DEPARTMENT OF MANAGEMENT STUDIES

BA 7302 - STRATEGIC MANAGEMENT

UNIT – ISTRATEGY AND PROCESS

Conceptual Framework for Strategic Management, The Concept of Strategy and the Strategy Formation Process – Stakeholders in Business – Vision, Mission and Purpose – Business Definition, Objectives and Goals – Corporate Governance and Social Responsibility – Case Study

CONCEPTUAL FRAMEWORK FOR STRATEGIC MANAGEMENT

In earlier times, the managers focused on “today’s decisions for today’s business”. However the rapid changes experienced by companies have made the managers to anticipate the future and prepare for it. They have prepared systems, procedures and manuals and evolved budgets and planning and control systems, which included capital budgeting and management by objectives. The inadequacy of these techniques has led to the emergence of long range planning which in turn gives rise to strategic planning subsequently to strategic management.

Strategic management deals with decision making and actions which determine an enterprise’s ability to excel survive or die by making the best use of a firm’s resources in a dynamic environment. The main purpose of study of strategic management is to examine why some organization succeed while others fail and yet others completely change.

Consider the following examples: Bharat Heavy Electricals Ltd. (BHEL) is now planning to expand its range to 800 MW

supercritical power projects. LG Electronics India Ltd. (LGEIL) signed a MOU with Maharashtra government to expand

manufacturing facility at Pune for Rs.900 crores. GAIL India has received an offer from China Gas Holdings for participation in a gas based

petrochemical project to be set at Humor in Mangolia. The world’s largest steel conglomerate Mittal Steel Company is to become the second largest

stakeholder in a Chinese Steel firm in Hunan Province. Mittal singed three MOUs with Jharkhand Government for setting up 12 million tonne Greenfield

project in two phases. Maruthi Udyog slashed the price of Maruti-800 by Rs.16000 in small car segment drastically. Lenova, the Chinese computer giant acquired IBM in China.

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Tata Steel entered a joint venture agreement with Iranian Mines and Mining Industries Development and Renovation Organization.

These examples illustrate how organizations react to environment and adopt suitable course of action such as divestment, expansion and stability as part of their operations. The decisions regarding up-gradation of product mix, joint ventures and expansion have a long term impact on the activities and such crucial decisions are taken by senior management. The top management is mainly responsible for providing a sense of direction and guiding future course of action for any firm. Strategic management deals with long-term decisions taken up by top management which gives overall direction to the organization. Strategic Management provides a cooperative, integrated and enthusiastic approach for tackling problems and realizing opportunities.

An enterprises success mainly depends on three board factors:(1) The Industry, it belongs to (2) The Nation, it is located and (3) Its own resources, capabilities and strategies.

Fig: Determinants of Company Performance

Company Resources,Industry Context National Context Capabilities and

Strategies

Company Performance

Industry: Some industries are profitable than others due to industry attractiveness. A company in attractive industry will achieve success compared to a firm in a less attractive industry. During the last decade software industry is more profitable than pharmaceutical industry.

Nation: The country also influences the competitiveness of company based within the nation. Some countries enjoy competitive advantage with regard to certain industries. For example, the worlds most successful automobile and consumer electronics companies are located in Japan.

The most successful pharmaceutical companies are located in U.S. and Switzerland. Many of the successful financial services companies are located in the United States and Great Britain. The success or failure of individual firms depends on national competitive advantage.

Company: Firm’s resources, capabilities and strategies are the strongest reasons for the success or failure of the firm. Some firms thrive even in less attractive industry whereas some firms perform poorly in spite of being in profitable industry. Often one comes across wide variation in the performance of companies within the same industry and enjoying same national competitive advantage. There is a grave need to understand the causes of success and failure in order to develop strategies, which will increase the

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probability of success and reduce the probability of failure.

THE CONCEPT OF STRATEGY AND THE STRATEGY FORMATION PROCESSStrategy is a framework through which an Organisation can assert its vital continuity whilst

managing to adapt to the changing environment to gain competitive advantage.

According to Igor Ansoff (1984),Strategic Management is a systematic approach to the major and increasingly important

responsibility of general management to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises.

Top executives, who formulate strategy, draw information from several publications in order to keep abreast of current developments in their industry and business. Some of the online sources of business strategy news are as follows:

Strategic management tends to develop a generalist approach to managerial problems and it enables one to view organizational issues in its totality. Hence business is viewed as a system consisting of number of subsystems and the narrow outlook of a specialist is not recommended for solving business problems. For instance, employee turnover apparently looks like a personnel problem. If one probes deeply into the problem, it genesis may be deeper.

Definitions Strategy is “a unified comprehensive and integrated plan designed to ensure that the basic

objectives of the enterprise are achieved” – Glueck Strategy is “a determination of the basic long term goals and objectives of an enterprise and the

adoption of courses of action and the allocation of resources necessary for carrying out these goals” – Alfred Chandler

Strategic management is “a stream of decisions and actions, which leads to the development of an effective strategy to help achieve corporate objectives” – Glueck

Alternative Types of Strategy Planned Strategy: Leaders formulate and strive for implementation with the minimum of

distortion (Budgets, schedules etc). Formulated in the environment that is fairly predictable or controllable.

Entrepreneurial: More influenced by the individual, not as precise or articulate as planned strategy, requires an ability to impose one’s vision on the organisation. Entrepreneurial strategy provides flexibility at the expense of specificity and articulation of intentions.

Ideological Strategy: Shared vision collectively pursued is an ideology. Intentions can usually be identified (Indoctrination, credo etc). Positively embraced by members of the organisation, not passive acceptance.

Umbrella Strategy: Relax control, leaders set guidelines for behaviour, define boundaries and let actors man oeuvre within. All organizations actions fall under the umbrella (Pricing strategies for example). Umbrella strategy can be both deliberate and emergent. De Wit and Meyer (ibid) argue that all „real’ world strategies tend to be umbrella claiming that you cannot pre-empt the discretion of others.

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Strategy Formation ProcessHenry Mintzberg holds a different view about strategic management process. According to him,

strategies can emerge from within an organization without any formal plan. Strategies may emerge from the grassroots of the organization in response to unforeseen circumstances. Strategy is more than what a company plans to do; it is what the company does actually.

