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Midterm Review 2.docx

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Kenneth Derry

Midterm Review 2 - Management Focus on… 1. Chapter 5: The Business Environment 2. Chapter 6: Ethics and Corporate Social Responsibility 3. Chapter 7: Planning, Business Strategy 4. Chapter 8 (and 9): Organizing and Human Resource Management Chapter 5: The Business Environment  Canada and Its Economic System o Canada’s abundance of natural resources, skilled labour force and sophisticated technology- based business have enabled the economy to grow. o G7/8: A "quasi-organization" comprising the world's major fully developed economies. The G7 consists of (JUBICGF) the US, Japan, Germany, Britain, France, Italy, and Canada. In 2006, the G7 transitioned to the G7/8 with the inclusion of Russia into its membership. The G7/8 countries meet at least once annually to discuss major economic, political, and societal issues challenging the global marketplace. Recently, China has shown an great amount of economic development and is now attending at least part or all of the summit meetings.  Contributing Factors to Economic Development: 1. Political Stability 2. Manageable levels of National Debt, Established Factors of Production, and National Monetary Policy and Banking System. 3. Sufficient Levels of Investment, Low Inflation, Absence of Corruption, Effective Legal System, and Comparative Advantage. o Comparative Advantage: Refers to the ability of a country to produce or supply goods or services at a lower cost than other countries or to possess resources or unique services that are unavailable elsewhere. o Foreign Direct Investment (FDI): Occurs when a company or individual from one country makes an investment into a business within another country. This investment can reflect the physical ownership of productive assets or the purchase of a significant interest in the operations of a business. o The Underlying Economic Model (Canadian Mixed Economic System) - for an economic system to develop and grow and encourage and foster a climate that promotes and rewards economic risk, a balanced relationship also needs to be established among 3 fundamental market composition principles: 1. The law of supply and demand 2. Allowance for private ownership, entrepreneurship, and wealth creation. 3. Extent of government involvement in influencing economic activity and direction. 1. The Law of Supply & Demand: Refers to the ability of the market, independent of external influences, to determine the price for which a product or service will be bought and sold. 1  The number of purchasers who are willing to pay for a product or service at various price points; generally as prices increase, demand decreases. 1. Inelastic Demand: Movement in price which does not result in significant changes in demand (i.e.: gas). 2. Elastic Demand: Quantity demanded does change significantly due to a change in price (i.e.: electronic reader).  Supply: Reflects how much of a product or service producers are willing to provide the market at various price points; as prices increase, supply usually increases.  Price Equilibrium: The point at which the supply curve intersects the demand curve; no surplus or shortages of good. 2. Allowance for Private Ownership, Entrepreneurship, and Wealth Creation: Refers to the openness of the market to support, encourage, and promote the concepts of private enterprise, personal ownership, entrepreneurship, and wealth creation. To a varying degree, economies around the world allow individuals and corporations these rights. Some economies, such as the United States and Canada, fully support these concepts in a climate of risk versus return. Developing economies such as , China and India are allowing greater access to these fundamentals, whereas others, such as North Korea, are less willing to provide strong support of these capitalistic principles. 3. GOVERNMENT INVOLVEMENT IN INFLUENCING ECONOMIC ACTIVITY AND DIRECTION: Government involvement in the economy relates to the varying roles government can play within ongoing day-to-day economic activities. Government can act as a customer via the purchasing of goods and services; as a regulator, restricting access or defining competitive protocols within particular economic sectors; as a manager via powers granted to Crown organizations, such as the Bank of Canada; as a taxation agent; as an economic stimulation agent via grant and subsidy programs, infrastructure development programs, and specific industry or company bailout programs; and as a competitor (providing services in direct competition for private-sector businesses), to name a few. These three market composition principles will come together to provide the overall framework for economic activity within a given nation or economy. Open System: Refers to an economic system that adheres to the principles of economic freedom: the law of supply and demand, full and open access to the principles of private ownership, entrepreneurship, and wealth creation, and an absence of regulation on the part of government. Controlled System: Refers to an economic system where the fundamentals of the law of supply and demand, private ownership, entrepreneurship, and wealth creation are largely restricted or absent, and the government fully controls the economic direction and activity. Mixed Economic System: Refers to an economic system that contains components of both open and controlled systems. It includes the core principles of economic freedom, with some degree of centralized economic planning and government regulation and involvement. 