Strategic Management and Business Policy

Unit 5

Unit 5
Structure

Corporate Mission, Objectives and Responsibility

5.1 Introduction 5.2 Caselet Objectives 5.3 Definition of Business 5.4 Mission Statement 5.5 Corporate Philosophy 5.6 Corporate Objectives and Goals 5.7 Strategic Intent 5.8 Company Responsibility 5.9 Corporate Social Responsibility 5.10 Social Audit 5.11 Case Study 5.12 Summary 5.13 Glossary 5.14 Terminal Questions 5.15 Answers 5.16 References

5.1 Introduction
For formulation of corporate strategy, an organization needs to consider three major things: first, the corporate mission and objectives; second, its internal competence; and third, the external environment. We shall discuss corporate mission and objectives in this unit. Internal competence and resources and the environmental factors will be analysed in the next two units. The starting point for the formulation of any strategy is the mission statement of a company. The mission statement actually starts with a definition of business of the company. Related to mission is vision. Also related to mission statement or development is corporate philosophy. From mission statement and corporate philosophy follow corporate objectives, goals and also strategic intent. In developing its mission and objectives, a company has certain responsibility to
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its stakeholders and the society. This is expressed in stakeholders approach to company responsibility and corporate social responsibility. Corporate social responsibility also implies social audit. We will discuss all these in this unit.

5.2 Caselet
No corporation functions without a strategy; and the starting point for the formulation of any strategy is the mission statement of a company. Microsoft Corporation, an American multinational corporation, is no exception. The largest and most well known software corporation in the world, it is best known for its extremely popular Windows operating system and Microsoft Office software. The company has a mission statement:
At Microsoft, we work to help people and businesses throughout the world realize their full potential. This is our mission. Everything we do reflects this mission and the values that make it possible.

The mission continues to guide Microsoft.

Objectives
After studying this unit, you should be able to: Define what is business Explain the terms corporate mission and corporate vision Define what is corporate philosophy Discuss the corporate objectives and goals of a company Explain strategic intent and company responsibility Explain the concept of corporate social responsibility Discuss social audit as a tool to measure companies social performance

5.3 Definition of Business

It may appear very simple or obvious as to what a companys business is. A steel mill makes steel; an engineering company makes engineering products; an electronic manufacturer makes electronic goods; a courier company delivers letters and parcels; a bank lends money, etc. But, it may not be as simple as this. In fact, defining the business of a company precisely is a difficult job. Let us explain this. A textile manufacturer makes textiles goods; but, this may mean suitings, shirtings, sarees or inner garments; it may be cotton textiles, silk or
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synthetics; it may be high-priced or premium product, medium-priced or average product or low-priced or discount product. To define a companys business with precision is the job or responsibility of the planners and strategists. Precise or correct definition of business of a company is the foundation for mission statement, objectives, priorities, plans, strategies and work and resource allocations; and, therefore, along with the top management, the strategists have an important role to play in this. Many companies and managers are not clear about the exact nature of their business, nor are they always aware of the significance of this. Precise definition of the business of a company should be based on four major factors or considerations: i. product, ii. technology, iii. customer segment and iv. market competitiveness (Figure 5.1).
Product

Technology

Business definition

Market competitivenes

Customer segment

Figure 5.1 Business Definition of an Organization

Management thinkers like Peter Drucker feel that business definition should strongly focus on the customer. According to Drucker, in defining the business, the following questions about the customer should be asked1: Who is the customer? o Where is the customer located? o How does the customer buy? o How can the customer be reached? What does the customer buy? What does the customer consider value? In addition to focussing on customer behaviour, answers to these questions also indicate the nature and quality of the product, production process or

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technology and market environment or competitiveness. We can also see how companies define their businesses. Business definitions of Hindustan Unilever, Hero Honda, Kodak India and Hero Cycles are given in Table 5.1.
Table 5.1 Business Definitions of Hindustan Unilever, Hero Honda, Kodak India and Hero Cycles
Company Business definition

Hindustan Unilever To meet everyday needs of Indian people everywhere with branded products Hero Honda Kodak India Hero Cycles World class auto products which provide the highest level of customer satisfaction A high quality photographic system for the customer who desires instant photography Functionally valuable bicycle which common people can afford to buy

The above business definitions show that some generality in definition remains. To remove the generality or make business definition more meaningful, this should be read with mission statement and corporate objectives or goals. These together give definiteness to the business of a company.

Self-Assessment Questions
1. To define a companys business with precision is the job or responsibility of the _________and _________. 2. Management thinkers like Peter Drucker feel that business definition should strongly focus on the__________.

5.4 Mission Statement

A business is not defined by its name, statutes or articles of incorporation. It is defined by the business mission. Only a clear definition of the mission and the purpose of the organization makes possible clear and realistic business objectives. Peter Drucker But ... business mission is so rarely given adequate thought is perhaps the most important single cause of business frustration. Peter Drucker
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This emphasizes the need for organizations to take their mission statement seriously and formulate it properly. What is a mission statement? Or, what is a company mission? The mission statement of a company is variously called a statement of philosophy, a statement of beliefs, a statement of purpose and, a statement of business principles. A mission statement is many in one. It embodies the business philosophy of a companys decision makers, implies the image the company wishes to project for itself, reflects the companys self-concept; indicates the companys principal product or service areas and, the customer needs the company seeks to satisfy. In short, it describes the companys product, market and technological focus; and it does so in a way that reflects the values and priorities of the companys strategic decision makers.2 The mission statement should be as explicit or comprehensive as possible. Some feel that the mission statement should have seven dimensions or serve seven different purposes or objectives. These are: To ensure unanimity of purposes within the organization To develop a basis or standard for allocating organizational resources To provide a basis for motivating the use of the organizations resources To establish a general culture or organizational climate; for example, to suggest a business-like approach To facilitate the translation of objectives and goals into jobs and responsibilities and assignment of tasks to responsible segments within the organization To serve as a focal point for those who can identify themselves with the organizations purpose and business To specify organizational purposes and inspire translation of these purposes into goals in such a way that cost, time and performance parameters can be assessed and controlled.3