Mintzberg has defined strategy as “a pattern in a stream of decisions or actions” the pattern being a product of whatever intended strategies (planned) are actually realized and of any emergent (unplanned) strategies. Hence strategies may be intended (planned) as well as emergent(unplanned). In Mintzberg’s opinion emergent strategies are more successful than other types. In practice, the strategies of several organizations are probably a combination of the „intended’ and the „emergent’ types.

Intended Strategy

Mission and Goals

External Environment Strategic Choice Internal EnvironmentAnalysis Analysis

INTENDED STRATEGY

Organizing forImplementation

Emergent Strategy

External Environment Mission and Goals External Environment Analysis Analysis

Strategic Choice

Does it fit?

EMERGENT STRATEGY

Organizational Grassroots

Fig: Strategic Management process for Intended Strategy and Emergent Strategy

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A Model of Strategy Management ProcessStrategic management process involves strategic planning, strategy implementation and strategic

control. Strategic planning involves thorough study of internal and external environment factors relevant for the organization. It results in mission, purpose, objectives, policies and programmes.Hence the five steps in strategic management process are as follows:

The choice of corporate mission and corporate goals Analysis of external competitive environment to understand the firms’ strength and weakness Selection of strategy to build on the organizations’ strengths and correct weakness so as to take

advantage of external opportunities and counter external threats Strategy implementation and control

The steps involved in strategic management process are almost similar for intended strategies and emergent strategies but the formulation of intended strategies is basically a top-down process and that of the emergent strategies is a bottom-up process.

Mission and Goals

Internal Analysis Strategic Choice External AnalysisStrengths, Weaknesses SWOT Opportunities, Threats

Functional Level Strategy

Business Level Strategy

Corporate Level Strategy

Global Level Strategy

Strategy Implementation

Designing organizational Conflict, Politics Designing ControlStructure & Change Systems

Matching Strategy, Structure and Control

Feed back

Fig: Strategic Management processMission and Goals

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Defining the mission and main goals of the organization is the first step in strategic management process. The mission tells clearly why the organization exists and what it would be doing. Organizations set goals, which they hope to achieve in the medium to long-term basis. Normally organizations work with a hierarchy of goals such as sizeable market share, maximizing shareholders’ wealth and profit and so on.

Policies: Policies act as guide in decision-making. Policies define an area within which a decision is to be made and ensure that the decision will be consistent with and contribute to objectives. Managers who are responsible for implementation of policy use discretion while deciding various courses of action. Policies exist at all levels of the organization and range from major company policies to department policies.

Fig: Pyramid of Business Policy

Major PolicyLine of Business (code of ethics)

Secondary PolicySelection of geographical area

Major customers, major products

Functional PolicesMarketing, Production, Research,

Finance, Procurement, etc.

Procedure and Standard Operating Plan Handling incoming orders, servicing customers complaints, shipping to foreign countries

RulesDelivery of pay cheques, Loitering around the plant,

Security guard duty, Use of company car, Smoking etc.

ProcedureInfosys has 36,000 employees on its pay roll. Infosys managers the challenges of inducting and

orienting a large number of employees through an online resource called PRIDE (Process Repository at Infosys for Driving Excellence). After induction and orientation all the employees work in the same way.

External AnalysisThe next step in strategic management process is external environmental analysis, which aims to

understand the opportunities and threats in the environment. In this stage, examination of three environments normally takes place, the industry environment in which organization operates, the national environment and the macro environmental forces such as social, economic, government and legal,

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international and technological factors, which affect the organization. The competitive structure of the industry, competing firms and the competitive positions are analyzed during this phase.

Internal AnalysisIdentifying strengths and weakness of the organization involves identification of quantity and

quality of resources and distinctive competencies that help in building competitive advantage to achieve superior efficiency, quality, innovation and customer loyalty.

Strategic ChoiceStrategic choice involves generating a series of alternatives in the light of internal strengths and

weakness and external opportunities and threats, which knows as SWOT analysis. The purpose of strategic choice is to build organizations’ strengths to exploit opportunities and set right weakness and to minimize threat. Finally, strategies are evolved at functional level, business level, corporate level and global level.

Functional strategies are directed to improve the effectiveness of functional operations of the firm such as manufacturing, finance, R&D, marketing and human resources.

Business level strategies lay emphasis on the way the firm positions itself in the market place to gain competitive advantage. The three generic business level strategies are 1) Cost leadership, 2) Differentiation and 3) Focus strategy.

Corporate level strategies enable organizations to maximize the long run profitability of the organization. Vertical integration (backward and forward integration), diversification, strategic alliance, acquisitions and joint ventures are examples of corporate level strategies.

Global level strategies are pursued by organizations while they expand their operations in international business so as to increase their profitability. International strategy, multi-domestic strategy, global strategies and transitional strategy are some of the choices before strategies.

Strategy ImplementationStrategy implementation consists of four steps namely:

Designing appropriate organizational structure Designing control systems Matching strategy, structure and controls and Managing conflicts, politics and change

StructureStructure involves allocation of duties, responsibilities and decision-making authority and

integration among the ranks and files of organization. It is widely believed that structure follows strategy. Some of the options available in this regard are tall structure, flat structure, centralized decision making authority, decentralized decision making authority, autonomous units and semi-autonomous units and different mechanisms for integration of subunits.

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ControlThe purpose of strategic control is to determine whether the given strategy is effective in

achieving organizational objective and moving on the right tract. The organizational control may be classified as market control, output control and bureaucratic control. Control system requires development of perceptible organizational culture. Besides, the type of reward and incentive systems also needs to be decided and established towards this end.

Matching Strategy, Structure and ControlIn successful organizations a fit among strategy, structure and control is observed. Different

strategies and environments call for different structures and control systems. Cost leadership strategy warrants a simple organization, which lays emphasis on efficiency whereas differentiation strategy revolves around R&D and technical creativity. A fit among strategy, structure and control is essential to ensure success of organizations.

Matching Conflicts, Politics and ChangeConflict is common in organizations. The reasons for conflicts are resource sharing and different agendas of different subgroups within organizations. Power struggles and coalition building are consequences of such conflicts. The organizational politics plays a key role in strategy implementation. The power and conflict will cause organizational inertia and prevent organizational change. Power, politics, conflict and inertia should be analyzed and managed effectively so that mission could be fulfilled and change could be introduced smoothly.

FeedbackStrategic management is an ongoing process. Periodic feedback reveals whether objectives are

attainable or implementation is poor or not. The feedback is fed into next round of strategic formulation and implementation. It may reaffirm objectives or suggest changes in goals and objectives.

