CHAPTER ONE

1. Introduction

1.1. Definitions of Strategic Management

The term strategic management is defined in many ways by different writers. Some of the
definitions include:
1. Strategic management is the process of systematically analyzing various opportunities
and threats as well as organizational strengths and weaknesses.
2. SM is a set of decisions and actions resulting in formulating, and arriving at strategic
choices through critical evaluation of alternatives and implementing them to meet the set
objectives of the organization.
3. Strategic Management can be defined as the art and science of formulating,
implementing, and evaluating cross-functional decisions that enable an organization to
achieve its objectives.
As this definition implies, strategic management focuses on integrating management,
marketing, finance/accounting, production/operations, research and development, and
computer information systems to achieve organizational success.
The purpose of strategic management is to exploit and create new and different
opportunities for tomorrow.
Strategic management is all about gaining and maintaining competitive advantage-
what rival firms cannot do.
From the above definitions of strategic management one can identify that at least:
 Strategic management is an art and a science of choosing the alternatives from
the designed and available courses.
 Strategic management involves set of decisions and actions.
 Strategic management enable an organization to achieve its objectives
 Strategic management is concerned with gaining and maintaining competitive
advantage- what rival firms cannot do.
 Strategists helps an organization in gathering, analyzing and organizing
information and responsible for the success or failure of an organization. They
may differ in their approach from organization to organization (philosophies,
attitudes, values).
According to Robinson and Pearce (2005), strategic management involves attention to no
less than nine critical areas:
1. Determining the mission of the company, including statements about its purpose
2. Developing a company profile that reflects internal conditions and capabilities.
3. Assessment of the company’s external environment, in terms of both competitive
and general contextual factors.
4. Analysis of possible options uncovered in the matching of the company profile
with the external environment.