5.4.1 Mission and Vision

Sometimes, mission and vision of a company are used synonymously or interchangeably. This is not correct. A clear distinction exists between the two. Mission is concerned more with the present; the vision more with the future. The mission statement answers the question: What is our business? The vision statement answers the question: What do we want to become or, which way should we be going? The mission statement focusses on the present strategic
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thrust, while the vision statement outlines the strategic path. All visionary companies have a vision statement. The vision of Microsoft (since 1999) has been to broadbase its outlook to empower people through great software anytime, anywhere and on any device including the PC and an incredibly rich variety of digital devices accessing the power of the Internet. Most progressive companies develop both a mission statement and a vision statement. Indian Oil Corporation (IOC) is a good example. Vision and mission statements of IOC4 are: Vision: Indian Oil aims to achieve international standards of excellence in all aspects of energy and diversified business with focus on customer delight through quality products and services. Mission: Maintaining national leadership in oil refining, marketing and pipeline transportation. Vision and mission statements can be generally found in the beginning of annual reports of companies. These statements are also seen in the corporate or long-term strategic plans of companies. These also appear in many company reports or documents like customer service agreements, loan requests, labour relations contracts, etc. Many companies also display them at prominent points or locations in company premises.

5.4.2 Mission Statements of Some Companies

Mission statements of individual companies vary widely. We give below, as examples, mission statements of two Indian companiesTata Steel and Hero Honda Motorsand, two US companiesPepsico and Dell computer. All these companies are in different kinds of business. Tata Iron and Steel Company (TISCO) The fundamental mission of TISCO (Tata Iron and Steel Company Limited; now Tata Steel) is to strengthen Indias industrial base through increased productivity, effective utilization of manpower and material resources, and continued application of modern scientific managerial methods as well as through systematic growth in keeping with the national aspirations. The company recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity. It affirms its faith in democratic values and in the importance of success of individuals, collective and corporate enterprise for the emancipation and prosperity of the country. Guided by its basic philosophy, the company believes

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in discharging its responsibility towards shareholders, employees, customers and the community. Hero Honda Motors It is our mission to strive for synergy between technology, systems and human resources to produce products and services that meet the quality, performance and price aspirations of our customers. While doing so, we maintain the highest standards of ethics and societal responsibilities. This mission is what drives us to new heights in excellence and helps us to forge a unique and mutually beneficial relationship with all our stakeholders. We are committed to moving ahead resolutely on this path. Pepsico Pepsicos mission is to increase the value of our shareholders investment. We do this through sales growth, cost controls and wise investment resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound and, providing a fair return to our investors while adhering to the highest standards of integrity. Dell Computer Dell Computers mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of the highest quality with leading technology, competitive pricing, individual and company accountability, best-inclass service and support, flexible customization capability, superior corporate citizenship and financial stability. Some companies combine their mission statements with statements of values and guiding principles of the organization. Ford Motor Company is an excellent example of this. Fords mission statement combined with statements of values and guiding principles is presented in Box 5.1.

Box 5.1: Fords Mission, Values and Guiding Principles

Mission Ford Motor Company is a worldwide leader in automotive and automotiverelated products and services as well as in newer industries such as aerospace, communications and financial services. Our mission is to improve continually our products and services to meet our customers needs,
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allowing us to prosper as a business and to provide a reasonable return for our stockholders, the owners of our business. Values How we accomplish our mission is as important as the mission itself. Fundamental to success for the Company are these basic values: PeopleOur people are the source of our strength. They provide us corporate intelligence and determine our reputation and vitality. Involvement and teamwork are our core human values. ProductsOur products are the end result of our efforts, and they should be the best in serving customers worldwide. As our products are viewed, so are we viewed. ProfitsProfits are the ultimate measure of how efficiently we provide customers with the best products for their needs. Profits are required to survive and grow. Guiding Principles Quality comes firstTo achieve customer satisfaction, the quality of our products and services must be our number one priority. Customers are the focus of everything we doOur work must be done with our customers in mind, providing better products and services than our competition. Continuous improvement is essential to our successWe must strive for excellence in everything we doin our products, in their safety and value and in our services, our human relations, our competitiveness and our profitability. Employee involvement is our way of lifeWe are a team. We must treat each other with trust and respect. Dealers and suppliers are our partnersThe Company must maintain mutually beneficial relationships with dealers, suppliers and our other business associates. Integrity is never compromisedThe conduct of our Company worldwide must be pursued in a manner that is socially responsible and commands respect for its integrity and for its positive contributions to society. Our doors are open to men and women alike without discrimination and without regard to ethnic origin or personal beliefs.
Source: Ford Motor Company

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Activity 1 Conduct a comparitive analysis of the mission and vision statements of any three companies of your choice.