STAKEHOLDERS IN BUSINESS

A stakeholder is any individual or Organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally.

STAKEHOLDERS IN BUSINESSA corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole. Stakeholder groups vary both in terms of their interest in the business activities and also their power to influence business decisions.  The stake holders of a company are as follows

Shareholders Creditors Directors and managers Employees Suppliers Customers

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Community Government

Stakeholder Main Interests Power and influence

Shareholders Profit growth, Share price growth, dividends.

Election of directors

Creditors Interest and principal to be repaid, maintain credit rating

Can enforce loan covenants and Can withdraw banking facilities

Directors and managers

Salary ,share options, job satisfaction, status

Make decisions, have detailed information

EmployeesSalaries & wages, job security, job satisfaction & motivation

Staff turnover, industrial action, service quality

SuppliersLong term contracts, prompt payment, growth of purchasing

Pricing, quality, product availability

CustomersReliable quality, value for money, product availability, customer service

Revenue / repeat business, Word of mouth recommendation

Community Environment, local jobs, local impactIndirect via local planning and opinion leaders

Government Operate legally, tax receipts, jobsRegulation, subsidies, taxation, planning

The main stakeholders in business are: Shareholders (not for a sole trader or partnership though) – they will be interested in their

dividends and capital growth of their shares. Management and employees – they may also be shareholders – they will be interested in their job

security, prospects and pay. Customers and suppliers Banks and other financial organizations lending money to the business

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Government – especially the Inland Revenue and the Customs and Excise who will be collecting tax from them.

Trade Unions – who will represent the interests of the workers? Pressure Groups – who are interested in whether the business is acting appropriately towards their

area of interest. Stakeholders versus Shareholders

It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same – but the difference is crucial!

Shareholders hold shares in the company – that is they own part of it. Stakeholders have an interest in the company but do not own it (unless they are shareholders). Often the aims and objectives of the stakeholders are not the same as shareholders and they come

into conflict. The conflict often arises because while shareholders want short-term profits, the other

stakeholders’ desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the company’s products).

Social Responsibility of a Business to StakeholdersSocial responsibility is the duty and obligation of a business to other stakeholders. Shareholder – Good return on investment Employee – Fair pay and working conditions Supplier – Regular business and prompt payment Customer – Fair price and safe product Local community – Jobs and minimum disruption Government – Employment for local community Environment – Less pollution Social responsibility for one group can conflict with other groups, especially between shareholders

and stakeholders.

Ethics in BusinessEthics refers to the moral rights and wrongs of any decision a business makes. It is a value

judgment that may differ in importance and meaning between different individuals. Businesses may adopt ethical policies because they believe in them or they believe that by showing they are ethical, they improve their sales. Two good examples of businesses that have strong ethical policies are The Body Shop and Co-op.

Some examples of ethical policies are: Reduce pollution by using non-fossil fuels. Disposal of waste safely and in an environmentally friendly manner Sponsoring local charity events Trading fairly with developing countries

Approaches to Strategic Decision Making Process

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There are three approaches to strategic decision-making process. They are as follows: Rational – analytical Intuitive – emotional Behavioral – political

Rational – Analytical Model assumes that decision maker is always intelligent and rational. He is fully aware of all the alternatives and their consequences upon implementation to maximize advantages.

Intuitive – Emotional Model assumes that decision maker prefers „gut feeling’, reflective thinking and instinct using unconscious mental processes. Managers who endorse this approach, point out that intuitive judgment may lead to better decisions than optimizing techniques.

Political – Behavioral decision making Model assumes that real decision makers consider a variety of pressure from people who are affected by their decisions. Even organization interacts with a variety of stakeholders. For instance trade unions demand job security and decent wages for workmen.

Strategists adopt a synthesis of all three approaches. So strategic decisions are made in a typically human way using the rational conscious analysis, intuitive and „unconscious gut feeling’ in the light of varied political realities

Pitfalls: Strategic decision-making process is not without pitfalls and it suffers from certain limitations. The reasons for poor decision-making are cognitive bias and groupthink. Most strategic decision-making is done by groups. Groupthink occurs when a group of decision makers decide on a course of action, which is purely based on emotional rather than objective criteria and the group is pressurized for uniformity and consensus. Consequently, controversial issues and weak arguments are never touched upon.

Techniques for improving strategic decision-makingTo enhance the effectiveness of strategic decision-making, techniques like devils’ advocacy and dialectic inquiry are recommended.

In Devils’ Advocacy, a plan is evolved and is critically analyzed. One member highlights the reason why the plan is unacceptable and acts like the devil’s advocate. The main advantage of this method is to highlight all possible dangers involved in the course of action.

In Dialectic Inquiry, a plan and a counter plan are evolved in order to reflect plausible and conflicting courses of action. The debate between advocates of plan and counter plan reveals problem areas with definitions, suggested courses of actions and assumptions. Based on the identification of problem areas, final plan is evolved which is comprehensive.

Impact of e-commerceA survey undertaken by Booz-Allen & Hamilton and Economist intelligence unit of 525 top

executives revealed that Internet is reshaping the global market place. According to 90% of executives,

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internet would transform and would have major impact on their corporate strategy within two years.

Learning OrganizationIn the wake of liberalization, organizations are forced to cope up with intense competitive forces

arising from dynamic and complex environment and hyper competition. So competitive advantage could not be built on permanent basis but short-term strategic thrusts are aimed at. Hence strategic management process requires a learning organization in order to adopt to change quickly. An important characteristic of learning organization is its strategic flexibility. A learning organization is skilled in creating, acquiring and transferring knowledge and modifying its behavior to reflect new knowledge and insights. According to Senge, the main activities undertaken by a learning organization are:

Systematic problem solving Experimentation with new approaches Learning from new experiences and from others and Transferring knowledge quickly and efficiently throughout the organization Employees at all levels are involved in strategic management process in a learning organization. They

do environment scanning for vital information; understand shifts in environment in order to improve work methods, procedures and evaluation techniques. For example at Xerox, all employees are trained in small group activities and problem solving skills, which enabled the company to come out with improved products.

VISION, MISSION AND PURPOSE

VISION & VISION STATEMENTVision is what the company is trying to achieve over the medium to long term. It is a description

in words that motivates each member of the Organisation and shows the path and destination.

