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BASIC CONCEPTS OF STRATEGIC MANAGEMENT (PART 1)

Definition of Strategic Management

The phrase “Strategic Management” is sometimes used as a synonym for “Strategy,” but the two terms
are not the same.

A strategy refers to a unique plan designed to achieve a competitive position in the market. It is also an
interpretative plan that guides the organization to reach its goals and objectives. Whereas Strategic
Management consists of analyses, decisions, and actions, an organization undertakes to create,
implement, and sustain competitive advantages.

In short, Strategic management is the process that defines the organization’s strategy.

This definition of Strategic Management entails three (3) ongoing processes:

1. Analyses – Strategic Management is concerned with the analysis of strategic goals (mission,
vision, and strategic objectives) along with the internal and external environments of the
organization.
2. Decisions – Strategic decisions address two (2) basic questions: What industries should we
compete in? And how should we compete in those industries?
3. Actions – Strategic actions require leaders to allocate necessary resources and to bring the
intended strategies to reality.

Key Attributes of Strategic Management

The four (4) key attributes of Strategic Management:

1. Directs the organization toward overall goals and objectives. This perspective refers to how
efforts must be directed at what is best for the total organization, not just a single functional area.
That is, what might look “rational” or ideal for one functional area, such as operations, may not
be in the best interest of the overall firm.

Example: Operations may decide to schedule long production runs of similar products to lower
unit costs. However, the standardized output may counter what the marketing department needs
to appeal to a demanding target market.

2. Includes multiple stakeholders in decision-making. Stakeholders are those individuals, groups,

and organizations interested in the organization's success, including owners, employees,
customers, suppliers, the community at large, and so on.

Example: If the overwhelming emphasis is on generating profits for the owners, employees may
become isolated, customer service may suffer, and the suppliers may resent demands for pricing
concessions.

3. Needs to incorporate short-term and long-term perspectives. Managers must maintain both a
vision for the future of the organization and a focus on its present operating needs.

Example: If a company has a three-to-five-year plan, this long-term plan should have sequences
of short-term plans. Once the long-term goal is defined, management must define the short-
term steps necessary to achieve it.

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4. Recognizes trade-offs between efficiency and effectiveness. It is the difference between doing
the right thing (effectiveness) and doing things right (efficiency).

Example: Managers must make many trade-offs. In doing so, managers must allocate and use
resources wisely (efficiency) but still direct their efforts toward attaining overall organizational
objectives (effectiveness).

The Study of Strategic Management Process

The study of Strategic Management leads to the development of a strategic position that helps determine
the organization's future sustainability and profitability, simultaneous with the integration of managerial
capabilities, responsibilities, motivation, and reward system.

Originally called business policy, strategic management has advanced substantially with the concentrated
efforts of researchers and practitioners. Today, we recognize both a science and art in applying strategic
management techniques.

Figure 1. Phases in The Evolution of Strategic Planning

Source: Evolution of Strategic Management 2021. p. 12

The following phases describe the evolution of strategic management:

• Phase 1: Basic financial planning. During this phase, organizations emphasize preparing and
meeting annual budgets. Financial targets are established, revenues are measured, and costs are
carefully monitored. Also, the organization's primary focus is short-term (1 year) and mostly on
the functional aspects.

• Phase 2: Forecast-based planning. During this phase, organizations usually extend time frames
covered by the budgeting process (3-5 years). Organizations tend to seek more accurate forecasts
by considering past and present records and the short-term and long-term effects of its external

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environment. Therefore, this phase has more effective resource allocation and timely decisions
relating to organization’s long-term competitive position in the market.

• Phase 3: Externally oriented planning. During this phase, organizations attempt to understand
basic marketplace phenomena. Organizations begin to search for new ways to define, meet, and
satisfy customer’s needs and wants. The managers are tasked with generating several alternative
strategies for top management. Lastly, the top management begins to evaluate the proposed
alternative strategies in a formalized manner for planning and actions.

