Strategic Final Exam

Social responsibility
Private corporations have a responsibility to society that extends beyond making a profit
Carroll's 4 Responsibilities
Economic (must do)
Legal (have to do)
Ethical (should do)
Discretionary (might do)
Social responsibility may provide
social capital
Social capital
refers to the goodwill of key stakeholders and provides a company with:

Improved relationships with suppliers and distributors
The ability to attract better talent
Goodwill in the eyes of public officials
Access to capital
The ability to enter local and international markets
Enhanced reputation
Competitive advantage
Cost savings
The ability to charge premium prices
Stakeholder Analysis
the identification of corporate stakeholders in 3 steps:
Primary Stakeholders
Secondary Stakeholders
Primary stakeholders
have a direct connection with the corporation and have sufficient bargaining power to directly affect corporate activities
Secondary stakeholders
have an indirect stake in the corporation but are also affected by corporate activities
the effect on each stakeholder from a particular strategic decision
Corporate practices of poor business ethnics
Massive write-downs and restatements of profit

Misclassification of expenses as capital expenditures

Pirating corporate assets for personal gain
Key Terms in Ethical Behavior
Ethics, Morality, and Law
the consensually accepted standards of behavior for an occupation, trade, or profession
the precepts of personal behavior based on religious or philosophical grounds
the formal codes that permit or forbid certain behaviors and may or may not enforce ethics or morality
Code of Ethics
specifies how an organization expects its employees to behave while on the job
employees who report illegal or unethical behavior on the part of others
Why are businesspeople perceived to be acting unethically?
Unaware that behavior is questionable
Lack of standards of conduct
Different cultural norms and values
Behavior-based or relationship-based governance systems
Different values between business people and stakeholders
Most common reasons for bending rules
Organizational performance required it
Ambiguous or out of date rules
Pressure from others - "everyone else does it"
is relative to some personal, social, or cultural standard and there is no method for deciding whether one decision is better than another.
Types of Moral Relativism
Naïve relativism
Role relativism
Social group relativism
Cultural relativism
Kohlberg's Levels of Moral Development
1. Preconventional level
2. Conventional level
3. Principled level
Preconventional level
Characterized by a concern for self
Personal interest
Avoidance of punishment
Conventional level
Characterized consideration of society's values
External code of conduct
Principled level
Characterized by adherence to internal moral code
Universal values or principles
Approaches to Ethical Behavior
Individual rights
actions are judged by consequences
Individual rights
fundamental rights should be respected
decisions must be equitable, fair and impartial in the distribution of costs and benefits to individuals or groups
Cavanagh's questions to solve ethical problems:
Utility - does it optimize the satisfactions of the stakeholders?

Rights - Does it respect the rights of the individuals involved?

Justice - Is it consistent with the canons of justice?
Justice Concepts
Distributive justice
Retributive justice
Compensatory justice
Kant's categorical imperatives:
Actions are ethical only if the person is willing for the same action to be taken by everyone who is in a similar situation

Never treat another person simply as a means but always as an end
Evaluation and Control
ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed
is the end result of activity
Steering controls
measure variables that influence future profitability
Types of Control
Input controls
Behavioral controls
Output control
Input controls
emphasize resources (skills, abilities, values, motives)
Behavior controls
specify how something is done through policies, rules, standard operating procedures and orders from supervisors

ISO 9000, ISO 14000 series
Output controls
specify what is to be accomplished by focusing on the end result
Activity based costing
allocates indirect and direct costs to individual product lines based on value-added activities going into that product

Allows accountants to charge costs more accurately since it allocates overhead more precisely
Enterprise Risk Management
a corporate-wide, integrated process for managing uncertainties that could negatively or positively influence the achievement of objectives
Steps to Enterprise Risk Management
1. Identify the risks using scenario analysis, brainstorming, or performing risk assessments

2.Rank the risks, using some scale of impact and likelihood

3.Measure the risks using some agreed-upon standard
Primary Measures of Corporate Performance
Return on Investment (ROI)
Earnings per share (EPS)
Return on equity (ROE)
Operating cash flow
Free cash flow
Others—return on total assets, profit margin, current ratio, etc.
Shareholder Value
the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated
Economic Value Added (EVA)
measures the difference between the pre-strategy and post-strategy values for the business
After tax income - total annual cost of capital
Market Value Added (MVA)
measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders

Measures the stock market's estimate of the net present value of a firm's past and expected capital investment projects
Balanced Scorecard
combines financial measures that tell results of actions already taken with operational measures on customer satisfaction, internal processes and the corporation's innovation and improvement activities

Internal business perspective
Innovation and learning
Nonfinancial Performance Measures Used by Internet Business Ventures
-length of Web site visit

-number of people who visit a Web site

-brand awareness
Evaluating Top Management and the Board of Directors
Chairman-CEO Feedback Instrument

Management Audit

Strategic Audit
Chairman-CEO Feedback Instrument
Company performance, leadership, team-building, management succession
Management Audit
CSR, functional areas, divisions
Strategic Audit
diagnostic tool to pinpoint corporate-wide problem areas
the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders
Responsibility centers
used to isolate a unit so it can be evaluated separately from the rest of the corporation

Standard cost centers
Revenue centers
Expense centers
Profit centers
Investment centers
1.Identify the area or process to be examined

2.Find behavioral and output measures

3.Select an accessible set of competitors of best practices

4.Calculate the differences among the company's performance measurements and those of the competitors and determine why the differences exist

5.Develop tactical programs for closing performance gaps

6.Implement the programs and compare the results
Most widely used measurement techniques:
Return on investment
Budget analysis
Historical comparison
International transfer pricing
Barriers to international trade
Different standards for products and services
-Energy efficiency
-Testing procedures


Control and Reward systems
-Multidomestic - loose
-Multinational- tight control
Problems in Measuring Performance
Lack of quantifiable objectives or performance standards

Inability to use information systems to provide timely and valid information
Short term orientation
managers only consider current tactical or operational issues and ignore long-term strategic issues

-Lack of time
-Do not recognize importance of long-term issues
-Are not evaluated on a long-term basis
-Don't have time for long-term analysis

EPS, ROI are problematic here
Goal Displacement
confusion of the means with the ends
Behavior substitution
when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are rewarded
when a unit is optimizing its goal accomplishment to the detriment of the organization as a whole
Guidelines of Proper Control
1.Controls should involve only the minimum amount of information needed to give a reliable picture of events (80/20 Rule)

2.Controls should monitor only meaningful activities and results, regardless of measurement difficulty

3.Controls should be timely so that corrective action can be taken before it is too late

4.Long-term and short-term controls should be used

5.Controls should aim at pinpointing exceptions

6.Emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards
Strategic Incentive Management
Link incentive plans to corporate and divisional strategy

Weighted-factor method

Long-term evaluation method

Strategic funds method
Weighted-factor method
when performance factors and their importance vary across SBUs
Long-term evaluation method
rewards achievements over multiyear period
Strategic funds method
developmental expenses are viewed differently