Self-Assessment Questions
3. The ________of a company is variously called a statement of philosophy, a statement of beliefs, a statement of purpose and, a statement of business principles. 4. Mission is concerned more with the ________; the vision more with the__________.

5.5 Corporate Philosophy

Corporate or company philosophy is sometimes called company creed, and the statement of corporate philosophy is called the creed statement. Normally, the corporate philosophy statement accompanies or appears as part of the mission statement. It envisages the basic beliefs, values, aspirations and philosophical priorities of a company which the management or strategic decision makers are committed to. The mission statement should reflect the corporate philosophy of an organization as clearly demonstrated in the mission statements of companies like Ford. Generally, corporate philosophies should not vary widely from one company to another. But, in practice, corporate philosophy statements of some companies may appear quite different or contrasting in terms of the guiding values or principles. ITC, the Indian multinational and Nissan Motor Manufacturing (UK) are two such examples. Corporate philosophy of ITC highlights concerns for various stakeholders whereas Nissan UKs philosophy focuses on two basic principles: people principles and key corporate principles. Statements of corporate philosophies of both the companies are given in Box 5.2.

Box 5.2: Corporate Philosophies of ITC and Nissan Motor (UK)

Corporate Philosophy of ITC 1. Concern for their ultimate customersmillions of customers. 2. Concern for their intermediate customersthe trade.
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3. Concern for their suppliersthe source of raw materials and ancillaries. 4. Concern for their employeestheir most valued assets. 5. Concern for their competitors whom they wish wellfor healthy competition ultimately benefits the customers. 6. Concern for the national aspirationIndias future. Corporate Philosophy of Nissan Motor (UK) People Principles (All other objectives can only be achieved by people) Selection: Hire the highest calibre people; look for technical capabilities and emphasize attitude. Responsibility: Maximize the responsibility; staff by devolving decision making. Teamwork: Recognize and encourage individual contributions with everyone working towards the same objectives. Flexibility: Expand the role of the individual: multiskilled, no job description, generic job titles. Kaizen: Continuously seek 100.1 per cent improvements; give ownership of change. Communications: Every day, face to face. Training: Establish individual continuous development programmes. Supervisors: Regard as the professionals at managing the production process; give them much responsibility normally assumed by individual departments; make them the genuine leaders of their teams. Single status: Treat everyone as a first class citizen; eliminate all illogical differences. Trade unionism: Establish single union agreement with AEU emphasizing the common objective for a successful enterprise. Key Corporate Principles Quality: Building profitably the highest quality car sold in Europe. Customers: Achieve target of No. 1 customer satisfaction in Europe. Volume: Always achieve required volume. New Products: Deliver on time, at required quality, within cost.

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Suppliers: Establish long-term relationships with single-source suppliers; aim for zero defects and just-in-time delivery; apply Nissan principles to suppliers. Production: Use most appropriate technology; develop predictable best method of doing job; build in quality. Engineering: Design quality and ease of working into the product and facilities; establish simultaneous engineering to reduce development time.
Source: ITC Limited and Business Horizons, January-February, 1995, 51

Self-Assessment Questions
5. Corporate or company philosophy is sometimes called company creed. (True/False) 6. Generally, the corporate philosophy statements of most companies appear quite similar. (True/False)

5.6 Corporate Objectives and Goals

The mission statement of an organization is more generalized; corporate objectives are more focused and specific and generally have a clear time frame or period during which objectives should be fulfilled. Mission statements are qualitative; objectives are usually quantitative. Most of the objectives should be measurable in terms of results or achievements. But, the link between the mission statement and objectives should be quite intimate; objectives should follow from the mission statement or, be fully consistent with it. Corporate objectives and goals are similar, but, a distinction is generally made between the two. There is also difference of opinion among strategy analysts about what should be the correct distinction, or, rather, relationship, between the two. Ackoff has defined or distinguished the two as follows:
Desired states or outcomes are objectives. Goals are objectives that are scheduled for attainment during planned period.5

One need not make too much of a distinction between the two, which may become only a theoretical exercise without much of practical relevance. It is evident that objectives and goals have overlapping connotations. We will generally use the two terms synonymously with the only stipulation or rider that goals may be of longer term than objectives. Objectives can sometimes be purely short term.
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All businesses or companies have at least two common objectives: first, to make profit and, second, to offer to the owners reasonable rate of return on their capital. Most of the other objectives of a company either follow from or are related to these two basic objectives. These objectives may sometimes be tempered by some social or welfare factors or considerations, which may be included as additional input(s) in the objective statement. Details of objectives, however, including even profit objectives, can be different from one company to another. For example, some companies may seek short-term profit maximization or maximization of immediate financial returns; some other companies may decide to sacrifice short-term profit in the interest of long-term profitability. Some others may choose to have low profit on a sustained basis for competitive survival. Various company objectives can be broadly classified into three types or categories: strategic, tactical or operational. Strategic objectives are generally long term; tactical objectives are similar to strategic objectives, but, less strategic in nature; operational strategies are purely short term or operational as the name indicates. Examples of these three types of objectives are given below. Strategic Objectives Achieving a predetermined overall rate of return on capital employed Becoming a market leader in a particular product/market group Increasing shareholders earnings per share as far as possible Reducing companys dependence on borrowed capital Improving employee relations (particular focus on industrial relations) Tactical Objectives Increasing market share in some market segments Opening a subsidiary in a particular country within a specific period Extending the companys range of products or brands Introducing a new technology or a new manufacturing process Revising the organizational structure of one of the companys divisions or SBUs Operational Objectives Improving plant utilization Undertaking cost-cutting programmes
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Increasing sales during the next quarter Managing cash inflows/outflows Improving credit control or plant utilization measures6 Another way to distinguish among objectives is in terms of corporate objectives and unit objectives, because these indicate different levels of objectives with different characteristics. Corporate objectives, more correctly called corporate-level objectives, relate to the entire organization and are primarily expressed in financial termsprofitability, rates of growth of sales or turnover, dividend rates, share valuations, etc. Corporate-level objectives can also be of non-financial nature such as technology improvement or innovation, productmarket diversifications, objectives relating to stakeholders like customers, suppliers, employees or the community. But, many of these objectives also generally have a financial connotation. Unit objectives or unit-level objectives relate to individual units or SBUs and, not the entire organization. Unit-level objectives can be financial as well as non-financial, but, they always pertain to the individual units. Most of the unitlevel objectives generally follow from the corporate-level objectives. For example, an SBU may have a profit objective, but, this will be a translation of the corporate profit objective into the business unit-level objective. Many unit-level objectives are of an operational nature; and, because operations are many, multiple objectives are more common at the unit level than at the corporate level.