• Phase 4: Strategic management. During this phase, the top management organizes planning
groups of managers and key employees from various departments and workgroups. They develop
and integrate plans emphasizing the company’s true competitive advantages. Strategic plans at
this point detail the implementation, evaluation, and control issues. Rather than attempting to
forecast the future perfectly, the plans emphasize probable scenarios and contingency strategies.
Planning is typically interactive across levels and is no longer strictly top-down. People at all levels
are now involved in overall strategic thinking, comprehensive planning process, and supportive
value system.

Types of Strategies
Strategic alternatives are developed to set direction in which human and material resources of business
will be applied for a greater chance of achieving selected goals. It is also involved with the identification
of the ways that an organization can undertake to achieve targets, weaken the competitors, gain
competitive advantage, and ensure sustainability,

The following are the different types of strategies:

• Corporate-level strategy. This strategy defines the markets and business in which a company will
operate. It also entails a clearly defined, long-term vision that organizations set to create
corporate value and motivate the workforce to implement proper actions to achieve customer
satisfaction. It is a continuous process that requires constant effort to engage investors in trusting
the company with their money, thereby increasing its equity. Organizations that manage to
deliver customer value consistently are those that revisit their corporate strategy regularly to
improve areas that may not deliver the aimed results.

• Business level strategy. This strategy emphasizes strengthening the company’s competitive
position of products or services. Business strategies are composed of competitive and cooperative
strategies. It covers all the activities and tactics for competing in contrast to the competitors and
the management behaviors requiring strategic alignment and coordination. Business strategies
focus on product development, innovation, integration, market development, and diversification,
among others.

• Functional level strategy. This strategy is formulated to achieve some objectives of a business
unit by maximizing resource productivity. Functional strategy is concerned with developing a
distinctive competence to provide a business unit with a competitive advantage. Each business
unit or company has its own set of departments, and every department has its functional strategy.
Functional strategies are adapted to support the competitive strategy. For instance, a company

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following a low-cost competitive strategy needs a production strategy that emphasizes on

reduction cost operation and a human resource strategy that emphasizes retaining the lowest
possible number of highly qualified employees for the organization.

• Operating level strategy. This strategy is usually created at the field level to achieve immediate
objectives. An operating strategy is formulated in the operational units of an organization. In some
companies, managers develop an operating strategy for each set of annual objectives in the
departments or divisions.

Part of strategizing is planning on how to navigate unchartered territories. Take for example, the global
health crisis brought by Covid-19. Nobody predicted Covid-19 and how bad it will get. Companies must
consider how the world is changing and move towards strategic thinking. It is about making quality
decisions, learning from history, and using foresight on what will be needed by the company to gain a
competitive advantage.

Competitive Advantage
Competitive advantage means superior performance relative to competitors in the same industry or
superior performance relative to the industry average. It can also be defined as the factor that makes a
business's goods or services superior to the available options in the market.

The following are the determinants of competitive advantage:

• Benefit. It pertains to the value offered by a product or service to the market. Aside from the
product features, companies must also identify the unspoken benefits of their product or service.
This means constantly being aware of new trends that affect a product's or service's value.

Example: Newspapers slowly adapt to the current technological trends because most
news and information are already available via the Internet. Other newspaper companies
may perceive that some people are still willing to pay for news delivered daily on a piece
of paper.

• Target market. It pertains to a selected group of customers within a business' available market at
which a business aims its marketing efforts and resources. Companies must be aware of their
target market to innovate their products and services based on the particular needs of their
customers.

Example: Newspapers' target market is drifted towards older people who are not
comfortable or capable of getting their news online.

• Competition. It pertains to the rivalry between companies that sell similar goods and services.
Aside from the companies that sell similar products, a business must also identify its indirect
competitors in the market.

Example: Newspaper companies thought their competition was with other newspaper
companies until they realized it was the advent of modernization because of the Internet.

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• Cost advantage. This pertains to the strategy of a company that involves producing a product or
providing a service at a lower cost than its competitors. Companies with this advantage produce
products in higher quantities and provide customer benefits. This is mainly influenced by multiple
factors such as access to low-cost raw materials, efficient processes and technologies, low
distribution and sales costs, and efficiently managed operations.

Example: A global company that employs cost advantage is Unilever, which is influenced
by its large operation and massive presence in the market.