1
 5. Identifying the desired options uncovered when possibilities are considered in
light of the company mission.
6. Strategic choice of a particular set of long-term objectives and grand strategies
needed to achieve the desired options.
7. Development of annual objectives and short-term strategies compatible with long-
term objectives and grand strategies.
8. Implementing strategic choice decisions based on budgeted resource allocations and
emphasizing the matching of tasks, people, structures, technologies, and reward
systems.
9. Review and evaluation of the success of the strategic process to serve as a basis for
control and as an input for future decision making.
These nine areas indicate, strategic management involves the planning, directing, organizing, and
controlling of the strategy-related decisions and actions of the business
1.2. Stages of Strategic Management
The strategic management process consists of three stages:
These are strategy formulation, strategy implementation, and strategy evaluation.
A) Strategy formulation includes developing a vision and mission, identifying an
organization’s external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternative strategies, and
choosing particular strategies.
Strategy-formulation issues include deciding on:
 What new businesses to enter,
 what businesses to abandon,
 how to allocate resources,
 whether to expand operations or diversify,
 whether to enter international markets,
 Whether to merge or form a joint venture and how to avoid a hostile takeover.
Because no organization has unlimited resources, strategists must decide which alternative
strategies will benefit the firm most. Strategy-formulation decisions commit an
organization to specific products, markets, resources, and technologies. Strategies
determine long-term competitive advantages.
B) Implementation : requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be
executed. Strategy implementation includes developing a strategy-supportive culture,
creating an effective organizational structure, redirecting marketing efforts, preparing
budgets, developing and utilizing information systems, and linking employee
compensation to organizational performance.
Strategy implementation often is called the “action stage” of strategic management. Implementing
strategy means mobilizing employees and managers to put formulated strategies into action. Often
considered to be the most difficult stage in strategic management, strategy implementation requires
personal discipline, commitment, and sacrifice. Successful strategy implementation hinges upon
2
managers’ ability to motivate employees, which is more an art than a science. Strategies
formulated but not implemented serve no useful purpose. Interpersonal skills are especially critical
for successful strategy implementation. Strategy-implementation activities affect all employees and
managers in an organization.
The challenge of implementation is to stimulate managers and employees throughout an
organization to work with pride and enthusiasm toward achieving stated objectives.
C) Strategy evaluation: is the final stage in strategic management. Managers desperately need
to know when particular strategies are not working well; strategy evaluation is the primary
means for obtaining this information.
All strategies are subject to future modification because external and internal factors are constantly
changing.
Three fundamental strategy-evaluation activities are
(1) Reviewing external and internal factors that are the bases for current strategies,
(2) Measuring performance, and
(3) Taking corrective actions. Strategy evaluation is needed because success today is no guarantee
of success tomorrow. Strategy formulation, implementation, and evaluation activities occur at three
hierarchical levels in a large organization: corporate, divisional or strategic business unit, and
functional.
1. Corporate Level
Corporate Level Strategy occupies the highest level of strategic decision-making and covers
actions dealing with the objective of the firm, acquisition and allocation of resources and
coordination of strategies of various SBUs for optimal performance. Such decisions are made by
top management of the organization. Top management of the organization is responsibility to
achieve the planned financial performance of the company in addition to meeting the non-
financial goals viz. social responsibility and the organizational image. Corporate strategy defines
the business in which a company will compete preferably in a way that focuses resources to
convert distinctive competence into competitive advantage. Corporate strategy is not the sum
total of business strategies of the corporation but it deals with different subject-matter. The
corporate level strategies translate the orientation of the stakeholders and the society into the
forms of strategies for functional or business levels. Corporate Level Strategies is the level where
vision statement of the companies emerges.
2. Strategic business unit Level
Business-level strategy is - applicable in those organizations which have different businesses-and
each business is treated as strategic business unit (SBU). The fundamental concept in SBU is to
identify the discrete independent product/market segments served by an organization. Since each
product/market segment has a distinct environment, a SBU is created for each such segment. For
each product group, the nature of market in terms of customers, competition, and marketing
channel differs. Therefore, it requires different strategies for its different product groups. Thus,
where SBU concept is applied, each SBU sets its own strategies to make the best use of its
resources (its strategic advantages) given the environment it faces. At such a level, strategy is a
comprehensive plan providing objectives for SBUs, allocation of resources among functional
3
areas and coordination between them for making optimal contribution to the achievement of
corporate-level objectives.
3. Operational Level/ Functional level Strategy
Functional strategy, as is suggested by the title, relates to a single functional operation and the
activities involved therein. Decisions at this level within the organization are often described as
tactical. Such decisions are guided and constrained by some overall strategic considerations.
Functional strategy deals with relatively restricted plan providing objectives for specific
function, allocation of resources among different operations within that functional area and
coordination between them for optimal contribution to the achievement of the SBU and
corporate-level objectives. Below the functional level strategy, there may be sub-operations-level
strategies as each function may be divided into several sub functions. For example, marketing
strategy, a functional strategy, can be subdivided into promotion, sales, distribution, pricing
strategies with each sub function strategy contributing to functional strategy.
The following diagram shows the hierarchy of the three levels of strategy
C
o
r
p
o
ra
te
le
v
el
St
ra
te
g
y

F
u
nc
ti
on
al
(O
pe
ra
ti
on
al)
Le
ve
l
St
ra
te
gy

Note that strategies at all the three levels are interlinked. Business level strategies are derived
from corporate level strategy and functional level strategies from business level strategies.
Higher level strategy generates a lower-level strategy and a lower-level strategy contributes to
the achievement of the objectives of higher-level strategy.

The three levels of strategic decision have varying characteristics due to the varying
responsibility and authority at different levels of management functioning. The following table
shows characteristics of strategic decisions at corporate, business and functional level strategies.