5.6.1 Organizational Life Cycle, Objectives and Strategy

Glueck and Jauch (1984) have mentioned about organizational life cycles and the linkages between life cycles, objectives and strategic focus of organizations. They have distinguished seven stages in organizational life cycle: birth, infancy, youth, youth adult, adult, maturity and old age. At each stage of the life cycle, there is a thrust on a particular objective, which is most important at that stage of the life cycle. Depending on the objective at each stage, the strategic focus of the organization will vary. Organizational life cycles vary from industry to industry and from company to company. Generally, high technology industries and companies will have shorter life cycles than low technology or labour-intensive industries and companies. Most of the industrial products and consumer durables, particularly consumer electronics, fall in the first category; consumer non-durables, particularly FMCGs, fall in the second category.

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But, it is a fundamental fact that every organization passes through a life cycle. And, during different stages of the life cycle, the predominant objectives will be different and, so also organizational strategies or strategic focus. The way to prolong the life cycle is to adopt newer technologies or to innovate. This is what steel and engineering companies do. Tata Steel is a good example.

Self-Assessment Questions
7. Corporate objectives are more focused and specific compared to the_____. 8. Birth, infancy, youth, youth adult, adult, maturity and old age are part of the ______.

5.7 Strategic Intent

From corporate objective, we now move on to strategic intent. If a particular objective of a company becomes extremely focused and directed towards a specific target, the company is showing a strategic intent. To be a strategic intent, the objective has to be both ambitious and aggressive. The phase strategic intent was coined by Hamel and Prahalad (1989). According to Hamel and Prahalad, strategic intent goes beyond the conventional model of matching internal competence and resources with company objectives or targets. Strategic intent indicates a stretch; it involves setting goals or targets which demand stretching of the present resource base and capabilities for their fulfilment. Strategic intent may often mean challenging or overtaking the market leader. Some of the examples are: Toyota vs General Motors; British Airways vs Pan Am; Sony vs RCA; Komatsu vs Caterpillar and Titan vs HMT. Komatsus strategic intent in challenging Caterpillar is analysed in Box 5.3.

Box 5.3: Komatsus Strategic Intent to Challenge Caterpillar

Komatsus strategic intent to challenge Caterpillar embodies the companys changing mission, goal and objective. Today, Komatsu is the second largest producer of earth-moving equipment in the world next only to its arch-rival Caterpillar of US. The company has progressed to this position over a long

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period of timea period characterized by clear strategic intent, goal redefinition and evolving objective. In the 1950s, Komatsu was producing a limited range of low-quality products and, with a protected home market, had little or no incentive to improve. This position changed almost dramatically when Japan opened its market to foreign competition in the early 1960s. In 1964, Kawai succeeded his father as the chairman of Komatsu and announced the goal of Maru C: to encircle Caterpillar. This statement of strategic intentto concentrate all its efforts on surpassing Caterpillarwas to be the driving force behind the companys goal for more than two decades. Komatsu focussed initially on the objective of improving product quality to stop loss of sales in its home market. The company then signed licensing agreements with Caterpillars competitors to gain access to the latest American technology. This move enabled the company to expand its product range which made it more attractive to dealer networksvital for Komatsu to build up sales volume. The next step towards its goal was to enter secondary export markets such as China and eastern Europe which helped to build the critical mass required to challenge Caterpillar in the main markets of Europe and the US. By the 1980s, Komatsu was very successful: its growth from a regional producer of low-quality products to the second largest producer was impressive, and this was primarily attributed to its goal of challenging and encircling Caterpillar. But, the goal and strategy which had served the company so well for over two decades were beginning to be challenged by the changing business environment. Komatsus sales began to fall as demand for heavy earthmoving equipment decreased and competition intensified. But, Komatsu was less focussed on its market needs and continued to concentrate on outdoing Caterpillar. This strategy was beginning to be questioned, but, not the strategic intent of the company. As a response to environmental changes, Katada, Komatsus third president, changed the companys emphasis from providing construction equipment to being a total technology enterprise, and the new goal of Growth, Global, Groupwide was adopted. In three years since the new goal was introduced, Komatsu has reversed its sales decline and registered a 40 per cent growth in its non-construction equipment business. Komatsus strategic intent of Maru C continues.
Source: Adapted from G Johnson and K Scholes, Exploring Corporate Strategy (Prentice Hall of India, 1999), 245.