• Differentiation strategy. This pertains to a company's strategy that involves marketing the
qualities of a product that sets it apart from other similar products and uses that difference to
drive consumer choice. Product differentiation makes consumers' attention focused on one or
more key benefits of a brand that make it better than others.

Example: A global company that employs a differentiation strategy is Apple, which creates
its operating system (IOS) that distinguishes its product as superior apart from its
competitors.

References
Amadeo, K. (2022). What is competitive advantage? https://www.thebalance.com/what-is-competitive-
advantage-3-strategies-that-work-3305828
Bamford, C., Hoffman, A., Hunger, D., & Wheelen, T. (2018). Strategic management and business policy:
Globalization, innovation and sustainability (15th ed.). United Kingdom: Pearson Education
Limited.
Bdc. (n.d.). Cost advantage. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-
business-guides/glossary/pages/cost-advantage.aspx
Dess, G., Eisner, A., Lee, S., McNamara, G. (2021) Strategic Management: Creating Competitive
Advantages (10th ed.) New York. McGraw-Hill Education.
Higher Study. (2022). Types of strategies in strategic management. http://higherstudy.org/types-
strategies-strategic-management
Management Study Guide. (n.d.). Strategy - definition and features. Retrieved on January 23, 2019, from
https://www.managementstudyguide.com/strategy-definition.htm.
My Accounting Course. (n.d.). What is corporate strategy. Retrieved on January 23, 2019, from
https://www.myaccountingcourse.com/accounting-dictionary/corporate-strategy
Witcher, B. (2020) Absolute Essentials of Strategic Management. New York. Taylor & Francis Group Ltd.

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BASIC CONCEPTS OF STRATEGIC MANAGEMENT (PART 2)

Initiation of Strategy: Triggering Events

A triggering event acts as a stimulus for a change in strategy. These triggering events are critical when an
organization is in the search mode, looking for the next customer, and when they need to identify sales
opportunities at a particular company.

According to the book “Essentials of Strategic Management” by Wheelen and his associates, he classified
the following triggering events based on internal and external control of a firm:

Internal Environment
• New Chief Executive Officer (CEO). A change in strategy may involve a newly appointed officer
who will spend a ton of time meeting with employees to get their perspective on the company,
what’s working, and what’s not.
• Performance measure. A change in strategy may involve a gap that exists when performance does
not meet expectations. Poor performance of a few employees can have a damaging ripple effect
across the entire business, resulting in a widespread loss of motivation, productivity, a decrease
in customer satisfaction, and decreased sales.
• Threat of a change in ownership. A change in strategy may involve a different business that
initiates a takeover by buying or merging a company’s common stock or share. Business owners
sometimes encounter life-changing experiences that can trigger significant changes in the desire
to own and manage a business, or the company is simply facing bankruptcy.

External Environment
• External intervention. A change in strategy may involve alterations in the supply chain, including
demand, supply, and environmental risks. Unpredictable customer demands cause demand risks,
while interruptions cause supply risks to the product flow, including raw materials in the supply
chain. The environmental risks are usually related to economic, social, governmental, and climate
factors, including the threat of terrorism and the global health crisis.
• Strategic inflection point. A change in strategy may involve a major alteration in the company
due to the introduction of new or disruptive technologies, a different regulatory environment, a
change in customers’ values, or a change in customers’ preferences.

Strategic Decision-Making
A distinguishing characteristic of strategic management is its emphasis on strategic decision-making.
Unlike many other decisions, strategic decisions deal with the long-term future of an entire organization
and have three (3) characteristics as follows:
• Rare. Strategic decisions are unusual and typically have no precedent, guidelines, or previous
examples to follow.
• Consequential. Strategic decisions commit substantial resources and demand a great deal of
commitment from people at all levels.
• Directive. Strategic decisions set precedents for lesser organizational problems and future actions
throughout an organization.

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According to Henry Mintzberg, the following are the most typical approaches or modes of strategic
decision-making:

• Entrepreneurial mode. This states that one powerful individual makes strategy. This mode
focuses on the opportunities and growth, not business problems. Strategy is guided by the
founder’s vision of direction and is exemplified by large, bold decisions. The dominant goal of this
mode is the growth of a corporation.