2  The Economy in Simple Terms - This productivity and its resulting economic activity will be predicated on the basis of four fundamental factors (ESCC): 1. Expenditures: the purchases you make in support of your day-to-day economic activity that are deemed to be of value in meeting sustenance needs and in improving your overall quality of life. Clothing, food, housing, and transportation would be examples of such expenditures. 2. Savings: dollars you set aside today that will support economic activity and wealth creation in/for the future. Placing money in an RRSP (Registered Retirement Savings Plan) or purchasing GICs (guaranteed investment certificates) are examples. Your savings are then lent to others with the intent of stimulating their economic activity in the hopes of enhancing their wealth and private ownership levels. 3. Capital asset investments: investments you are making today to further expand your capacity to conduct and expand your productivity and overall economic capacity. If your business requires an additional truck in order to expand, the purchase of this truck would be considered an investment focused on expanding your productivity and economic activity. Investments in real estate with the purpose of building future equity via wealth appreciation are an additional example. 4. Credit: the borrowing of dollars to support expenditures or investments being made. You may have needed to borrow money to purchase the above-mentioned truck, which you deem necessary to expand your business’s capacity and capabilities, or to finance the real estate purchase you made.  4 PILLARS OF ECONOMIC ACTIVITY AND GROWTH: ECONOMIC ACTIVITY = EXPENDITURES + SAVINGS + INVESTMENT + CREDIT GDP (Gross Domestic Product): Refers to the total market value of the goods and services (economic output) a nation produces domestically over a period of time (generally one calendar year). Economists track the movement of GDP (upward or downward) over a period of time to determine whether an economy is growing or contracting. Examples of factors that contribute to economic growth and, therefore, the total value for GDP are: 1. Goods and services produced and purchased domestically for consumption 2. Business investment within the economy 3. Goods produced for export purposes 4. Government spending o Recession: Refers to a period of time that marks a contraction in the overall economic activity within an economy. A recession is typically believed to occur when an economy experiences two or more quarters of negative GDP movement.  The Movement of Economic Activity Within an Economy can be Sequenced as Follows: 1. Growth in the economy via its GDP driver(s) (mainly consumer spending in the United States and Canada) results in an increase in corporate revenue and profits and government tax revenue (increased tax revenue, GST revenue, provincial tax revenue, etc.). 3 2. As a result of this increase in profits and tax revenue, both business and government will possess increased capacity to invest in new infrastructure and new product/service offerings for consumers. These investments expand the economic infrastructure to meet the growing needs of the economy and the people within it, and add further stimulation to economic activity. 3. Increased business activity requires more employees, resulting in an expansion of employment opportunities. 4. With an increase in the need for workers, employers are forced to pay higher wages to attract and retain employees. These higher wages result in additional dollars for workers (consumers) to spend and, therefore, contribute to economic growth (via further spending and/or expanded credit capabilities). As long as this real wage growth outpaces inflationary pressures, true economic growth will occur. o Chartered Banks: Are financial institutions regulated under the Canada Bank Act. Their primary responsibility is to bring together borrowers and lenders by accepting deposits and lending out money—all in a manner that safeguards the interests of their customers. o Inflation: Refers to a rise in the level of prices of goods and services within an economy over a period of time.  Trends Impacting the Canadian Market: 1. Inflation 2. Geographic clustering 3. Currency exchange rate impact 4. Branch market impact 5. Sustainability and green initiatives 6. Aging workforce 7. Immigration and multi-culturalism 8. Long-term competitiveness 9. Small business emphasis 10. Globalization o Geographic Clustering: Occurs when regional economies develop into what are considered distinct from one another and separated by significant geographic space where interdependency is minimized. o Currency Exchange Rate: The overall appreciation in the value of the Canadian dollar, when benchmarked against the U.S. dollar, has both positive and negative effects for the Canadian 4 economy. On the positive side, the strength of the Canadian dollar has assisted in reducing the price of goods and ser-vices