Vision statement provides direction and inspiration for organizational goal setting.Vision is where you see yourself at the end of the horizon OR milestone therein. It is a single statement dream OR aspiration. Typically a vision has the flavors of 'Being Most admired', 'Among the top league', 'Being known for innovation', 'being largest and greatest' and so on.

Typically 'most profitable', 'Cheapest' etc. don’t figure in vision statement. Unlike goals, vision is not SMART. It does not have mathematics OR timelines attached to it.Vision is a symbol, and a cause to which we want to bond the stakeholders, (mostly employees and sometime share-holders). As they say, the people work best, when they are working for a cause, than for a goal. Vision provides them that cause.

Vision is long-term statement and typically generic & grand. Therefore a vision statement does not change unless the company is getting into a totally different kind of business.

Vision should never carry the 'how' part . For example ' To be the most admired brand in Aviation Industry' is a fine vision statement, which can be spoiled by extending it to' To be the most

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Vision

Mission

Goals and Objectives

admired brand in the Aviation Industry by providing world-class in-flight services'. The reason for not including 'how' that ‘how’ is may keep on changing with time.

Hierarchy of Vision, Mission and Objectives

Advantages: Basis for performance Reflects core values Way to communicate

Benefits• Vision provides direction and helps the organization prepare for the future.• Vision provides guidance for decision making.• Vision shapes the organization’s strategy.• Vision guides the types of people you hire and promote.• Vision defines what you will and what you will not do.• Vision helps set priorities and guides planning.• Vision aligns people and activities across the organization.• Vision provides purpose and a source of inspiration.• Vision reflects an organization's core values and beliefs.• Vision empowers people and helps focus their efforts.• Vision brings change and hope for the future.

Some Vision Statements

A. Short vision statements made up of a few words only:

1. Disney – To make people happy.2. Oxfam (Oxford’s Social service orgn.) – A just world without poverty.3. Ikea (Ready to assemble furniture company) – To create a better everyday life for the many people.4. Stanford University - To become the Harvard of the West.

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B. Quantitative statements are based on numbers, quantities:

4. Microsoft – A computer on every desk and in every home; all running Microsoft software.5. Nike – Current: To be the number one athletic company in the world.6. Wal-Mart – Become a $125 billion company by the year 2000.

C. Qualitative statements are based on qualities that you want to have:

7. Ford – To become the world’s leading Consumer Company for automotive products and services.8. Microsoft – At Microsoft, our mission and values are to help people and businesses throughout the world realize their full potential.9. Avon – To be the company that best understands and satisfies the product, service and self-fulfillment needs of women—globally.

D. Competitor based statements – this type is becoming less common, but famous examples are:

10. Honda – in 1970: We will destroy Yamaha.11. Nike – in 1960s: Crush Adidas.12. Philip Morris – in 1950s: Knock off RJR as the number one tobacco  company in the world.

E. Role Model Vision Statements – using another company as an example:

13. Giro Sport Design – To become the Nike of the cycling industry.14. Stanford University – To become the Harvard of the West.15. Reach for Success  – To become the next Tony Robbins in self development.

F. Internal Transformations vision statements:

16. Sony – Become the company most known for changing the worldwide poor-quality image of Japanese products.

17. GE – Become number one or two in every market we serve and revolutionize this company to have the strengths of a big company combined with the leanness and agility of a small company.

18. US Armies Vision – To transform ourselves into a newer, leaner Army positioned for the 21st century.

G. Longer and more detailed vision statement:

19. Coca Cola – To achieve sustainable growth, we have established a vision with clear goals:

Profit: Maximizing return to share owners while being mindful of our overall responsibilities.

People: Being a great place to work where people are inspired to be the best they can be.

Portfolio: Bringing to the world a portfolio of beverage brands that anticipate and satisfy peoples; desires and needs.

Partners: Nurturing a winning network of partners and building mutual loyalty.

Planet: Being a responsible global citizen that makes a difference.

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20. Heinz – Our VISION, quite simply, is to be: “The World’s Premier Food Company, Offering Nutritious, Superior Tasting Foods To People Everywhere.” Being the premier food company does not mean being the biggest but it does mean being the best in terms of consumer value, customer service, employee talent, and consistent and predictable growth.

Challenges related to Vision Statement:Putting-up a vision is not a challenge. The problem is to make employees engaged with it. Many a

time, terms like vision, mission and strategy become more a subject of scorn than being looked up-to. This is primarily because leaders may not be able to make a connect between the vision/mission and people’s every day work. Too often, employees see a gap between the vision, mission and their goals & priorities. Even if there is a valid/tactical reason for this mis-match, it is not explained.

Horizon of Vision:Vision should be the horizon of 5-10 years. If it is less than that, it becomes tactical. If it is of a horizon of 20+ years (say), it becomes difficult for the strategy to relate to the vision.

Features of a good vision statement: Easy to read and understand. Compact and Crisp to leave something to people’s imagination. Gives the destination and not the road-map. Is meaningful and not too open ended and far-fetched. Excite people and make them get goose-bumps. Provides a motivating force, even in hard times. Is perceived as achievable and at the same time is challenging and compelling, stretching us

beyond what is comfortable.

MISSIONMission statement embodies an organization’s purpose of existence. When strategists raise certain

fundamental questions related to business such as: What is our business? Why are we in the business? What will it be after 5 years?

the need for mission statement arises. The survival of an organization mainly depends on its ability to satisfy specific needs of the society. Mission statement defines the role that an organization plays in a society. For example, BSNL satisfies the communication needs of the society. Mission statement describes what the company stands for, its purpose, image and character to different stake holders. A survey by Bain and Company indicates that planning and developing mission and vision statements are the popular management tools of strategic management.

Thompson defines mission as “the essential purpose of the organization, concerning particularly why it is in existence, the nature of the business it is in, and the customers it seeks to serve and satisfy”.

Wheelan and Hunger view that “mission is the purpose or reason for the organization’s existence”.

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According to John Pearce “mission is an enduring statement of purpose that distinguishes one firm from other similar firms”.

In Drucker’s opinion “mission focuses the organization on action. It defines the specific strategies needed to attain goal. It creates a disciplined organization… The business purpose and business mission are so rarely given adequate thought, is perhaps the most important single cause of business failure and business frustration”.

In order to survive for a long period, organizations perform various functions, which are valued by the society. Mission statements usually give internal direction for the future of the organization.

Ambition and visionary zeal are the main constituents of mission. Organizational values hold the mission intact. The mission specifies what qualities the organization will uphold and impart to the society and community. The organization’s beliefs are embedded in the mission. Thomas

Watson Jr. of IBM holds the view “I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises al its policies and actions”.