Example:
Amazon.com, founded by Jeff Bezos, reflects Bezos’ vision of using the Internet for
marketing everything that can be bought.

• Adaptive mode. This is characterized by reactive solutions to existing problems rather than a
proactive search for new opportunities. Strategy is fragmented and is developed to move a
corporation forward incrementally. This mode lacks clarity and consensus on strategic goals and
is only appropriate for dealing with complex and changing environments.

Example:
Due to the Covid-19 pandemic lockdown, movie theaters worldwide were temporarily
shut down. Walt Disney, a multinational mass media and entertainment company,
decided to launch Disney+, a home entertainment subscription streaming service that
includes access to all the Disney brand's classic, present, and upcoming movies.

• Planning mode. This involves systematically gathering appropriate information for situation
analysis, generating feasible alternative strategies, and rationally selecting the most appropriate
strategy. It includes the proactive search for new opportunities and the reactive solution to
existing problems.

Example:
After carefully studying trends in the mobile and communication industries, Samsung
noted that the company needed to rebrand itself from being an appliance manufacturer
to a customer-focused and highly reliable information technology infrastructure and
electronic commerce service. By late 2000, the company had launched several phones,
leading to global success.

• Logical incrementalism. In this mode, top management first develops a reasonably clear idea of
the corporation’s mission and objectives. It is a fusion of strategy formulation and
implementation. This approach appears useful when the environment is changing rapidly when it
is building consensus, and when resources are needed to be developed before committing the
entire organization to a specific strategy.

Example:
In the petroleum industry, corporate headquarters established the mission and objectives
but allowed the business units to propose strategies to achieve them.

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Strategic Decision-Making Process

Managers of successful organizations do more than simply find a way to make money and sell products
or services, they also think of the big picture and make decisions that will get the company to where it
wants to go. This type of decision-making guides the choices that are made and aligning them with the
company objective. The steps in strategic decision-making process as follows:

1. Evaluate current performance results.

The organizational performance must be assessed based on return on investment, profitability,
current mission, objectives, strategies, and policies.

2. Review corporate governance.

The organization must evaluate the performance of its board of directors and top management.

3. Scan and assess the external environment.

The organization must determine the strategic factors that pose opportunities and threats.

4. Scan and assess the internal corporate environment.

The organization must determine its strengths or core competencies and weaknesses.

5. Analyze strategic factors.

The organization must pinpoint its problem areas and revise its corporate mission and objectives.

6. Generate, evaluate, and select the best alternative strategies.

The organization must identify the best course of action to solve an identified problem and
achieve a set of objectives.

7. Implement selected strategies.

The organization must implement strategies through company programs, budgets, and
procedures.

8. Evaluate implemented strategies.

The organization must monitor the implemented strategies through feedback systems and control
of activities that ensures minimum deviation from original plans.

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References
Bamford, C., Hoffman, A., Hunger, D., & Wheelen, T. (2018). Strategic management and business policy:
Globalization, innovation and sustainability (15th ed.). United Kingdom: Pearson Education
Limited.
BusinessQueensland. (2020). Identifying supply chain risks. https://www.business.qld.gov.au/running-
business/protecting-business/risk-management/supply-chains/identifying
Dess, G., Eisner, A., Lee, S., McNamara, G. (2021) Strategic Management: Creating Competitive
Advantages (10th ed.) New York. McGraw-Hill Education.
Witcher, B. (2020) Absolute Essentials of Strategic Management. New York. Taylor & Francis Group Ltd.