being imported into the country from other countries. It has also made trips to the United States less expensive for Canadians. Parity: Means being equal or equivalent to; specifically, the value of one currency being equal to that of another. o Bench Marketing Impact: Although Canada is a $1-trillion-plus economy—PPP (purchasing power parity)—the overall size of our economy is small when compared to other countries. This includes both fully developed economies, such as the U.S. ($14-trillion-plus), and developing economies, such as the People’s Republic of China ($6.91 trillion PPP), and India ($2.81 trillion PPP). In addition, with such strong demand for our natural resources, energy, and commodity- based goods and services, many global organizations have looked to actively purchase Canadian- owned companies. o PPP (Purchasing Power Parity): A measure that takes into account the relative cost of living and the inflation rates of each country, and adjusts the total value of economic activity accordingly. o Hostile Takeover: Refers to an attempt by a company to take over another company whose management and board of directors are unwilling to agree to the merger or takeover. o Sustainability & Green Incentives: Sustainability and green initiatives will have an increasing emphasis across the business spectrum. Companies will seek to achieve both market positioning advantages and cost advantages through the execution of green-based strategies as part of their overall business plan. This will include an increased emphasis on green products, more environmentally friendly packaging, reduced carbon emissions, and greater sensitivity to the use of finite resources in the development, production, and distribution of goods and services to the global community at large. An example of this is Walmart Canada’s new Walmart HE stores. Designed to reduce energy consumption by 30 percent, HE stores are projected to deliver, for Walmart, $25 million in energy savings between 2009 and 2014 when compared to stores built in 2005. Walmart will achieve these savings by using initiatives such as rerouting waste energy from refrigerators to help heat stores, reduced lighting costs, and modifying roofing systems to reflect light away from the building thus reducing summer cooling costs. Walmart Canada’s long-term focus is the pursuit of three sustainability goals globally: (1) to produce zero waste, (2) to operate with 100 percent renewable energy, and (3) to make available environmentally preferable products. o Aging Workforce, Immigration and Multi-Culturalism: Similar to many other fully developed economies, Canada’s workforce is aging. As an example, in March 2011 the Petroleum Human Resources Council of Canada issued a report that indicated Canada’s aging workforce is poised to impact the employment needs of Canada’s energy sector. The report indicates that over 30 percent of this workforce is expected to retire within the next decade, resulting in a need to hire and train workers. As baby boomers slide into retirement, analysts are becoming increasingly concerned about intellectual capital shortages in fields such as information technology, health 5 care, education, and skilled trades in a number of market sectors, including the petroleum sector as noted above. With an aging population and one of the lowest birth rates of any fully developed country, Canada’s strategy for replacing retiring workers and for continuing to grow our economic base is closely tied to immigration. The need for skilled and well-educated workers will continue to rise, resulting in our need to import such skills due to a shortage domestically. Reliance on immigration brings both challenges and opportunities. The challenges are focused on ensuring that immigrants in Canada find a country that is welcoming to them and respectful of their ethnic backgrounds and traditions. Assimilation into society in a manner that enables them to actively contribute to social and cultural growth is a key to ensuring that Canada remains a preferred choice for the highly technical employee base that a knowledge- based economy will need. Recognition of skill and degrees earned abroad will be a fundamental component of this process in order to ensure that upon their arrival to Canada immigrants are able to positively contribute to Canadian society with minimal barriers. Having said this, a fundamental requirement of this assimilation process will be the challenge of ensuring that this immigrant population possesses, or quickly develops, the required language and critical thinking competency skills necessary for functioning in today’s highly technical marketplace. With immigration and multi-culturalism comes the emergence of new ethnic markets that represent business opportunities for the delivery of goods and services to these growing market segments. o Long-Term Competivness: With the Canadian dollar expected to remain strong against the U.S. dollar for the foresee- able future, and the rise of the developing economies of Asia, Eastern Europe, and South America, Canada will be challenged to maintain its competitive advantages in the market- place. As one of the world’s largest exporters of natural resources, commodities, and energy, these market segments should continue to grow and