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Strategic intent of a company is clear about the end or the target, but, it is flexible with regard to the means and leaves room for creativity and improvization. Pursuit of a strategic intent may initially create a misfit between targets or ambitions and resources. This becomes a challenge to the top management of a company. The management strives to bridge the gap by relentlessly building new capabilities or strategic advantages. The essence of the strategy here lies in creating competitive advantage faster than the target competitor or the leader.

Self-Assessment Questions
9. The phase ________indicates a stretch; it involves setting goals or targets which demand stretching of the present resource base and capabilities for their fulfilment. 10. The phase strategic intent was coined by ________and _________. 11. If a particular objective of a company becomes extremely focused and directed towards a specific target, the company is showing a strategic intent. (True/False) 12. Strategic intent does not mean challenging or overtaking the market leader. (True/False)

5.8 Company Responsibility

In developing mission statements, corporate objectives and goals and, business strategies, organizations must constantly remind themselves about certain responsibilities. These responsibilities are towards various stakeholders and the society at large. If companies have to balance various stakeholder expectations, many times, they may have to sacrifice short-term profit. Sometimes, profit objective may lead to the neglect of corporate governance and responsibilities. Examples are: Exxons oil leak in Alaska ; defective tyres of Firestone; Ford recalling many of their trucks; Union Carbide gas leak in India (Bhopal gas tragedy), etc. Companies, therefore, need to carefully examine the economic and social impacts of their missions, objectives and strategies.

5.8.1 Stakeholder Approach to Company Responsibility

We had defined stakeholders in the previous unit. But, many authors and practitioners of strategic management define stakeholders in a very broad sense.
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In the broadest sense, a stakeholder of a company is anybody or any organization who/which has something to do with the company. In this sense, stakeholders will include competitors, the government and the general public in addition to those mentioned in Unit 4. All these stakeholders have their expectations from the company and their own notions about company responsibility towards them. An illustrative statement of stakeholders view of company responsibility in terms of stakeholders claims is presented in Table 5.3.
Table 5.3 Stakeholders view of Company Responsibility
Stakeholder Stockholders Expectations/Claims

Sharing of profits; additional stock offerings; assets on liquidation; inspection of company books; transfer of stock; election of board of directors; and applicable additional rights. Creditors Interest payments as due and return of principal amount; security of pledged assets; relative priority in the event of liquidation; management and ownership prerogatives if conditions exist with the company (such as default of interest payments). Employees Attractive compensation package; job satisfaction; freedom from arbitrary behaviour on the part of company officials; share in fringe benefits; freedom to join union and participate in collective bargaining; satisfactory working conditions. Customers Competitive price; service provided with the product; suitable warranties; R&D leading to product improvement; facilitation of credit on attractive terms. Suppliers Continuing business; timely payment and servicing of credit obligations; professional relationship in contracting for purchasing and receiving goods and services. Governments Taxes (income, excise, sales, etc.); adherence to public policy dealing with the requirement of fair and free competition; discharge of legal obligations of business people (and business organizations); adherence to business law (MRTP, FEMA, etc). Unions Recognition as the negotiating agent for employees; to be recognized as a participant in the business organization; managements cooperation in fair wage settlement. Competitors Observation of the norms for competitive conduct established by the industry and society; ethical business practices; no price war. Local communities Place for productive and healthy employment; participation of company officials in community affairs; provision of regular employment; fair play; interest in and, support of, local government; support of cultural and charitable projects. The general public Participation in, and contribution to, society as a whole; assumption of some proportion of the burden of government and society; fair price for products and generating healthy competition.

Source: Adapted from Pearce and Robinson (2000), 50 (Figure 2.3)

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As shown in Table 5.3, each interest group of stakeholders has multiple expectations or claims. For all the stakeholders taken together, the expectations/ claims are too many and varied. Many of them are conflicting. So, if an organization attempts to incorporate all the interests of various stakeholder groups in the mission statements or objectives, it becomes almost an impossible task. Therefore, before attempting such an exercise, companies should do proper stakeholder analysis. Four steps or tasks are involved in such analysis: (a) Identification of important internal and external stakeholders (b) Understanding stakeholders specific claims (c) Reconciliation of stakeholders claims and prioritizing them (d) Matching stakeholder claims with other inputs or elements of the company mission or objectives. Every business or company faces different types of stakeholder groups which vary in number, size, influence and importance. Planners and strategy makers must identify all the important stakeholder groups and assess their relative weights and claims and their ability to affect companys performance and success. This would also involve understanding or analysing stakeholders claims carefully. Since claims can be too many, prioritization of claims is necessary. After prioritization, the problem of reconciliation comes. Reconciliation is essential to resolve the competiting, conflicting and contradicting claims of stakeholders. Finally, the distilled stakeholder claimsprioritized and reconciledhave to be matched or coordinated with other principal elements of the mission statement or objectives. These elements relate to the business for which the organization exists and, the product-market situation. When all these factors or elements are combined in a harmonized way, the mission statement, objective and strategies would be internally consistent and are likely to produce desired results. Methodologically, this is presented in Figure 5.2.
Internal stakeholders Board of directors Executive officers Stockholders Employees Union* Business/ product-market External stakeholders Customers Suppliers Creditors Government Union* Competitors General public

Company mission

Objectives

Figure 5.2 Stakeholders Chains, Company Mission and Objectives *Union is shown both as internal and external stakeholder because there is a difference of opinion on this. Sikkim Manipal University Page No. 120

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Self-Assessment Questions
13. Corporates have responsibilities towards various stakeholders and the society at large. (True/False) 14. The competitors, government and the general public are all ______of a company.