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SUSTAINABILITY AND CORPORATE GOVERNANCE

Definition and the Triple Bottom Line (TBL) of Sustainability

Sustainability involves business practices that satisfy the needs of the present without compromising the
ability of the future generation to meet their own needs. It involves managing a company’s profit or loss
and social and environmental responsibility. Andrew Beattie (2021) described the “Triple Bottom Line”
(TBL) or the three (3) pillars of sustainability as follows:

• The Economic Pillar (Profit). This ensures economic efficiency and income for businesses. To
become sustainable, a business must be profitable. This pillar of sustainability includes business
activities such as compliance, proper governance, and risk management.
• The Social Pillar (People). This ensures the quality of life, safety, and services for citizens. To
become sustainable, a business should have the support and approval of its employees,
stakeholders, and the community in which it operates. The approaches to securing and
maintaining this support boil down to treating employees fairly and being a good neighbor and
community member in the local and global arena.
• The Environmental Pillar (Planet). This ensures the availability and quality of natural resources.
To become sustainable, businesses should focus on reducing their carbon footprints, packaging
waste, water usage, and overall undesirable environmental impact.

Sustainable Business Practices

In the business world, sustainability is seen as the triple-bottom line in which a business enterprise
corresponds to its investors. The following sustainable business practices of global companies are as
follow:
• Better World Books. This company sells used books and donates a portion of the profits to help
fund literacy programs. Better World Books has raised millions of dollars for literacy programs
and created hundreds of jobs while allowing book lovers to purchase books cheaply.
• Unilever. The company aims to reuse 100% of plastic packaging by 2025. The company is working
with its suppliers, NGOs, and business partners to ensure it pledges to use reusable, recyclable,
or compostable plastic packaging.
• DHL. This global logistics company commits to reaching zero emissions by 2050 to aid climate
protection. Zero emission refers to an engine, motor, process, or energy source that emits no
waste products that pollute the environment or disrupt the climate.
• Patagonia. This company’s goal is to make quality apparel that does not harm the environment.
They started producing clothes from recycled plastic bottles in 1993 to help tackle the plastic
crisis. They also switched to using organic cotton to help lessen toxic pesticides from the growth
of cotton.
• Coca-cola Company. This company plans to achieve a major recycling initiative by 2030. The
company pledged to collect and recycle a bottle or can for everyone sold by 2030.
• Apple. Apple has been claiming, to great public acclaim, that it uses 100% renewable energy
sources such as solar and wind for many of its power needs, including its data centers.

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• The North Face. The second-largest outdoor apparel company manufacturer donates annually to
a carbon farm fund it created. It also uses eco-friendly materials and has set an absolute target to
reduce greenhouse emissions from its operations and supply chain.
• Google. Google became the first major company to balance absorbing and emitting carbon from
the atmosphere and is now the largest corporate renewable energy purchaser on the planet.
• Microsoft. Since 2017, Microsoft has offered digital skills training to learners worldwide to ensure
access to technology, skills, and opportunity.

Corporate Governance
Corporate governance pertains to the system of rules, practices, and processes by which a firm is directed
and controlled. It essentially involves balancing the interests of a company's stakeholders, such as
shareholders, management, customers, suppliers, government, and the community. According to Lister
(2017), the following are the functions of corporate governance:

• Goals and risk management. Corporate governance through the board of directors sets the
policies and procedures to effectively meet a company’s short and long-term investment goals
while working to manage business risk. The board of directors oversees the risk involved with
each investment opportunity through careful examination of the opportunity's value while
forecasting the problem that may occur in the long run. This allows the company to plan for
potential trouble spots and develop strategies to avoid them.
• Corporate accountability. Corporate governance ensures accountability within the board of
directors and the company's larger management structure. This provides a counter-checking
system to ensure that certain company procedures and initiatives are being carried out correctly.
It also allows greater mobility in the company in terms of goal or project methods adjustment if,
in any case, an investment opportunity produces smaller returns than projected.
• Shareholder meetings. Corporate governance requires shareholders to remain well-informed of
the company's financial health and the status of its ongoing business initiatives. The board of
directors must schedule regular meetings to keep the shareholders informed about the
company’s level of profitability, its strategies for achieving goals, and any problems it foresees in
the market that may cause them to fall short of meeting those goals. Shareholders well-informed
of company practices are more likely to trust the board of directors and remain corporate
investors than selling company stock.
• Government regulations. Corporate governance ensures transparency concerning corporate
government regulations. These rules involve required procedures, including regular financial
reporting, ethical treatment of workers, safe environmental practices, and handling of hazardous
materials.