enable sections of the country to realize ongoing GDP growth. For other parts of Canada, the drive to retain competitive advantages may not be so easy. The challenge to improve productivity levels, the increased cost base associated with our strong currency, and the ability of businesses within developing countries to operate with lower overall costs (largely due to savings in the labour sector) mean that Canadian manufacturers and the economy as a whole will need a shift in emphasis to remain competitive. o Small Business Emphasis : Although our larger corporations (e.g., Royal Bank, Manulife, Bombardier, Research In Motion, GM of Canada) tend to dominate the business headlines, it is small business that makes up the most significant portion of the fabric of our marketplace. Companies in Canada that have more than 500 employees make up just 0.1 percent of Canadian businesses. Businesses that are largely owned and operated by sole proprietors and possess no employees make up over 56 percent of our country’s businesses. In fact, businesses with fewer than 20 employees represent over 90 percent of our approximately 2.4 million business establishments.20 Entrepreneurship continues to drive small business creation in Canada and this trend is not anticipated to subside going forward. Domestic ethnic market development, global niche market opportunities, and specialty goods and services offerings are just a few examples of where continuous small business growth will be driven. o Globalization: Refers to the growing interconnectivity of the world and the heightened interdependence we are seeing among its various economic regions. The advent of social 6 networking tools—Facebook and Twitter, for example—has enabled us to transmit information to as many as 500 million people across the globe with simply the tap of a finger. The Internet has enabled the development of business models that are able to reach potential buyers with few boundaries or restrictions. As the global economy becomes more connected and emerging economies—such as the BRIC countries (Brazil, Russia, India, China) and CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa)—continue to develop their domestic and export-based economies, new business opportunities will arise as never before. At the same time, so will increased competitive pressures. o Managing in Challenging Times - In order to fully understand where the market is going, managers look to generally answer three fundamental questions: 1. What are the general indicators saying about the current economy and about the current relationships among the key variables governing our mixed economic system (law of supply and demand; support for the concepts of entrepreneurship, wealth creation, and private ownership)? 2. What broad-level changes (political, economic, social, technological, environmental, and legal) are occurring within the sectors of the economy that directly impact my organization’s future growth and market position? 3. What specific current competitive actions may disrupt the way in which business is done within my organization’s particular market sector?  The Primary Economic Indicators: o Unemployment rate o Inflation Rate o Consumer Price Index (CPI) o New Housing Starts o Manufacturing Inventory o Consumer Confidence Index o Price per Barrel of Crude Oil o Stock Market Indexes (TSX, S&P 500, Dow Jones) o Currency Exchange Rate o Monthly Retail Sales o Industry-Specific Indexes  Macro Analysis o PESTEL Analysis: Refers to a macro-level assessment of the political, economic, social, technology, environmental, and legal trends that can or will impact the markets within which an organization competes. o Protectionism - Is the outcome of the intent of economic policies that are put in place to protect or improve the competitiveness of domestic industries via impeding or restricting the openness of a market or markets to foreign competitors through the use 7 of tariffs, trade restrictions, quotas, artificial control of currency values, or other related activities.  MANAGERS LOOK FOR TRENDS IN: o Government intervention or regulation such as protectionism o Demographic and cultural shifts as well as behavioural changes o Changes to laws that could impact overall business risk o Changes in environmental compliance regulations o Speed and direction of technology shifts that could render products, services and/or processes obsolete  Managers must constantly look to see where and how their markets are changing in light of competitive influences.  Legal and Regulatory Environment o Part of the decision in starting a new business is affected by how governments work with businesses:  Freedom of ownership  Contract laws  Elimination of corruption o Governments can do a lot to lessen the risk of starting and running a business through laws.  I.E.: Competition Act, Canada Small Business Financing Act, the Consumer Packaging and Labeling Act. o Technological Environment:  The use and application of technology affects productivity.  Productivity: Is the amount of output you generate given the amount of input.  The more you can produce in any given period of time, the more money you are worth to companies (I.E.: the girl who saved a company by analyzing their profitability and growth; she became the CEO).  