A mission statement is full of enthusiasm. A mission statement is marked by grandeur. It is unique and personal. It is not time bound because the future envisioned in a mission statement cannot be achieved in a

day. How Mission is formulated?

Strategists, consultants and chief executives are involved in formulated mission statements. Contrary to the popular practice, State Bank of India solicits the cooperation of employees union for formulation of mission statement.

In Hyderabad Bakelite Hylam, discussions are held at all levels and all employees are involved in the exercise of framing a mission statement.

Sathyam Computers conducts extensive discussions with clients and overseas joint venture partners for framing mission statements. In HCL, a core management team has analyzed the strengths and weaknesses and designed a customer-centric mission statement for team building, mutual trust, internal customer service and empowerment.

After independence, public sector organizations derived their mission from national priority of building a strong and self-reliant India. So they focused on developing infrastructure industries.

The Mission statements of some Indian companies are given below:Infosys: “The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies – customers, employees, investors, vendors and the society at large. The reason de „e’tre of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year”.

The Gindal Group: “To become a globally competitive player with a burning desire to become number one in the steel industry”.

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Unit Trust of India: “To keep the common man in sharper focus; to encourage saving and investment habits among them”.

Ranbaxy: “To become a $1 billion research based global pharmaceutical company”.

Merck: “To preserve and improve human life”.

McKinsey: “To help business corporations and governments to be more successful”.

Unilever: “To make cleanliness common place, to lessen work for women, to foster health and to contribute to personal attractiveness that life may be more enjoyable for the people who use our products”.

ONGC: “To be a world class oil and gas company integrated in energy business with dominantIndian leadership and global business”. Nirma: “Nirma is a customer focused company committed to consistently offer better quality

products and services that maximize value to the customer”. SBI: “With you, all the way”. Asian Paints: “Leadership through excellence”. Bajaj Auto: “Value for Money, for years”.

It is observed from these mission statements that mission provides direction to internal organization and it embodies the values and philosophy of the founders of the organization.

Characteristics of a Mission StatementA mission statement incorporates the basic business purpose and the reason for its existence by rendering some valuable functions for the society. An effective mission statement should possess the following characteristics.

1) Feasible: The mission should be realistic and achievable. For instance, UTI declared its mission as “to encourage saving and investment habits among common man”. By providing tax relief under Sec 88c, the investment upto 1 lakh in UTI is exempted from income tax. Hereby common man’s savings habit is encouraged by UTI.

2) Precise: A mission statement should not be narrow or too broad.

3) Clear: A mission statement should lead to action. BSNL’s mission of „connecting India’ leads it to a variety of service with varied tariff structure so as to cater to the preferences of mobile phone users.

4) Motivating: The mission should be motivating for the employees to be inspired for action.

For example, India Post’s mission is to „exceed the expectations of the customer’ with dedication, devotion and enthusiasm.

5) Distinctive: A mission statement will indicate the major components of the strategy to be adopted. The mission should be unique.

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6) Indicates Major Components of Strategy: The mission statement of IOC emphasizes petroleum refining, marketing and transportation with international standards and modern technology. It indicates that IOC is going to adopt diversification strategy in future.

The mission provides direction to insiders and outsiders on what the firm stands for. It is the guiding star for any firm.

How Mission Contributes to Strategic Management?Mission contributes to strategic management in many ways:

1. It provides direction to corporate planning. 2. It clarifies the firm’s aspirations. 3. It communicates to employees at various levels the direction in which they should move. 4. It focuses on business purpose and long-term objective of the firm.

BUSINESS DEFINITION, OBJECTIVES AND GOALS

Definition of 'Business'1. An organization or enterprising entity engaged in commercial, industrial or professional activities. A business can be a for-profit entity, such as a publicly-traded corporation, or a non-profit organization engaged in business activities, such as an agricultural cooperative.

2. Any commercial, industrial or professional activity undertaken by an individual or a group.

3. A reference to a specific area or type of economic activity.

'Business' can be defined as:1. Businesses include everything from a small owner-operated company such as a family restaurant, to a multinational conglomerate such as General Electric.

2. To "do business" with another company, a business must engage in some kind of transaction or exchange of value with that company.

3. In this sense, the word "business" can be used to refer to a specific industry or activity, such as the "real estate business" or the "advertising business".

A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning.

Basic forms of ownershipAlthough forms of business ownership vary by jurisdiction, there are several common forms which are as

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follows:

Sole proprietorship: A sole proprietorship is a business owned by one person for-profit. The owner may operate the business alone or may employ others. The owner of the business has unlimited liability for the debts incurred by the business.

Partnership: A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business. The three typical classifications of for-profit partnerships are general partnerships, limited partnerships, and limited liability partnerships.

Corporation: A corporation is a limited liability business that has a separate legal personality from its members. Corporations can be either government-owned or privately owned, and corporations can organize either for-profit or not-for-profit. A privately owned, for-profit corporation is owned by shareholders who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation can be either privately held or publicly held.

Cooperative: Often referred to as a "co-op", a cooperative is a limited liability business that can organize for-profit or not-for-profit. A cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Classification of BusinessThere are many other divisions and subdivisions of businesses.

Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.

Financial businesses include banks and other companies that generate profit through investment and management of capital.

Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.

Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.

Real estate businesses generate profit from the selling, renting, and development of properties comprising land, residential homes, and other kinds of buildings.

Retailers and distributors act as middle-men in getting goods produced by manufacturers to the

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intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalog companies are distributors or retailers.

Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.

Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs.

Utilities produce public services such as electricity or sewage treatment, usually under a government charter.

Objectives and GoalsObjectives and goals are used interchangeably in management literature but the recent strategic

management literature shows a subtle distinction between these two terms. Objective is the end, which the organization tries to achieve through its operations. „Goal’ is an open-ended statement, which does not quantify what needs to be achieved, and time frame for completion. So „growth’ is a goal whereas an objective is to „increase growth by 10% in terms of market share and sales over last year’. Usually the long-term goals and short-term objectives are derived from mission.

Significance of ObjectivesObjectives are formulated from mission statements. Objectives form the basis for all other

functional decisions such as finance, manufacturing, marketing and human resource. Objectives are split into business wise objectives and functional targets and performance targets. While setting objectives, the organization encounters the environment and determines the locus it will devise to attain in the environment such as a dominant player, a meek player or one among the herd. Objectives and strategy put together, explain the firm’s concept of business. Objectives indicate the organizational performance to be realized and expected over a period of time.