References
Bamford, C., Hoffman, A., Hunger, D., & Wheelen, T. (2018). Strategic management and business policy:
Globalization, innovation and sustainability (15th ed.). United Kingdom: Pearson Education
Limited.

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Beattie, A. (2021). The 3 pillars of corporate sustainability. https://www.investopedia.com/articles/

investing/100515/three-pillars-corporate-sustainability.asp
Boin, C. (2017) Unilever commits to 100% recyclable plastic packaging by 2025.
https://www.unilever.com/news/press-and-media/press-releases/2017/unilever-commits-to-
100-percent-recyclable-plastic/
Care2 (2016) 10 Companies that are Environmentally Friendly. https://www.virgin.com/virgin-
unite/latest/10-global-companies-that-are-environmentally-friendly
Chen, J. (2021). Corporate governance. https://www.investopedia.com/corporategovernance.asp
Durbin, H. (2022) 12 Socially Responsible Companies to Applaud. https://www.classy.org/blog/6-socially-
responsible-companies-applaud/
Greenorb (2021). 10 Impactful Sustainable Business Practices That Are Beneficial To the Environment.
https://www.thinkingsustainably.com/sustainable-business-practices
Jentry, J. (2018) It’s time to embrace the triple bottom line. https://www.varinsights.com/doc/it-s-time-
to-embrace-the-triple-bottom-line-0001
Lister, J. (2017). Functions of corporate governance. Retrieved on January 28, 2019, from
https://bizfluent.com/info-8044296-functions-corporate-governance.html
Mohanta, N. (2022) With Sustainability in Mind, Coca-Cola Marches Ahead.
https://www.geospatialworld.net/article/with-sustainability-in-mind-coca-cola-marches-ahead/
Smith, G. (2020) Better World Books: A Case Study in Sustainability. https://www.gregoryasmith.info/
research/better-world-books

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SOCIAL RESPONSIBILITY AND ETHICS

Definition of Social Responsibility

According to Akhilesh Ganti (2022), social responsibility is an ethical framework that asserts that an
individual is obligated to work and cooperate with other individuals and organizations to benefit society
and their environment as a whole.

As it applies to business, social responsibility is referred to as Corporate Social Responsibility (CSR). This
self-regulating business model helps a company act responsibly in many ways, such as engaging in ethical
labor practices, producing goods and services in a way that is not harmful to society or the environment,
preserving natural resources, and changing manufacturing processes to reduce carbon emissions.

The realization that businesses must adopt policies and engage in CSR emphasizes that a business's ability
to maintain a balance between pursuing economic performance and adhering to societal and
environmental issues is a critical factor in operating effectively and efficiently.

Strategic Decision-Makers Theory

Bamford, Hoffman, Hunger, and Wheelen (2018) cited Milton Friedman and Archie Carroll’s two (2)
contrasting views of the responsibilities of business firms to society as follows:

A. Friedman’s traditional view of business responsibility. Milton Friedman argued against the concept
of social responsibility as a function of the business. According to Friedman, the primary social
responsibility of a business is to use its resources and engage only in activities designed to increase
profit so long as it stays within the rules of open and free competition without deception or fraud.

Example: A businessperson who acts “responsibly” by cutting the price of the firm’s product to
aid the poor, or by making expenditures to reduce pollution, or hiring the hard-core unemployed,
is spending the shareholder’s money for general social interest.

Even if the businessperson has shareholder permission or even encouragement to do so, he or

she is still acting from motives other than economic and may, in the long run, harm the very
society the firm is trying to help. By taking on the burden of these social costs, the business
becomes less efficient, resulting in price increases to pay for the increased costs or postpone
investments in new activities and research. These results negatively affect the long-term
efficiency of a business.

B. Carroll’s four (4) responsibilities of business. Archie Carroll proposed that maximization of profits
cannot be the primary obligation of a business. He suggested that business organizations have four
(4) responsibilities as follows:

1. Economic. A business organization is responsible for producing goods and services of value to
society so that the firm may repay its creditors and increase the wealth of its shareholders.