Effectiveness: Producing the desired results.  Efficiency: Producing goods and services using the least amount of resources.  E-Business (Business-2-Business – B2B): Refers to a wide range of business activates on the web from simple postings of product photos to B2B marketplaces.  E-Commerce (Business-2-Consumers – B2C): Refers to websites that allow transactions so that customers can buy products online. o Competitive Environment: All environments are important, but the degree to which you need to deal with them depends on whether you do or do not have competition.  Customer service exceeds customer expectations  Stakeholder recognition  Employee service: Responsibility, authority, freedom, training, empowerment.  Concern for the environment. o Social Environment  Demography: The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender income etc…  The Aging Population - More people are living due to: o Better medical knowledge and technology o Better health habits such as:  Proper nutrition 8  Exercise  A reduction in the number of people who smoke  Managing Diversity  Canada has a strong multicultural population  Understanding Competitive Models: Understanding the type of competitive environment a business is facing is fundamental to creating a strategy for competing and understanding where and how to allocate resources in support of product/service positioning and overall marketing effort. o The 4 Key Competitive Models: 1. PURELY COMPETITIVE MARKETS - Markets characterized by a number of similar (undifferentiated) products or services, the absence of a dominant market leader, and few barriers to entry (i.e. Agriculture) 2. MONOPOLISTIC MARKETS - Markets that possess a number of different suppliers or products and services, but the nature of the product or service, along with the marketing effort initiated by businesses within the sector, has enabled true differentiation to set in (i.e. Cell phones) 3. OLIGOPOLY-BASED MARKETS - Markets that contain a small number of suppliers that control a large percentage of market share within the market, and that compete on the basis of products/services that have achieved success in distinguishing themselves from their competitors (i.e. Airplane manufacturers) 4. MONOPOLY-BASED MARKETS - Markets that are served by a single product/service provider (i.e. Utilities)  Sensing Market Change - one of the most often used business tools for assessing changes in market sectors is the Porter’s Five Forces Model. Michael Porter (Harvard University) suggests that managers and business owners can keep their finger on the pulse of the industry in which they operate by assessing changes in 5 key areas: 1. Rivalry Among Existing Competitors – The more competitors there are, the more intense the rivalry for customers and market share. 2. Threat of New Entrants – The probability of new entrants appearing in the industry and market. 3. Threat of Substitute Products/Services – Obsolescence as a result of new or substitute products and services. 4. Bargaining Power of Suppliers – Dependency on suppliers for critical aspects of products and services offered; Supplier control and relationships. 5. Bargaining Power of Buyers – Choice buyers have and ease of switching to substitutes. Chapter 6: Ethics and Corporate Social Responsibility  Ponzi Scheme: A type of investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. 9 A few examples of poor ethics in management:  Eron (2001)  Conrad Black (2007)  Nortel (2000-2008)  Bernie Madoff (2009)  Ethics and Individuals o Ethics: Is a reflection of the moral principles or beliefs about what an individual views as being right or wrong.  We need to assess ethics within an organization at 2 levels: 1. The individuals themselves 2. The culture of the organization within which individuals work o These beliefs are built in part around the norms or standards of conduct society views as acceptable behaviour practices o Individual motivations, cultural and environmental upbringing, personal pressures, and lack of information or ignorance will all influence – positively or negatively – an individual’s ethical behaviour o The Dilemma: Each of us has a different interpretation of what is acceptable or non- acceptable behaviour influenced by our own personal upbringing as well as societal and other external influences.  Ethics can be thought of as an invisible hand that guides each of us as we make decisions.  There are 4 fundamental sources of ethical interpretation with respect to business decision- making: (ISPB) 1. Individual 2. Societal 3. Professional 4. Business Culture o We need to recognize where the boundaries lie and be able to live with the decision made; Use the “Triple Yes” Rule: 1. Yes #1—Does the decision that I am making fall within the accepted values or standards that typically apply to all organizational environments? 2. Yes #2—Would I be willing to have this decision communicated to all of my organization’s stakeholders, and have it reported on the front page of the newspaper or serve as the lead story on a news channel? 10 3. Yes #3—Would the people in my life with whom I have a significant personal relationship (family, spouse, etc.), as well as managers of other organizations, approve of and support my decision? o In business, we need to think in terms not of what is in our personal best interest, but of what is in the best interests of the stakeholders and the public at large.  