5.9 Corporate Social Responsibility

As mentioned above, external stakeholders of an organization are too many and varied and many of them represent different sections or social groups. This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. This is corporate social responsibility (CSR). Corporate social responsibility can be defined as the alignment of business operations with social values. The conflict between internal and external stakeholders can go much further than mentioned so far. Some feel that this is the most problematic issue in deciding company responsibility. External stakeholders argue that internal stakeholders demand be made secondary to the greater need of the society; that is, greater good of the external stakeholders. Many of them feel that issues like pollution, waste disposals, environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making. Internal stakeholders, on the other hand, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives and profitability. The debate continues. Strong exponents of CSR also talk of social policy for companies. They feel that social responsibilities of companies should be clearly enunciated and declared as social policy. Social policies may directly affect a companys products and services, technology, markets, customers and self-image. According to these thinkers, an organizations social policy should be integrated into all management activities including the mission statement and objectives. Many feel that corporate social policy should be articulated during strategy formulation, administered during strategy implementation and reaffirmed or changed during strategy evaluation.7

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5.9.1 CSR Practices in Corporates

Worldwide, companies are trying to integrate corporate social responsibility into their business operations and strategies. Microsoft, Coca-Cola, McDonalds, FedEx, IBM and Johnson & Johnson are some of the leading companies. In India also, many companies are integrating CSR into their business practices and making significant contributions to society. Companies like Infosys, Wipro, Hero Honda, ITC, Dr. Reddys, Godrej, Mahindra & Mahindra and Tata Steel are the foremost among them. Some of these companies have also established foundations to cater to the needs of society. Infosys and Wipro are two new-age companies which have integrated CSR initiatives into their business capabilities and have achieved stronger brand recognition through it. The Infosys Foundation works for both economic and social upliftment of the villages it has adopted. The foundation focusses on an overall development of the village. The developmental activities range from conducting rehabilitation to construction of orphanages, setting up libraries and promoting art and culture. Hero Honda has adopted a number of villages in and around its plant in Dharughera (near Delhi) for integrated rural development. ITCs E-choupals have not only helped to meet the information requirements of rural households, but also immensely contributed to the establishment of better relations with customers and rural suppliers. This has helped the process of integrated rural development. Many banks and financial institutions along with FMCG companies like Hindustan Unilever have recognized the importance of development of the rural sector. At the global level, CSR initiatives of companies are observed with interest. The Wall Street Journal has rated top 15 companies in terms of their social responsibility.8 These companies are 1. Johnson & Johnson 2. Coca-Cola 3. Wal-Mart 4. Anheuser Bush 5. Hewlett-Packard 6. World Disney 7. Microsoft 8. IBM 9. McDonalds 10. 3M 11. UPS 12. FedEx 13. Target 14. Home Depot 15. General Electric

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It should be noted that there is a difference in focus between CSR initiatives of Indian companies and the western companies. In India, CSR initiatives are mostly designed for the upliftment of the economically backward classes or sections of society with particular emphasis on the rural sector. In companies in developed countries, the focus is more on adoption of environment-friendly measures or schemes. A poll carried out by the American Society for Quality (ASQ) in 2006 for the ISO 26,000 Social Responsibility standards shows growing interest in CSR among organizations. Integration of CSR into business is likely to receive greater thrust with the creation of ISO 26,000 standards. The ISO 26,000 would provide guidelines on social responsibility of corporations and other organizations. This would help preparation of a road map by companies wishing to align their business activities with social initiatives.9

5.9.2 Corporate Social Responsibility and Profitability

Milton Friedman said in 1962: Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. Capitalism and Freedom, 1962 Even after four decades since Friedman said this, corporate social responsibility has remained a contentious issue. Managers are struggling to decide to what extent they should adopt CSR in their strategy-building process. The debate or dichotomy is clear: Should a company behave in a socially responsible manner and make the profitability policy follow from this; or, should a company aim at profit maximization and try to be as socially responsible as possible. Exponents of CSR argue that business depends on, exists to serve and, cannot be separated from the environment; the environment is represented by external stakeholders like customers, competitors, suppliers, government agencies, local communities and society in general. Proponents of profit maximization like Friedman, on the other hand, think that a company has responsibility only for the financial well-being of its stockholders; and other objective or policy may threaten the health and prosperity of the company. The relationship between CSR and profit is complex. Although the two are not mutually exclusive, neither of them is a prerequisite for the other. Advocates of corporate pragmatism suggest that CSR and profit need not necessarily be viewed as two competing concepts. It may be more rational to include CSR as a factor or component in the strategy-building process of the

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business which should determine, along with other objectives, how to increase or maximize profit. Several research studies10 have been undertaken to determine the relationship between corporate social performance and financial performance. But, none of these studies has been able to establish the precise nature of relationship between the two. There may be a number of reasons for this. One reason may be that there is no significant correlation between social and financial performance. Another reason may be that the benefits of CSR are offset by its negative effect on profitability with no consequentially visible financial impact on the company. Other reasons include methodological weaknesses or drawbacks and/or problems with operational definitions or inadequacy of the conceptual models used in the studies. A general conclusion from these studies, however, is that certain relationship between CSR and profitability may exist, but, the nature of the relationship is not clear. Activity 2 Choose any five companies that are well known for their CSR practices. You may choose the companies mentioned in the text above. Write a report on each of the companys CSR activities.