Table 1.1 Characteristics of Corporate, Business and Functional Level Strategies

4
 Characteristic Corporate Level Business Unit Level Functional Level
Nature Conceptual Conceptual but related to Totally operational
business unit
Measurability Non – measurable Measurable to some extent Quantifiable
Frequency Large spans 5-10 years Periodic Annually
Adaptability Poor Average High
Character Innovative and creative Action –Oriented Totally action
oriented
Risk High Moderate Low
Profit Large Moderate Low
Flexibility High Moderate Low
Time Long range Medium range Short range
Costs Involved High Medium Low
Cooperation High Medium Low
Needed
By fostering communication and interaction among managers and employees across hierarchical
levels, strategic management helps a firm function as a competitive team. Most small businesses
and some large businesses do not have divisions or strategic business units; they have only the
corporate and functional levels. Nevertheless, managers and employees at these two levels should
be actively involved in strategic-management activities.
1.3. Key Terms in Strategic Management
Before we further discuss strategic management, we should define nine key terms: competitive
advantage, strategists, vision and mission statements, external opportunities and threats, internal
strengths and weaknesses, long-term objectives, strategies, annual objectives, and policies.
i) Competitive Advantage
Strategic management is all about gaining and maintaining competitive advantage. This term can
be defined as “anything that a firm does especially well compare to rival firms.” When a firm can
do something that rival firms cannot do, or owns something that rival firm’s desire, that can
represent a competitive advantage.
Normally, a firm can sustain a competitive advantage for only a certain period due to rival firms
imitating and undermining that advantage. Thus it is not adequate to simply obtain competitive
advantage. A firm must strive to achieve sustained competitive advantage by:-
1. Continually adapting to changes in external trends and events and internal capabilities,
competencies, and resources and
2. Effectively formulating, implementing, and evaluating strategies that capitalize upon those
factors.
ii) Strategist
Strategists are the individuals who are most responsible for the success or failure of an
organization. Strategists have various job titles, such as chief executive officer, president, and
owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
All strategists have to be chief learning officers. We are in an extended period of change. If our
leaders aren’t highly adaptive and great models during this period, then our companies won’t adapt
either, because ultimately leadership is about being a role model.”

5
 Strategists help an organization gather, analyze, and organize information. They track industry and
competitive trends, develop forecasting models and scenario analyses, evaluate corporate and
divisional performance, spot emerging market opportunities, identify business threats, and develop
creative action plans.
iii) Vision and Mission Statements
Many organizations today develop a vision statement that answers the question
What do we want to become?
Developing a vision statement is often considered the first step in strategic planning,
preceding even development of a mission statement. Many vision statements are a single
sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South Carolina, is
“Our vision is to take care of your vision.”
Mission statements are “enduring statements of purpose that distinguish one business from other
similar firms. A mission statement identifies the scope of a firm’s operations in product and
market terms.”
It addresses the basic question that faces all strategists: “What is our business?” A clear mission
statement describes the values and priorities of an organization. Developing a mission statement
compels strategists to think about the nature and scope of present operations and to assess the
potential attractiveness of future markets and activities. A mission statement broadly charts the
future direction of an organization. A mission statement is a constant reminder to its employees
of why the organization exists and what the founders envisioned when they put their fame and
fortune at risk to breathe life into their dreams. Here is an example of a mission statement for
Barnes & Noble:
Our mission is to operate the best specialty retail business in America, regardless of the
product we sell. Because the product we sell is books, our aspirations must be consistent with
the promise and the ideals of the volumes which line our shelves.
iv) External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic,
environmental, political, legal, governmental, technological, and competitive trends and events
that could significantly benefit or harm an organization in the future. Opportunities and threats
are largely beyond the control of a single organization- thus the word external. In a global
economic recession, a few opportunities and threats that face many firms are listed here:
1. Availability of capital can no longer be taken for granted.
2. Consumers expect green operations and products.
3. Marketing has moving rapidly to the Internet.
4. Consumers must see value in all that they consume
5. Global markets offer the highest growth in revenues etc.

A basic intension of strategic management is that firms need to formulate strategies to take
advantage of external opportunities and to avoid or reduce the impact of external threats.
For this reason, identifying, monitoring, and evaluating external opportunities and threats are
essential for success.