The Ethical Decision-Making Process o Is designed to get a manager to slow down and think through all the consequences of a decision he/she is about to make. Has 2 Key Elements: 1. Ensuring you have initiated the proper depth of assessment to fully understand the ethical dilemma and/or consequences that may permeate the decision or exist below its surface 2. Testing your interpretation with a mentor or advisor to ensure you are correctly interpreting the situation and that your decision-making frame of reference is complete o Integrity: Honest, eeliability, ethics, moral judgement. o You have to be reliable, trustworthy, honest and willing to take responsibility for mistakes you have made; it is being able to look in the mirror each day and know that you are defined by your actions.  The most important skill you bring to the workplace is your integrity; if people cannot trust you, they will not want to work with you.  Ethics and Culture o A critical component of an organization’s culture is defining the boundaries of acceptable behaviour for management & employees o The responsibility for developing policies relating to values, ethics, and financial integrity lies with the organization’s Board of Directors o Board Of Directors: The governing body of a corporation, comprising individuals chosen or elected to oversee the management of the organization o Management needs to execute the policy but first the Board needs to define the parameters of what is meant by ethics and integrity and develop the necessary structure and processes that will enable it to gauge the conscience of the organization  Zones of Decision Making o For Boards to effectively create a culture of ethical behaviour and financial integrity, they must commit to the following: 1. The Board must clearly define and establish boundaries of acceptable behaviour and financial integrity, and create performance standards to evaluate adherence to these parameters. 2. These boundaries must be clearly understood and communicated to all employees in the form of a policy or code of conduct. 3. The Board must appoint a representative (individual or committee) at the board level whose responsibility is to audit performance in all critical areas of the policy. 11 4. The Board must create and support a “Whistleblowing” mechanism for the reporting of ethical concerns within the organization. Whistleblowing: Is the process through which an individual informs someone in authority of a dishonest act or the dishonest behaviour of another person. 5. The Board must interact with senior management and external agencies monitoring the organization’s activities in order to discuss issues that arise. The Board of Directors, as representatives of the organization’s stakeholders, must see itself as the creator and sentinel of the organization’s conscience. o Governments and agencies worldwide have created regulations that define how organizations should comply with financial integrity obligations and ethical decision-making and behaviour. Examples include:  In the US: The Sarbanes-Oxley Act of 2002  In Canada: Ontario Bill 198 and Multilateral Instruments (regulations) 52-108, 52-109 and 52-100 o The focus is on protecting the interests of investors/stakeholders by heightening the financial operational requirements in areas such as auditor independence, audit committee responsibility, CEO and CFO accountability, public disclosure and penalties. o The G20 has agreed in principle to the development of high quality global accounting standards. o Code of Conduct: Is the name for a statement that describes the required responsibilities, actions, and rules of behaviour of an organization’s employees. o The board of directors, as representatives of the stakeholders of an organization, must see itself as the creator and sentinel of the organization’s conscience.  Regulating Ethics o Recognizing the concerns associated with defining ethics and the challenges organizations face in regulating the behaviour of their employees and management teams, governments and agencies worldwide have created regulations that define how organizations should comply with financial integrity obligations and ethical decision making and behaviour.  Forensic Accounting o Forensic Accounting: is the integration of accounting, auditing, and investigative skills.  Forensic accountants are specialists in looking beyond the numbers in order to interpret what exactly is transpiring within an organization  Forensic audits are critical to determining the potential extent of damage an organization may have incurred due to unethical employee behaviour or financial integrity issues  Forensic accountants and audits are also key to legal action  Corporate Social Responsibility (CSR) o CORPORATE SOCIAL RESPONSIBILITY (CSR): The understanding that the purpose of an organization is to create shared value (business and society) by strategically integrating into its actions a partnership mentality with society where the objectives of both parties are met. 12  CSR means treating the public interest as a key stakeholder in an organization’s operational success and shifting attitudes from “winning for me” to one of participating in activities that enable the organization to win while serving the public good.  