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Example: The launch of Apple’s Iphone devices has changed society in many ways. It allows
users to call, text, email, facetime, and use social networking at an easier and faster rate.
In return, Apple became the world’s first $3 trillion company.

2. Legal. A business organization has legal responsibilities that are defined by governments in laws
that management is expected to obey.

Example: U.S. business firms are required to hire and promote people based on their
credentials rather than to discriminate on non-job-related characteristics such as race,
gender, or religion.

3. Ethical. A business organization is responsible for following the generally held beliefs about
behavior in a society.

Example: Society generally expects firms to work with the employees and the community
in planning for layoffs, even though no law may require this. The affected people can get
very upset if an organization’s management fails to act according to prevailing ethical
values.

4. Discretionary. A business organization has responsibilities that are purely voluntary on the part
of the corporation. The difference between ethical and discretionary responsibilities is that few
people expect an organization to fulfill discretionary responsibilities, whereas many expect an
organization to fulfill ethical ones.

Example: philanthropic contributions, training unemployed people, and providing day-

care centers.

Figure 1. Responsibilities of Business

Source: Basic Concepts of Strategic Management (15th Edition) 2018. p. 105

Carroll listed these four (4) responsibilities in order of priority. A business firm must first make a profit to
satisfy its economic responsibilities. To continue, the firm must follow the laws, thus fulfilling its legal
obligations. Having met the two (2) basic responsibilities, according to Carroll, a firm should look to
fulfilling its social responsibilities.

Social responsibility, therefore, includes both ethical and discretionary, but not economic and legal
responsibilities. A firm can fulfill its ethical responsibilities by taking actions that society tends to value

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but has not yet put into law. When ethical responsibilities are satisfied, a firm can focus on discretionary
responsibilities—purely voluntary actions that society has not yet decided to expect from every company.

Example: When Cisco Systems decided to dismiss 6,000 full-time employees, it provided a novel
severance package. Those employees who agreed to work for a local non-profit organization for
a year would receive one-third of their salaries plus benefits and stock options and be the first to
be rehired. Non-profit organizations were delighted to hire such highly qualified people, and Cisco
could maintain its talent pool for when it could hire again.

Other Theories of Corporate Social Responsibility

A.

Other than Carroll and Friedman’s opposing views, other known economists and philosophers gave their
own take on the role of Corporate Social Responsibility.
B.
C.

A. Peter Drucker’s view of social responsibility. Peter Drucker suggests that companies should ensure
AA

that their social responsibilities also become business opportunities. Cohen (2010) cited that Drucker
highlights considerations for workers that are part of the responsibility of a corporate leader just as
much as the profits, survival, and growth of the business or organization.

The management thoughts of Drucker about corporate social responsibility were summarized as
follows:

1. Government cannot solve many social problems. This suggests that companies may tailor their
program to help eradicate existing social problems while maintaining business stability and
profitability.
2. The corporate mission comes first. The first social responsibility of the business is to make a profit
sufficient to cover operational costs in the future. Once the organization failed in its primary
mission, its initiative for social responsibility would go out of existence. So, if this basic social
responsibility of fulfilling the organization’s purpose is not met, no other social responsibility can
be met either.
3. The unlimited liability clause. An unlimited liability clause means that the organization assumes
full legal responsibility for the future outcome of their initiatives, their company’s debts, and all
other financial commitments.

B. Albert Carr’s view of social responsibility. Carr argues that business is a game and that business ethics
differs from private life ethics. Wheelen (2018) cited that Carr views business practices such as bluffing
and not telling the truth as normal and morally acceptable in business. Carr also claims that one
cannot apply a single standard of ethics universally as situations differ.

C. Edward Freeman’s view of social responsibility. Freeman holds a very favorable view of social
responsibility. Wheelen (2018) cited that Freeman believes in a “Stockholder Theory,” that any person
or organization that has an underlying interest in the business should also play a role of participation
in the business’ actions and decisions --- responsibility to customers, responsibility employees,
responsibility to financers, responsibility to suppliers, and responsibility to communities.