6
This process of conducting research and gathering and assimilating external information is
sometimes called environmental scanning or industry analysis.
v) Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are an organization’s controllable activities that are
performed especially well or poorly. They arise in the management, marketing,
finance/accounting, production/operations, research and development, and management
information systems activities of a business. Organizations strive to pursue strategies that
capitalize on internal strengths and eliminate internal weaknesses. Strengths and weaknesses are
determined relative to competitors.
Relative deficiency or superiority is important information. Strengths and weaknesses may be
determined relative to a firm’s own objectives.
vi) Long-Term Objectives
Objectives can be defined as specific results that an organization seeks to achieve in pursuing its
basic mission. Long-term takes more than one year. Objectives are essential for organizational
success because they state direction; aid in evaluation; create synergy; reveal priorities; focus
coordination; and provide a basis for effective planning, organizing, motivating, and controlling
activities. Objectives should be challenging, measurable, consistent, reasonable, and clear.
vii) Strategies
Strategies are the means by which long-term objectives will be achieved. Business strategies
may include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures. Strategies have
multifunctional or multidivisional consequences and require consideration of both the external
and internal factors facing the firm.
viii) Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long- term
objectives. Like long-term objectives, annual objectives should be measurable, quantitative,
challenging, realistic, consistent, and prioritized. They should be established at the corporate,
divisional, and functional levels in a large organization. Annual objectives should be stated in
terms of management, marketing, finance/accounting, production/operations, research and
development, and management information systems (MIS) accomplishments. A set of annual
objectives is needed for each long-term objective. Annual objectives are especially important in
strategy implementation, whereas long-term objectives are particularly important in strategy
formulation. Annual objectives represent the basis for allocating resources.
ix) Policies
Policies include guide- lines, rules, and procedures established to support efforts to achieve
stated objectives. Policies are the means by which annual objectives will be achieved.
Policies are guides to decision making and address repetitive or recurring situations. Policies are
most often stated in terms of management, marketing, finance/accounting, production/operations,
research and development, and computer information systems activities. Policies can be
established at the corporate level and apply to an entire organization at the divisional level and
apply to a single division or at the functional level and apply to particular operational activities
7
or departments. Policies, like annual objectives, are especially important in strategy
implementation because they outline an organization’s expectations of its employees and
managers. Policies allow consistency and coordination within and between organizational
departments.
The strategic management approach
There are different approaches to strategic decision making because an organization may differ
from other organizations in terms of:
1. Degree of formalization: in decision making process from highly formalized and structured to
informal and unstructured process.
2. Managerial power relationship from the dominant role of the strategist to compromise of
different interest groups; and
3. Nature of environment from highly complex to simple and stable.
These differences determine the kind of approach individual organizations would adopt in their
decision making process, including strategic decision making, however, various approaches that
are available for adoption in strategic decision making have been described by authors
differently.
 Mintzberg has classified various approaches into three forms:
- These are entrepreneurial, planning, and adaptive.
 Steiner has a fivefold classification: formal structured, intuitive anticipatory,
entrepreneurial opportunistic, incremental, and adaptive. The difference between
these two sets of classification can be resolved to some extent. Formal structured
approach resembles planning approach; incremental and adaptive approaches have
common factors than differences and, therefore can be grouped together;
entrepreneurial approach is basically based on intuition and anticipation as these
elements require high level of vision in strategists to anticipate opportunities and threats
posed by the relevant environment. Therefore, for further analysis, three types of
approaches will be taken.
These are:
1. Entrepreneurial opportunistic approach
2. Formal structured approach, and
3. Adaptive approach.
1. Entrepreneurial Opportunistic Approach
Entrepreneurial opportunistic (or simply entrepreneurial) approach is adopted, generally, by
heads of family managed organizations and is characterized by pushing an organization ahead in
the face of environmental odds. The basic features of strategy making under this approach are as
follows:
 The focus in this approach is on capitalizing the opportunities rather than problem solving.
There is constant search of opportunities in the environment either formally or otherwise.
 Decision power is centralized in the entrepreneur who is capable of, making bold and
unusual decisions.

8
  The bold and unusual decisions made in the face of environmental uncertainty, lead the
organization to move forward by unusual leaps and thrive with corresponding gains.
 The most important objective in this approach is growth and expansion in assets, turnover,
and market share. Thus, decision making becomes emergent process as against formal
process.
Suitability and Limitations
Entrepreneurial approach is suitable in those organizations where key strategists have very high
stake in the outcomes of a strategy. They are in a position to lead the organization from front
sidelining the views of other stakeholders. Usually, such strategists have very high level of
aspirations, high level of vision about the future business scenarios, and have high risk bearing
profile. A basic advantage of this approach is that such decisions are made which may challenge
the basic principles of management text books. This is the reason that such organizations
outperform their counterparts adopting formal structured approach.
2. Formal Structured Approach
Formal structured (or simply formal) approach involves strategic decision making in anticipation
of the future state that the organization wants to be in. Strategic decisions are based on
socioeconomic purposes of the organization, values of top management, external opportunities
and threats, and organization’s strengths and weaknesses. The basic features of this approach are
as follows:
 Strategy making is based on analysis of various factors which affect the strategy.
 It involves systematic and structured approach to the solution of problems and also the task
of assessing the cost and benefit of various alternatives.
 It is a comprehensive process which produces a set of integrated decisions and strategies.
Suitability and Limitations
Suitability and limitations of formal approach depend on type of organization, management
styles, complexity of environment, complexity of production processes, nature of problems, and
purpose of planning system. Table 1.2 presents the situations which determine the degree of
formalization.
Exhibit Factors affecting degree of formalization in strategic decision making (Table 1.1)
Factor More formalization Less formalization