Consider the objectives of some organizations:Canara Bank: “The bank’s stated objectives are growth, innovativeness, and high profits as a barometer of efficiency, highly involved employees distinctively charged with pride”.

Maruti: “We don’t just sell more car than No.2. We sell more cars than the entire competition put together”.

Areas Where Objectives Are Set?Organizations follow multiple objectives such as: Growth

Profitability Market share

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Productivity Technology R&D and Innovation Corporate Social Responsibility Image Employee Satisfaction

Growth: Growth in sales, in profits and assets are indicators of a firm’s financial soundness and long-term welfare. Reliance Industries is a typical example, for growth objectives. Growth of a firm is ensured if growth in sales, profits and assets are ensured.

Profitability: Profitability has several dimensions and it is measured in terms of return on investment, net worth, assets, revenue and earning per share. With profitability objective, the firm examines the profit potential of present portfolio and reallocates accordingly. Some of the specific issues are:

(a) How are the present investments of the firm behaving? (b) What is the rate of return? (c) How is the spread of the investment?

The example of ITC is worth studying. ITC has made investments in five main businesses namely tobacco, agro products, financial services, paper and packaging, hotel and tourism.

Market Share: Market share is a crucial indicator of the firm’s growth and around market share objective, business level strategies are formulated. For many Japanese firms, building market share is synonymous with long run profits and brand building. Tata, Colgate BPL and P&G are companies that focus on market share as the key corporate objective. Colgate firmly believes that it should have always 50% market share. The policy of P&G is „Profit via market share’ and it is prepared to accept short-term loss to win over the established leader HLL and be a market leader ultimately.

Technology: Corporate objectives are set in technology for companies like Du Pont and Intel. For Du Pont, leadership in chemical technology and continuous new product development are their major objectives. Product innovation is the key objective of Intel. Ranbaxy and 3M maintain that R&D and new product development constitute a major objective for them.

Human Resource: The software giant Infosys, set objective in human resource. Development of a cadre of software professional is set as a major corporate objective. „Human Capital’ is shown in the balance sheet of Infosys as additional information.

Corporate Image: Tata Group has set the objective of being viewed as a respectable business group. They maintain transparency with regard to donations to political parties for their election campaigns and created an electoral fund. They project as a role model in the matter of corporate governance.

Social Responsibility: Social responsibility includes setting objectives in community welfare, public welfare and environmental protection. Tata Group has objectives relating to society. They are involved in

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rehabilitation of handicapped children.

Peter Drucker has recommended that companies should set goals and objectives in the following areas:1) Return on Investment 2) Market Share 3) Innovation 4) Productivity 5) Physical and Financial Resource 6) Manager Performance and Development 7) Worker Performance and Attitude 8) Social Responsibility

In recent times, Management By Objectives (MBO) receives much attention from the strategists.

Characteristics of ObjectivesObjective setting is complex process. Well-formulated objectives possess certain characteristics.a) Specific b) Time bound c) Measurable d) Challenging e) Objectives form a hierarchy f) Constraints g) Verifiable h) Timeframe

Formulation of ObjectivesFormulation of objectives and goals is a complex process. The strategists should consider the four

factors while evolving objectives.1) The forces in the environment: The government regulations, powerful consumer groups, trade

unions and influential suppliers exert enormous pressure on organization. The stakeholders, their priorities and views influence objective setting.

2) Realities of firm’s resources and power relationship: Material and human resource are always scarce and powerful dominant groups try to take upper hand and exercise power over other group in framing objectives of their choice and allocate scarce resources in their favour. Internal power relationship influences objective setting.

3) The values of top management: Values of enduring beliefs, about what is good or bad, desirable or undesirable. The top management may have entrepreneurial value and a philanthropic value or social responsibility value which in turn will influence their goal setting.

4) Past Strategies: Strategies and objectives followed in the recent past are likely to have deep impact and radical deviation from them will not be possible. The changes from current objectives will be marginal and incremental in nature.

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Objectives and Strategic ManagementObjectives are important for strategic management for the following reasons:

1. Objectives help to relate the organization in the environmental context. It helps to attract people with identical frame of mind.

2. Objectives help to coordinate decisions. All employees are aware of the objectives and stated objectives proved to be a means of coordination.

3. Objectives serve as standards of appraising organizational performance. They serve as a basis for evaluating success or failure of organization.

The Difference between goals and objectivesA business (also known as enterprise or firm) is an organization engaged in the trade

of goods, services, or both to consumers. Businesses are predominant in capitalist economies, in which most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals may be referred to as a company, although that term also has a more precise meaning.

Goals : It is where the business wants to go in the future, its aim. It is a statement of purpose, e.g. we want to grow the business into Europe.Objectives: Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards to its stated aims.

Goals are broad; objectives are narrow. Goals are general intentions; objectives are precise. Goals are intangible; objectives are tangible.  Goals are abstract; objectives are concrete. Goals can't be validated as is; objectives can be validated. 

CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY

A corporation is a business entity in which different stakeholders contribute capital, labour and know-how for their mutual benefit. Management runs the business without being personally responsible for providing fund. The stakeholders share the profit without being responsible for the operations and they have limited liability. They elect the directors who have the authority and responsibility to establish basic corporate policies. The Board of Directors normally approves all decisions that affect long-term performance of the Corporation.

Corporate governance generally refers to the set of mechanisms that influence the decisions made by managers when there is a separation of ownership and control.

Board of Directors, who supervises top management with the concurrence of the shareholders,

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governs the corporation. The term, Corporate governance’ means the relationship among the three groups i.e. Board of Directors, Shareholders and Top management, in determining the direction and performance of the organization. Corporate governance also enables the Board of Directors, institutional investors and large shareholders to monitor the firm’s strategies to ensure effective managerial response.

Board of DirectorsThe Board has collective responsibility for the functioning of the enterprise. The Board exercises

its authority in accordance with the Memorandum of Association and Articles of Association of the company. The Income Companies Act defines „Director’ as any person occupying the position of the Director. The Board of Directors is a group of persons wherein each one is a Director.

In Section 252 of the Indian Companies Act, a public limited company should have three directors at least and the maximum may be twenty. The Board of Directors in public sector banks appoints Works Director. The Government appoints Directors on the board of public sector enterprises and they are drawn from the concerned Administrative Ministry and Finance Ministry. The Board is involved in selection of Chief Executive Officer and in the selection of mission and goals for the organization.