Self-Assessment Questions
15. _________can be defined as the alignment of business operations with social values. 16. In India, CSR initiatives are mostly designed for the upliftment of the economically backward classes or sections of society with particular emphasis on the rural sector. (True/False)

5.10 Social Audit

Exponents of CSR do not just want companies to be socially responsible. They also want to know how much or how far have they shown their social responsibility, that is, what is their social performance against stated social objectives. This can be measured through social audit. Social audit and social accounting are sometimes used synonymously. But, there is a distinction between the two. Social accounting is the process of selecting firm level performance variables, measures and measurement procedures; systematically
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developing information useful for evaluating the firms social performance to concerned social groups, both within and outside the firm.11 Social audit, on the other hand, is more specific or focussed; as just mentioned, social audit evaluates or measures a companys performance against planned or laid down social objectives or goals. A social audit should be like a financial audit or a commercial audit. Some even feel that social audit should be based on a social balance sheet with a "credit" side and a "debit" side ("inputs" and "outputs" or "costs" and "benefits").12 A social audit may be undertaken internally by companies; or, they may engage outside consultants to conduct the audit. But, as with financial audit, an outside consultant or agency minimizes organizational biases and brings more credibility to the evaluation process and the company. Social audit is important not only because a company wants to ensure that it has implemented CSR policy as planned or committed, but, also because it improves its public image and social standing. Also, social audit is conducted by some companies not only to evaluate their social performance, but, also for other purposes which are connected with their corporate performance and image building. Some companies, for example, use social audit to scan the external environment and determine their vulnerabilities to it; some others conduct social audit to improve their relations with the government and public bodies. Others use social audit to institutionalize CSR within their companies.

Self-Assessment Questions
17. The social performance of companies can be measured against the stated social objectives through_________. 18. A social audit is always undertaken internally by companies. (True/False)

5.11 Case Study

Corporate Social Responsibility: Tata Group Goes Green* In India, many companies are integrating corporate social responsibility (CSR) into their business practices and are making significant contributions to society. Some of them have also set up foundations to cater to the needs of the society. Tata Group of companies, along with some others, are foremost among them. As an extension of CSR practices, Tata Group companies are going green. From being on the fringe for some time, the
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green movement is gaining momentum within the group. The movement covers all the major companies of the group, namely, Tata Steel, Tata Motors, Tata Chemicals and Indian Hotels. Tata Steel is planning to reduce carbon dioxide emissions at its Jamshedpur plant from the current 1.8 tonne to 1.7 tonne per tonne of liquid steel made by 2012. The ideal global benchmark though is 1.5. Tata Motors is setting up an eco-friendly showroom using natural building materials for its flooring and energy-efficient lights. The project is in its initial stages. The Indian Hotels Company, which runs the Taj Chain, is in the process of creating eco rooms, which will have energy-efficient minibars, organic bed linen and napkins made from recycled paper. There will not be any carpets since chemicals are used to clean these. And when it comes to illumination, the rooms will have CFLs or LEDs. About 5 per cent of the total rooms at a Taj hotel would sport a chic eco-room design.

Another eco-friendly consumer durable product that is in the works is Indica EV, an electric car that will run on polymer lithium ion batteries. Tata Motors plans to introduce the Indica EV soon. The groups large companies such as Tata Steel, Tata Motors, Tata Chemicals and Tata Consultancy Services contribute 80 per cent of the groups overall emissions and a panel, headed by Tata Sons Director J J Irani, has been formed to address this issue. Several companies have already implemented or are in the process of implementing clean development mechanism (CDM) projects. Tata Steel says it is currently working on more than 17 CDM projects with Ernst & Young and these projects are at various stages of approval at United Nations Framework

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Convention on Climate Change. Tata Power has said that of the total power, it would generate in the next 10 years, 25 per cent would be from renewable energy sources. Tata Motors is collecting environmental and energy data across its dealer and supply chain to compute their carbon footprint and indentify opportunities for cutting down on carbon dioxide emission. This initiative will enable sharing and deployment of ideas throughout the value chain. One of the most interesting innovations has come in the form of a biogasbased power plant at Taj Green Cove in Kovalam, which uses the waste generated at the hotel to meet its cooking requirements. Indian Hotels Management has mentioned that all of its domestic and international hotels would now be certified by Green Globe, an international agency. Tata Group Chairman Ratan Tata had said during the launch of Swatch, a low-cost water purifier made form natural ingredients: We have embarked on a group-wise initiative to create awareness and implement eco-friendly process wherever it is possible and in fact, look at some of our older processes to see how we can ensure that they are in compliance with the stateof- the-art exhibits. This is going to be long and expensive journey and we are fairly committed to it. This summarizes well the Tata Groups initiatives to promote the green movement.
* Mostly based on Going green: Tatas new mantra, The Times of India (Times Business), January 4, 2010.

5.12 Summary
Let us recapitulate the important concepts discussed in this unit: To define a companys business with precision is the job or responsibility of the planners and strategists. Precise or correct definition of business of a company is the foundation for the mission statement, objectives, plans, strategies and work and resource allocations. A mission statement is many in one. It embodies the business philosophy of a companys decision makers, implies the image the company wishes to project, reflects the companys self-concept, indicates the companys principal product or service areas and the customer needs the company seeks to satisfy.