Organization Large companies Small one-plant companies

Management styles Policy maker Democratic permissive

Authoritarian intuitive thinker

Stable Turbulent
Environment
Little competition Severe competition
Long production lead time Short lead time
Production
Process Integrated Processes Simple Processes

High technology Low technology

9
 Long market reaction time, Short market reaction time
Nature of problems Tough, long range Short range

Purpose of planning system Coordinate division activities Train managers

The basic advantage of this approach is that it generates adequate information which enables
decision makers to make decisions in complex situations. However, when decision system
becomes too formalized and highly structured, decision making process becomes slow because
of emergence of professional bureaucracy which relies on standardization of skills. Decision
making is decentralized and takes place where the expertise exists. With the result, unusual
decisions are hard to come by.
1. Adaptive Approach
Adaptive approach of strategic decision making is basically reactive and tries to incorporate the
change in decision making context various factors, particularly environmental ones, affecting
strategic decisions. Various features of strategic decision making under adaptive approach are as
follows:
 Decision making is basically meant for problem solving, rather than going for new
opportunities. Adaptation process is adopted to meet the threats by changed environment as
against the decision making to meet the anticipated changes in environment which
entrepreneurial approach suggests.
 Decisions are made in sequential, incremental steps, one thing at a time necessitated by
environmental changes. The basic orientation is to maintain flexibility to adapt the decisions
to more pressing needs.
 Various interest groups and stakeholders put considerable pressure on decision-making
process so as to protect their own interests. Thus, the ultimate decision is a compromised
one which may be, sometimes, at the cost of optimizing organizational effectiveness.
 Since decision-making is incremental and fragmented, there is lack of integrative decision-
making.
Suitability and Limitations
Adaptive approach of strategic decision making is suitable for those organizations, which tend to
play the role of followers rather the role of leaders in the industry sector concerned. This
approach saves them from high risk since the strategic decisions are based’ on the actual
environmental factors. If these factors are less dynamic, this approach produces satisfactory
results.
However, this approach suffers from one basic limitation. Environmental adaptation as a
continuous process works well so long as there is continuity in environmental changes which can
be assimilated quickly by the organizations adopting this approach. When the environmental
factors change fast, this approach does not work because by the time, the organizations adopt one
change which has some lead time, environment changes further making previous adaptation