The collective body of Board of Directors has total power over the Chief Executive Officer. In private sector company like Hindustan Unilever Limited, Larsen and Toubro (L&T) and in public sector company like BHEL, The Board shows and active involvement in the strategic affairs of the company. Enterprises such as Hindustan Unilever Limited, Indian Tobacco Company (ITC) and Indian Explosives Ltd have a larger proportion of Whole Time Directors. Firms such as Larsen and Toubro and TISCO go for Whole Time Directors and Part Time Directors in equal number. The Part Time Director is usually an outstanding technologist, an economist, a legal expert, a renowned banker, a consultant or a leading businessman.

Role of Board of DirectorsThe Board carries out three basic tasks for strategic management.

1) Monitor: The Board should be aware of the developments within and outside the organizations and bring it to the notice of the management.

2) Evaluate: A Board should analyze the plans, decisions and actions of management and highlight the positive and negative side of the issues and suggest alternate proposal.

3) Initiative and Determine: In evolving the mission and finalizing the strategic choice, the Board can exhibit its aggressive nature.

Kenneth Andrews observes “A responsible and effective Board should require of the management a unique and durable corporate strategy, review it periodically for its validity, use it as a reference point of all other Board decisions and share with management the risks associated with its adoption”.

Though one could notice a vast difference between the functioning of Boards in private, public, family owned and multinational corporations, the Board is expected to provide direction in matters of vital significance such as technology collaborations, new products development and senior management appointments. Boards are usually active in evaluating corporate strategy and performance and they evaluate corporate performance on both financial and nonfinancial grounds. Strategists discuss their

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strategies with the Board to find out the Board’s feedback about their stewardship and strategy.

Responsibilities of BoardIn India, Section 291 of the Indian Companies Act 1956 enlists the general powers of the Board as

follows:1. Subject to the provisions of the Act, the Board of Directors of a company shall be entitled to

exercise all such powers and to do all such acts and things, as the company is authorized to exercise and do.

2. No regulation made by the company is general meeting shall invalidated any prior act of the Board which would have been valid if the regulation had not been made.

Chief Executives Officers (CEO)The CEO of a firm performs different roles such as strategist, organization builder and a leader

but in India CEOs gets involved in day-to-day operations and they get less time for strategic issues. Peter Waterman has concluded in “In Search of Excellence” that “associated with almost every company was a strong leader who seemed to have had a lot to do with making the company excellent in the first place”.

The CEO is responsible for defining what business the firm is in and aligns the best product or market opportunities with the best use of enterprises’ resources. The CEO has to conceptualize the strategy and continue with the strategic management process.

According to Mintzberg, the CEO alone is making major key decisions about programmes in order to exploit particular opportunities and he serves as a pivotal figure in strategy formulation.

George Steiner rightly points out that “there can and will be no effective strategic planning in an organization in which chief executive does not give firm support and make sure that others in the organization understand his depth of commitment.

Mintzberg has conducted in his research study that CEO does as many as ten roles such as:1. Figure head role 2. The leader role3. The leader role 4. The liaison role5. The recipient role 6. The disseminator role7. The disseminator role 8. The spokesperson role9. The entrepreneur role 10. The disturbance handler role11. The negotiator role 12. The resource allocator role

CEOs responsibilities include executive leadership and strategic vision. In the words of John

Jack Welch Jr., CEO of GE “Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion.

Bill Gates of Microsoft, Anita Roddick of the Body Shop, Ted Turner at CNN, Steve Jobs at Apple Computer, Herb Kellher of Southwest Airlines, Narayanamurthy of Infosys, Asim Premji at

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Wipro, Bai Parvindar Singh at Ranbaxy and Andy Grove at Intel are charismatic leaders with positive attitude.

Corporate Planning StaffThese planners are found in large organizations and they are staff specialists and provide staff

support services. They identify business opportunities, scan environmental factors, analyze strategic choice and review strategic performance. Firms such as Gujarat Steel Tubes, Sundaram Clayton Ltd, Max India and Essar Steel have separate planning departments.

ConsultantsThe public sector enterprises and family owned enterpr4ises make use of consultant’s services

extensively. Tata Consultancy Services, Price Waterhouse, ABC Consultants and A.F.Ferguson are some notable consultants. Many consultants offer service in the area of strategic management. They serve as advisors to the chief executives and help in designing and implementing a formal strategic management system. Outside consultants are hired where the corporate planning department does not exist. Sometimes consultants are employed to get unbiased and objective view about the situation and the firm.

Board CommitteesThe Board of Directors can appoint committees according to the proviso to Section 292 of the Indian

Companies Act for the following purposes.a) Borrowing money for the company other than by debentures b) Investing the funds of the company and c) Making loans They are called Standing Committees of the Board and members of these committees are outside

Directors. The Board of Directors appoints these committees for specific issues for a specific period and they will submit the report after analyzing the issues.

In public sector banks they are called Audit Committee, Credit Committee, Risk ManagementCommittee, Investors’ Grievance Committee and Management Committee. These committees meet during the interval between Board meetings.

Fundamental Principles of Corporate Governance . 1) Transparency

It means accurate, adequate & timely disclosure of relevant information to the stakeholders. Without transparency, it is impossible to make any progress towards good governance. Business heads should realize that transparency also creates immense shareholder value.

2) Accountability Corporate Governance has to be a top down approach. Chairman, Board of Directors &

Chief Executives must fulfill their responsibilities to make corporate governance a reality in Indian industry. Accountability also favours the objective of creating shareholders value

3) Merit Based Management

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A strong Board of Directors is necessary to lead and support merit based management. The board has to be an independent, strong and non- partisan body where the sole motive should be decision-making through business prudence.

Trends in Corporate Governance: Boards are getting more involved not only in reviewing & evaluating company strategic but

also in shaping. Institutional investors such as pension’s funds, mutual funds, & insurance companies are

becoming active on boards, and are putting increase pressure on top management to improve corporate performances.

None affiliated outside directors are increasing their numbers and power in publicly held corporation’s as CEO’s loosen their grips on boards. Outside members are taking charge of annual CEO evaluation.

Boards are getting smaller, partially because of the reduction in the number of insiders but also because boards desire new directors to have specialized knowledge & expertise instead of general experience.