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Stakeholder Analysis
A stakeholder is someone with an interest or concern in a particular business undertaking. Stakeholder
analysis involves the identification and evaluation of corporate stakeholders. Bamford et al. (2018) cited
that the process of analyzing stakeholders can be accomplished by following a three-step process as
follows:

1. Identify primary stakeholders. The primary stakeholders are those who directly connect with the
corporation and have sufficient bargaining power to affect corporate activities directly. These
include customers, employees, suppliers, shareholders, and creditors.

2. Identify secondary stakeholders. The secondary stakeholders are those who have only an indirect
stake in the corporation and are also affected by corporate activities. These usually include non-
governmental organizations, activists, local communities, trade associations, competitors, and
the government.

3. Analyze stakeholder influence over strategic decisions. The primary decision criteria used by
management are generally economic, which is why secondary stakeholders may be ignored or
discounted as unimportant. For a firm to fulfill its ethical or discretionary responsibilities, it must
seriously consider the needs and wants of its secondary stakeholders in any strategic decision.

Ethical Decision-Making
According to Camillus et al. (2021), Ethics is the consensually accepted standard of behavior for an
occupation, a trade, or a profession. Morality, in contrast, constitutes one’s rules of personal behavior
based on religious or philosophical grounds. On the other hand, law refers to formal codes that permit or
forbid certain behaviors and may or may not enforce ethics or morality.

Given these definitions, a comprehensive statement of ethics to use in making decisions for a specific
occupation, trade, or profession is important to be identified by all corporations or businesses. A starting
point for such a code of ethics is to consider the three (3) basic views on ethical behavior as follows:

1. Utilitarian approach. This approach proposes that actions and plans should be judged by their
consequences. Therefore, people should behave in a way that will produce the greatest benefit
to society and produce the least harm or the lowest cost.

A problem with this approach is the difficulty in recognizing all the benefits and costs of any
particular decision. Camillus et al. (2021) stated that research reveals that CEOs prioritize only the
stakeholders who have the most power (ability to affect the company), legitimacy (legal or moral
claim on company resources), and urgency (demand for immediate attention). Therefore, only
the most obvious stakeholders will likely be considered while others are ignored.

2. Individual rights approach. This approach proposes that human beings have certain fundamental
rights that should be respected in all decisions. A particular decision or behavior should be
avoided if it interferes with the rights of others.

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A problem with this approach is in defining “fundamental rights.” Some constitution includes a
“bill of rights” or a list of important rights to a country’s citizens, which may or may not be
accepted worldwide. The approach can also encourage selfish behavior when someone defines a
personal need or want as a “right.”

3. Justice approach. This approach proposes that decision-makers can be equitable, fair, and
impartial in distributing costs and benefits to individuals and groups. It follows the principles of
distributive justice wherein people who are similar on relevant dimensions such as job seniority
should be treated similarly.

In addition, it follows fairness wherein liberty should be equal for all persons. The justice approach
can also include the concepts of retributive justice, wherein punishment should be proportional
to the offense, and compensatory justice, wherein wrongs should be compensated in proportion
to the offense.

References
Bamford, C., Hoffman, A., Hunger, D., & Wheelen, T. (2018). Strategic management and business policy:
Globalization, innovation and sustainability (15th ed.). United Kingdom: Pearson Education
Limited.

BusinessQueensland. (2020). Identifying supply chain risks. https://www.business.qld.gov.au/running-

business/protecting-business/risk-management/supply-chains/identifying
Cohen, W. (2018). Drucker’s surprising view of corporate social responsibility. Retrieved on March 26,
2019, from https://www.processexcellencenetwork.com/lean-six-sigma-business-
performance/columns/drucker-s-surprising-view-of-corporate-social-re

Dess, G., Eisner, A., Lee, S., McNamara, G. (2021) Strategic Management: Creating Competitive
Advantages (10th ed.) New York. McGraw-Hill Education.
Fernando, J. (2022) Corporate Social Responsibility. https://www.investopedia.com/terms/c/corp-social-
responsibility.asp

Ganti, A. (2022) Social Responsibility. https://www.investopedia.com/terms/s/socialresponsibility.asp

Witcher, B. (2020) Absolute Essentials of Strategic Management. New York. Taylor & Francis Group Ltd.

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