CSR creates shareholder value by actively partnering in environmental, social, and public policy programs and initiatives that contribute to the long-term health of society.  Consumers have definite opinions as to what they believe CSR should represent. These include: 1. Giving back to local communities 2. Self regulating their actions 3. Being willing to be held accountable for their decisions 4. Helping others 5. Operating ethically, honestly, and lawfully 6. Being environmentally responsible 7. Offering quality products and services at fair prices 8. Treating employees fairly  Areas where consumers feel companies are doing an unsatisfactory job include:  Transparency about business practices and product/service risks  Development of socially and environmentally responsible products/services  Fair pricing and appropriate accessibility levels  Issues associated with political influence, acceptable profit levels, and senior management compensation. o Key Conclusions: Customers are paying attention, and companies need to demonstrate and communicate CSR to win public trust.  The Interdependency of CSR and Corporate Strategy o The CSR Pyramid illustrates four primary views associated with the integration of CSR into an organization: (PPOS) 1. Personal Projects by a business leader (base level) 2. Philanthropy through cash or in-kind donations (base level) 3.Operational Initiatives (middle level) – transition from arm’s length social issues to that of social issues impacted as a result of the organization’s daily operations; an awakening within the organization of a desire to mitigate social harm as a result of its business system activities; seeking to enhance efficiencies while minimizing environmental harm. 4. Strategic Partnering (top level) – True integration of social responsibility into the organization’s strategy development and execution process; requires a cultural shift within the organization. o The transition to true CSR (top level of the CSR Pyramid) is identified by two fundamental shifts in the integration of strategy and social agenda: 1. The organization’s decision-making process evolves from one that responds to identified pertinent social issues to a process that treats CSR as a core root of the organization’s strategic planning process. 2. The organization recognizes that certain social issues impact the key drivers of its competitiveness and therefore seeks to actively develop the necessary social partnerships to leverage such competitiveness 13 o For many companies, this is a 2-step process that requires leadership from the top and a complete risk/reward audit of the full business system and strategic approach to social partnership o Key social interactions and areas of responsibility that occur on a daily basis need to be identified followed by identification of the social impacts that are critical to the organization’s success  Organizations that make it to the top of the pyramid recognize that the long term health of society is fundamental to the long term health of the organization; the two are interconnected, not separate and distinct. o Transitioning to the top of the CSR Pyramid requires significant change in operating procedures, processes and culture. o Such change will necessitate significant investment upfront and potentially an additional cost layer to the operating budget.  Not-For-Profits (NFPs) o For NFPs and charities, the goodwill associated with the work they do and the integrity with which they conduct themselves are fundamental to their existence. o NFPs are heavily dependent on monetary gifts (donations) from others to keep their organizations running. o NFPs and charities must earn and maintain the trust of Canadians in order to be the recipients of their generosity.  This means that NFP managers must be able to communicate to Canadians the legitimacy of their organizations, be able to provide clear programs/service outcomes, and be fully able/creditable in accounting for how their organization spend donors money.  Management Reflection – It is ALL About Trust o Organizations need to encourage entrepreneurship, innovation and risk-taking. o The common thread of making this happen is TRUST. o The best asset you can bring to work on a daily basis is your integrity. o Integrity means being honest, respecting the dignity of others, listening before you speak, being accountable for your mistakes, doing what you say your going to do, demonstrating transparency in the decisions you make, not presuming you have all the answers, and thanking people for their feedback. o Successful managers are open and authentic. They encourage open discussion, communicate their concerns, and do not manipulate others or distort facts. Chapter 7: Planning Business Strategy  The Concept of a Business Strategy o The development of an organization’s business strategy is fundamentally one of the most important responsibilities of a senior management team or, in the case of a small business, the business owner. For an organization to be successful over the long term, managers need to have a game plan as to where and how to compete in the markets in which they intend to serve. o Interdependency of Strategy & Tactics Well-directed & Positioned Strategy + Efficient & Effective Tactics Execution = BUSINESS GROWTH & PROFORBILITY 14 1. The ability to define and create a strategic direction and market position for the organization (strategic plan); and 2. The ability to execute the core tactical initiatives within the plan in a manner that ensures the organization’s success.  