Boards continue to take more control of board functions by either splitting the combined chair/CEO position into two separate positions or establishing a lead outside director position.

As corporations become more global, they are increasingly looking for international experience in their board members.

Corporate Social ResponsibilityCorporate social responsibility has become an integral part of corporate strategy. It means open

and transparent business practices that are based on ethical values and respect for employees, community and the natural environment. It is designed to deliver sustainable value to society at large as well as to shareholders. Some of the benefits of being socially responsible is that they can attract good employees who prefer working for a responsible firm (P&G).

Corporate social responsibility is the interaction between business and the social environment in which it exists. Bowen argued that corporate social responsibility rests on two premises: social contract, which is an implied set of rights and obligations that are inherent to social policy and assumed by business, and moral agent, which suggests that businesses have an obligation to act honorably and to reflect and enforce values that are consistent with those of society.

TheoryThe corporate social responsibility theories and related approaches are classified into four groups:

1. The instrumentation theories, in which the corporation is seen as only an instrument for wealth creation and its social activities are only a means to achieve economic results.

2. Political theories, which concern themselves with the power of corporations in society and a responsible use of this power in the political arena.

3. Integrative theories, in which the corporation is focused on the satisfaction of social demands. 4. Ethical theories, based on ethical responsibilities of corporations to society.

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A number of studies have conducted to determine the correlation between corporate social responsibility and corporate financial performance. Research studies show a positive correlation between them.

Wealth CreationFriedman views that any business exists for wealth creation and he accepts free market, laws and

ethical customs. Friedman argues against the concept of social responsibility. According to him, if the firm acts responsibly by cutting the price of company products, spending on pollution prevention, it is spending the stakeholders’ money for general social interest.

In his opinion “there is one and only one social responsibility of business – to use resources and engage in activities designed to increase in profits so long it engages in open and free competition. A firm is basically an economic institution.

According to Archie Carroll business organizations have four responsibilities: economic, legal, ethical and discretionary.

Carrol’s three dimensional conceptual model of corporate performanceEconomics Legal Ethical DiscretionaryMust do Have to do Should do Might do

Social responsibilities The firms are expected to produce goods and services of value to society. The firms should obey laws which are in force Ethical behavior includes the firms’ responsibility to follow generally held beliefs about

behavior in a society. Discretionary responsibilities are purely voluntary obligations, which a corporation undertakes

such as training to agriculturist, rural development schemes etc.

Friedman believes that socially responsible actions hurt a firms’ efficiency whereas Carroll points out that absence of social responsibility results in government regulation and resentment in the minds of various stakeholders.

Keith Davis’s point of view provides another perspective to social responsibility. According to Davis, organizations draw resources from society as members of society. They have a responsibility to return to society the value of those resources as desired by the society. In his opinion

1. Social responsibility arises from social power enjoyed by the firm. 2. The firm should disclose its activities to the public through social audit. 3. The social costs and benefits of social responsibility activities and services should be calculated

for decision making. 4. The social cost should be included in the price. 5. The firm should solve societal problems by improving education.

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Areas of social responsibility(a) Pollution control (b) Health and Hygiene(c) Training self-help (d) Philanthropic activities

Indian organizations like ICICI and Canara Bank have provided that socially responsible behavior and world-class performance can go together.

A few case studies of Indian IT companies are worth mentioning. Tata Consultancy Services has developed computerized programmes to address the adult literacy

program in India. TCS has undertaken special adult literacy projects in Andhra Pradesh and Tamilnadu.

V.Moksha is educating young girls with necessary hardware training programme.

Dr.Reddy’s Laboratories started LABS (Livelihood Advancement Business School) in 1999. Under LABS Dr.Reddy’s Labs trains underprivileged youngsters, street children, for livelihood earnings and for entry level positions.

Sundrop is popular edible oil company which contributes to Rs.1 to Narayana Hrudayala Heart Hospital for every one litre of sundrop sold in order to treat children with cardiac disorders.

India Today set up Care Today Foundation during the Kargil conflict in 1999. The foundation works for rehabilitation of Kargil soldiers, cyclone victims, drought victims and earth quake victims with medical care.

Many Indian companies such as Asian Paints, TISCO, ITC, Colgate, BHEL, Brooke Bond carry out social responsibility activities. However it falls short of a vast nation’s requirement.

Business Ethics

Ethics is defined as the discipline dealing with good and bad and with moral duty and obligations. Business ethics is concerned with truth, justice and a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy and corporate behaviour at home country and abroad. Managers and top management have a responsibility to institutionalize ethics by framing a code of ethics for the organization.

Values are those which are considered to be desirable by individuals. A value is a view of life and a judgment of what is desirable that is part of a person’s personality and group morale. So benign attitude to labour, service mindedness are values. While J.R.D. Tata describing Tata Group of Concerns point out “I would call it a group of individually managed companies united by two factors.

o First, a feeling that they are part of a larger group which carries the name and prestige of Tata’s and public recognition of honesty, reliability and trust worthiness.

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o The other reason is more metaphysical. There is an innate loyalty, a sharing of certain beliefs; we all feel a certain pride that we are somewhat different from others”.

The KPMG India survey points out that the major unethical concerns among Indian companies are misuse of confidential information, poor quality of goods and services, insider trading, receiving gifts or favours from suppliers and corruption.

Some of the areas where ethical practices needed are: Recruitment and selection to ensure compatibility of the character traits of potential employes

with the system Incorporating values, ethics in employee training Top management and superiors’ compliance with ethical standard Monitoring areas where unethical activities could happen such as purchase, supplier, government,

external agencies etc. TheoriesIn the field of ethics three types of ethics have been developed.

1) The Utilitarian Theory 2) The Theory based on Rights 3) The Theory of Justice

The Utilitarian Theory suggests that plans and actions should be evaluated by their consequences. It means that plans and actions should produce the greatest goods for greatest number of people. When the Utilitarian Theory is extended to an enterprise, it should optimize satisfaction to all stakeholders.

The Theory based on Rights holds that all people have basic rights and it should be respected in all decisions. Rights of al individuals should be respected and those decisions, which interfere with other individuals’ freedom, should be avoided.

However, business managers are aware that ethical standards differ from nation to nation. For example, business houses in India make contributions to political parties. In some countries government officials are influenced with money to handle business transactions favorably. Corruption in many countries is rampant and is looked upon as normal. Managers have to make crucial choices when ethical standards differ from one country to another.

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