to see that decentralizing the management control is probably the best answer in this example.
There is no magic formula to create a successful global organization however the above research leads one to believe that people make the organization successful and not the opposite. People with like values and principles bring the teamwork needed to excel in their organization. This coupled with the fact that more and more, people today are very concerned with the environment, ethics, and social responsibility or large corporations. Making a profit at any cost is no longer a sound business decision. Strategically speaking, most people today are concerned with the long term affects of what they do therefore businesses must be in tune with their environment and the culture of their employees.
Although it is possible to make a profit in spite of culture and the environment, this is a very, very short term profit and will not be profitable in the long run. What businesses must do to plan a strategy is to decide where they want to be in five years or ten years etc. Making a lot of money today and failing tomorrow in simple terms puts people out of jobs. This mentality will not be tolerated by today's more informed society. In order for an organization to be successful over the long term they have to embrace their culture and give back to their communities. Charity and conservation efforts are a key to long term preservation.
Corporate strategies are comprised from the culture of the organization. This all goes back to forming the organization around the people and not vice versa. I believe that people are the most important asset of an organization. Taking care of people will be reciprocated in the people taking care of the business. Happy people who feel connected and a part of an organization will perform at their highest capabilities. As stated by Alfred Chandler, forming a strategy around this will ultimately dictate the structure of the organization. Therefore, after digesting the research provided above it is a logical assumption that an organization is shaped by corporate governance, social responsibility, its internal and external environment, and the organizational culture of its employees.