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Corporate or company philosophy is sometimes called company creed; it envisages the basic beliefs, values, aspirations and philosophical priorities of a company. Corporate objectives are more focussed and specific compared to corporate mission. The mission statement is more general and qualitative; corporate objectives are usually quantitativemost of the objectives should be measurable in terms of results or achievements. But, corporate objectives should be fully consistent with the mission statement for its performance. Glueck and Jauch (1984) have mentioned about organizational life cycles and the linkages between life cycles, objectives and strategic focus of organizations. They have distinguished seven stages in organizational life cycle; birth, infancy, youth, youth adult, adult, maturity and old age. Worldwide, companies are trying to integrate corporate social responsibility into their business operations and strategies. Microsoft, Coca-cola, McDonalds, FedEx, IBM and Johnson & Johnson are some of the leading companies.

5.13 Glossary
Corporate mission: The business philosophy of a company, declaring what business the company is in and who its customers are. It provides focus and direction for the corporate development. Corporate philosophy: The beliefs, values, aspirations and philosophical priorities of a company which the management or strategic decision makers are committed to. Corporate vision: Refers to a companys specific intentions that are broad, all-intrusive and forward-thinking. Organizational life cycle: A model which proposes that over the course of time, business firms move through a fairly predictable sequence of developmental stages. Strategic intent: Setting goals or targets which demand stretching of the present resource base and capabilities for their fulfilment.

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5.14 Terminal Questions

1. How would you properly define a business? Explain with a diagram. 2. What is a mission statement? Differentiate between a mission statement and a vision statement. 3. Specify seven stages of organizational life cycle. Discuss the linkages between organizational life cycle, corporate objectives and strategy. 4. What is strategic intent? How is strategic intent different from corporate objective? Explain strategic intent with some examples. 5. What is corporate social responsibility (CSR)? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. 6. Explain the concept of social audit. Discuss Tata Steels social audit. Would you recommend social audit for every company?

5.15 Answers Answers to Self-Assessment Questions

1. Planners, strategists 2. Customer 3. mission statement 4. present, future 5. True 6. False 7. mission statement 8. Organizational life cycle 9. strategic intent 10. Hamel, Prahalad 11. True 12. False 13. True

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14. stakeholders 15. Corporate social responsibility 16. True 17. social audit 18. False

Answers to Terminal Questions

1. To define a companys business with precision is the job or responsibility of the planners and strategists. Refer to Section 5.3 for further details. 2. The mission statement of a company is variously called a statement of philosophy, a statement of beliefs, a statement of purpose and, a statement of business principles. Refer to Section 5.4 and 5.4.1 for further details. 3. Glueck and Jauch (1984) have distinguished seven stages in organizational life cycle: birth, infancy, youth, youth adult, adult, maturity and old age. Refer to Section 5.4 and 5.7 for further details. 4. The phase strategic intent was coined by Hamel and Prahalad (1989). Refer to Section 5.7 for further details. 5. Organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. Refer to Section 5.8 for further details. 6. A companys social performance against stated social objectives can be measured through social audit. Refer to Section 5.9 for further details.

5.16 References
1. Aupperle, K E, A B Carroll, J D Hatfield. 1985. An Empirical Examination of the Relationship between Corporate Social Responsibilities and Profitability. Academy of Management Journal. 28 June. 2. CarrolL, A, and F Hoy. Integrating Corporate Social Policy into Strategic Management. 1984. Journal of Business Strategy 4, Winter. 3. Drucker, P F. 1974. Management: Tasks, Responsibilities and Practices. New York: Harper & Row. 4. Ghosh, P K. 2003. Strategic Planning and Management. New Delhi: Sultan Chand & Sons.
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6. Hamel, G, and C K Prahalad. 1989. Strategic Intent, Harvard Business Review, MayJune. 7. Pearce, J R, and R B Robinson. 2000. Strategic Management. 7th ed. New Delhi: McGraw Hill. Endnotes
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P F Drucker, Management: Tasks, Responsibilities and Practices (New York: Harper & Row, 1974), 63. J R Pearce, and R B Robinson, Strategic Management, 7 th ed. (Mc Graw-Hill, 2000), 27. W R King, and D I Cleland, Strategic Planning and Policy (New York: Van Nostrand Reinhold, 1978), 124. An Interview with M A Pathan, Chairman, IOC, Financial Express, August 30, 1999 R Ackoff, A Concept of Corporate Planning (New York: John Wiley, 1970). R Bennett, Corporate Strategy , 2nd ed. (Financial Times/Pitman Publishing, 1999), 1819. A Carroll, and F Hoy, Integrating Corporate Social Policy into Strategic Management, Journal of Business Strategy, 4, No. 3 (Winter 1984). R Alsop, Perils of Corporate Philanthrophy, Wall Street Journal (January 16, 2002). Trying to Make a Difference, Financial Times (New Delhi: Times Publishing House, April 7, 2006). Two important studies are: K E Aupperle, A B Carroll, and J D Hatfield, An Empirical Examination of the Relationship between Corporate Social Responsibility and Profitability, Academy of Management Journal, (1985) 446 63; W N Davidson, and D L Worrell, A Comparison and Test of the Use of Accounting and Stock Market Data in Relating Corporate Social Responsibility and Financial Performance, Akron Business and Economic Review, 21 (Fall 1990), 7 1 K V Ramanathan, Theory of Corporate Social Accounting, Accounting Review (July, 1976): 516 28. C C Abt, The Social Audit for Management (New York: AMA, 1977): 44 45.

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