10
unworkable. In the present context of global competition, perhaps, this approach is not very
suitable to achieve meaningful competitive advantage.
Combining Different Approaches
We have seen above that various approaches of strategic decision making have their positive and
negative aspects and each of these is suitable for particular type of organizations and the nature
of environment. Since there are many variables which affect strategic decision making, many
organizations follow a combination of different approaches.There may be different ways in
which various approaches may be combined together. More common ways are as follows:
1. Adaptive entrepreneurial
2. Structured adaptive
3. Entrepreneurial structured
4. Adoption of different approaches for different businesses, and
5. Adoption of different approaches at different stages of organizational life. While combining
two or more approaches together, the individual organizations can do better if they evaluate their
culture, human resources, and leadership styles and the nature of environment in which an
organization or its different businesses operations.
1.5. Benefits of Strategic Management
Strategic management allows an organization to be more proactive than reactive in shaping its
own future; it allows an organization to initiate and influence (rather than just respond to)
activities—and thus to exert control over its own destiny. Small business owners, chief executive
officers, presidents, and managers of many for-profit and nonprofit organizations have
recognized and realized the benefits of strategic management. Historically, the principal benefit
of strategic management has been to help organizations formulate better strategies through the
use of a more systematic, logical, and rational approach to strategic choice. This certainly
continues to be a major benefit of strategic management, but research studies now indicate that
the process, rather than the decision or document, is the more important contribution of strategic
management.
Communication is a key to successful strategic management. Through involvement in the
process, in other words, through dialogue and participation, managers and employees become
committed to supporting the organization.
Strategic-management dialogue is more important than a nicely bound strategic-management
document. The worst thing strategists can do is develop strategic plans themselves and then
present them to operating managers to execute. Through involvement in the process, line
managers become “owners” of the strategy. Ownership of strategies by the people who have to
execute them is a key to success! Although making good strategic decisions is the major
responsibility of an organization’s owner or chief executive officer, both managers and
employees must also be involved in strategy formulation, implementation, and evaluation
activities. Participation is a key to gaining commitment for needed changes. An increasing
number of corporations and institutions are using strategic management to make effective
decisions. But strategic management is not a guarantee for success; it can be dysfunctional if
conducted haphazardly.
11
Financial Benefits
Research indicates that organizations using strategic-management concepts are more
profitable and successful than those that do not.
Businesses using strategic-management concepts show significant improvement in sales,
profitability, and productivity compared to firms without systematic planning activities. High-
performing firms tend to do systematic planning to prepare for future fluctuations in their
external and internal environments. Firms with planning systems more closely resembling
strategic-management theory generally exhibit superior long-term financial performance
relative to their industry. High-performing firms seem to make more informed decisions with
good anticipation of both short- and long-term consequences. In contrast, firms that perform
poorly often engage in activities that are shortsighted and do not reflect good forecasting of
future conditions. Strategists of low-performing organizations are often preoccupied with
solving internal problems and meeting paperwork deadlines. They typically underestimate their
competitors’ strengths and overestimate their own firm’s strengths. They often attribute weak
performance to uncontrollable factors such as a poor economy, technological change, or foreign
competition. More than 100,000 businesses in the United States fail annually. Business failures
include bankruptcies, foreclosures, liquidations, and court-mandated receiverships. Although
many factors besides a lack of effective strategic management can lead to business failure, the
planning concepts and tools described in this text can yield substantial financial benefits for any
organization.
Nonfinancial Benefits
Besides helping firms avoid financial demise, strategic management offers other tangible
benefits, such as an enhanced awareness of external threats, an improved understanding of
competitors’ strategies, increased employee productivity, reduced resistance to change, and a
clearer understanding of performance–reward relationships. Strategic management enhances the
problem-prevention capabilities of organizations because it promotes interaction among
managers’ at all divisional and functional levels. The strategic-management process provides a
basis for identifying and rationalizing the need for change to all managers and employees of a
firm; it helps them view change as an opportunity rather than as a threat. Greenley stated that
strategic management offers the following benefits:
1. It allows for identification, prioritization, and exploitation of opportunities.
2. It provides an objective view of management problems.
3. It represents a framework for improved coordination and control of activities.
4. It minimizes the effects of adverse conditions and changes.
5. It allows major decisions to better support established objectives.
6. It creates a framework for internal communication among personnel.
7. It helps integrate the behavior of individuals into a total effort.
8. It provides a basis for clarifying individual responsibilities.
9. It encourages forward thinking.
1.6. Business ethics and corporate social responsibility
Business Ethics
12
Good ethics is good business. Bad ethics can spoil even the best strategic plans. Business ethics
can be defined as principles of conduct within organizations that guide decision making and
behavior. Good business ethics is a prerequisite for good strategic management; good ethics is
just good business! Strategists such as CEOs and business owners are the individuals primarily
responsible for ensuring that high ethical principles are espoused and practiced in an
organization. All strategy formulation, implementation, and evaluation decisions have ethical
ramifications. Being unethical can be very expensive. A company named Coast IRB LLC in
Colorado recently was forced to close after the Food and Drug Administration (FDA)
discovered in a sting operation that the firm conducted a fake medical study. Coast is one of
many firms paid by pharmaceutical firms to oversee clinical trials and independently ensure that
patient safety is protected. Other business actions considered to be unethical include misleading
advertising or labeling, causing environmental harm, poor product or service safety, padding
expense accounts, insider trading, dumping banned or flawed products in foreign markets, not
providing equal opportunities for women and minorities, overpricing, and sexual harassment.
Code of Business Ethics
A new sign of ethics issues related to product safety, employee health, sexual harassment, AIDS
in the workplace, smoking, acid rain, affirmative action, waste disposal, foreign business
practices, cover-ups, takeover tactics, conflicts of interest, employee privacy, inappropriate gifts,
and security of company records has accentuated the need for strategists to develop a clear code
of business ethics. Internet fraud, hacking into company computers, spreading viruses, and
identity theft are other unethical activities that plague every sector of online commerce.
A code of business ethics is a document that provides behavioral guidelines that cover daily
activities and decisions within an organization. Merely having a code of ethics, however, is not
sufficient to ensure ethical business behavior.
If employees see examples of punishment for violating the code as well as rewards for upholding
the code, this reinforces the importance of a firm’s code of ethics.
An Ethics Culture
An ethics “culture” needs to permeate organizations! To help create an ethics culture, Citicorp
developed a business ethics board game that is played by thousands of employees worldwide. Called
“The Word Ethic,” this game asks players business ethics questions, such as how do you deal with a
customer who offers you football tickets in exchange for a new, backdated IRA? Diana Robertson at the
Wharton School of Business believes the game is effective because it is interactive. Many organizations
have developed a code of conduct manual outlining ethical expectations and giving examples of
situations that commonly arise in their businesses. Harris Corporation and other firms warn managers
and employees that failing to report an ethical violation by others could bring discharge. The Securities
and Exchange Commission (SEC) recently strengthened its whistle-blowing policies, virtually
mandating that anyone seeing unethical activity report such behavior. Whistle-blowing refers to policies
that require employees to report any unethical violations they discover or see in the firm.
Bribes
A bribe is a gift bestowed to influence a recipient’s conduct. The gift may be any money, good, right in
action, property, upgrading, privilege, and emolument, object of value, advantage, or merely a promise or
undertaking to induce or influence the action. Bribery is a crime in most countries of the world, including