The long-term success of an organization and its ability to evolve and grow is predicated on two fundamental principles: the ability to define and create a strategic direction and market position for the organization (strategic plan), and the ability to execute the core tactical initiatives within the plan in a manner that ensures the organization’s success.  Strategy Made Simple o Strategies are generally customized for each business, given the market conditions that they face and the desired business goals they aspire to reach. In its most basic form, business strategy is all about understanding what opportunities exist in the marketplace and which ones should be pursued. Based on these conclusions, managers then have to decide upon their path of action in pursuit of capitalizing on the opportunities chosen. Think of strategy simply as being summarized by the answers to two questions: “Where do we want to play,” and “How do we plan to win.” By answering these two questions, we develop the seeds for what is called our intended or deliberate strategy; that is, the specific direction and actions we plan to take in order to guide our organization’s decisions going forward.  Core Elements for Assessing Business Strategy o For business managers, the development of a business strategy means making decisions and determining direction in six key areas: (PMPRBR) 1. Purpose  MISSION = The organization’s fundamental purpose or reason for existence; Mission Statement identifies the company’s broad goals  VISION = A forward-thinking statement that defines what a company wants to become and where it is going 2. Markets  Specific markets/market segments the business sees itself competing in 3. Products & Services  Review of current and potential new products/services 4. Resources  Allocation of a business’s resources in support of its strategic decisions 5. Business System Configuration  Modifying infrastructure and systems to ensure success of the plan 6. Responsibility & Accountability  Identifying the key objectives to be achieved and who is responsible for them 1. Purpose: Refers to the mission of the organization and the vision its managers or owner(s) have for the business. Mission defines an organization’s purpose or reason for existence. Mission statements usually identify the broad goals around which a company was formed. They also can reflect on how an organization will get to where it wants to go. Mission statements, when 15 combined with ethics policies and statements of behaviour or values, guide the overall direction and activities of a business. Decisions made by managers within an organization should reinforce the mission the company is aspiring toward. A vision statement is a forward-thinking statement that defines what a company wants to become and where it is going (i.e.: Wal-Mart’s vision is to become the worldwide leader in retailing and Jim Treliving and his partner George Melville’s initial vision for Boston Pizza was to have it become Canada’s #1 casual dining chain o For example: Wal-Mart’s mission is currently identified as “helping people save money so they can live better.” 2. Markets: Refers to the specific markets or market segments the business sees itself competing in. As part of the strategy development process, managers and owners need to assess their success in existing markets and evaluate the potential of new markets. Markets should be assessed in terms of their current and future profitability and growth potential. Markets that represent opportunities for future growth and enhanced profitability will receive greater managerial attention and resource support. Markets that have become unprofitable or marginally profitable and lack significant future growth will be evaluated in terms of market exit strategies or harvesting strategies. o Harvesting: Refers to a strategy that reflects a reduced commitment to a particular market given its perceived weak future growth or profitability potential. 3. Products & Services: Refers to a review of the current products and services offered by a business, as well as potential new products/services that are to be added to the products portfolio. Over time, products and their related services can become obsolete or no longer desired by the organization’s customers. This can be the result of technological innovation, changes in consumer needs and tastes, or new direct substitutes for existing products and services being offered by competitors. A critical part of the strategy development process is to determine which products and related services are to remain part of a business’s portfolio, as well as which are to receive additional R&D (research and development) support, and which new ones are to be added. o For example: A strategic business decisions regarding services could relate to whether customers should be offered payment terms for b
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