13
the United States.
Love Affairs at Work
A recent Wall Street Journal article recapped current American standards regarding boss- subordinate
love affairs at work. Only 5 percent of all firms sampled had no restrictions on such relationships; 80
percent of firms have policies that prohibit relationships between a supervisor and a subordinate. Only 4
percent of firms strictly prohibited such relationships, but 39 percent of firms had policies that required
individuals to inform their supervisors whenever a romantic relationship begins with a coworker. Only 24
percent of firms required the two persons to be in different departments. In Europe, romantic relationships
at work are largely viewed as private matters and most firms have no policies on the practice. However,
European firms are increasingly adopting explicit, American-style sexual harassment laws. The U.S.
military strictly prohibits officers from dating or having sexual relationships with enlistees. At the World
Bank, sexual relations between a supervisor and an employee are considered “a defacto conflict of
interest which must be resolved to avoid favoritism.” World Bank president Paul Wolfowitz recently was
forced to resign due to a relationship he had with a bank staff person.
Corporate Social Responsibility
Some strategists agree with Ralph Nader, who proclaims that organizations have tremendous social
obligations. Nader points out, for example, that Exxon/Mobil has more assets than most countries, and
because of this firms have an obligation to help society cure its many ills. Other people, however, agree
with the economist Milton Friedman, who asserts that organizations have no obligation to do any more
for society than is legally required. Friedman may contend that it is irresponsible for a firm to give monies
to charity.
Social Policy :Social policy concerns what responsibilities the firm has to employees, consumers,
environmentalists, minorities, communities, shareholders, and other groups. After decades of debate,
many firms still struggle to determine appropriate social policies. The impact of society on business and
vice versa is becoming more pronounced each year. Corporate social policy should be designed and
articulated during strategy formulation, set and administered during strategy implementation, and
reaffirmed or changed during strategy evaluation.
Social Policies on Retirement: Some countries around the world are facing severe workforce shortages
associated with their aging populations. The percentage of person’s age 65 or older exceeds 20 percent in
Japan, Italy, and Germany—and will reach 20 percent in 2018 in France. In 2036, the percentage of
persons age 65 or older will reach 20 percent in the United States and China. Unlike the United States,
Japan is reluctant to rely on large-scale immigration to bolster its workforce. Instead, Japan provides
incentives for its elderly to work until ages 65 to 75. Western European countries are doing the opposite,
providing incentives for its elderly to retire at ages 55 to 60. The International Labor Organization says 71
percent of Japanese men ages 60 to 64 works, compared to 57 percent of American men and just 17
percent of French men in the same age group.

14