Copyright © 2001 Houghton Mifflin Company. All rights reserved. Chapter 2 Stakeholders and the Corporate Mission Strategic Charles W. L. Hill Management Gareth R. Jones Fifth Edition PowerPoint Presentation by Charlie Cook An Integrated Approach

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-2 FIGURE 2.1 Stakeholders and the Enterprise Contributions Inducements

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-3 Stakeholder Impact Analysis 1.Identify stakeholders 2.Identify stakeholders’ interests and concerns 3.Identify resulting claims stakeholders are likely to make 4.Identify most important stakeholders (from the organization's perspective) 5.Identify the resulting strategic challenges

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-4 Mission Statement A formal commitment to stakeholders that the firm’s strategy incorporates and recognizes their claims on the organization. Mission statement elements:  A declaration of the overall vision, or mission.  A summation of managerial philosophical values.  An articulation of key organizational goals.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-5 Vision, or Mission A statement of purpose (strategic intent) committing the organization to ambitious overarching (stretch) goals.  Provides a sense of direction and purpose.  Drives strategic decision making and resource allocations.  Forces the seeking of significant performance improvements to attain goals.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-6 Customer Orientation and Business Definition Abell’s Framework for Defining the Business  Consumer-oriented versus Product-oriented business definition FIGURE 2.2 Source: Derek F. Abell, Defining the Business: The Starting Point of Strategic Planning (Englewood Cliffs, N.J.: Prentice-Hall, 1980), p. 17.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-7 Values Johnson & Johnson’s credo sets its responsibilities to: 1. J&J product users. 2. J&J employees. 3. Communities in which J&J employees live and work. 4. J&J stockholders. FIGURE 2.3 Source: Courtesy of Johnson & Johnson.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-8 Goals Good goal characteristics:  Precise and measurable  Address important issues  Challenging but realistic  Time period specified The overriding organizational goal:  Maximizing shareholder returns. Firms need both short- and long-term goals.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-9 The Corporate Governance Problem On-the-job consumption  Elaborate and expensive perks for top management. Excessive pay not linked to performance  Down markets and upward spirals of executive pay. Empire building Empire building  Buying additional businesses that increase the size of the company without increasing shareholder wealth.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-10 The Tradeoff Between Profitability and Growth Rate FIGURE 2.4

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-11 Corporate Governance Mechanisms Board of directors Stock-based compensation Corporate takeovers  Takeover constraints  Corporate raiders  Greenmail Leveraged buyouts  Managers offer to exchange equity for debt in a leveraged buyout (purchase of the company).

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-12 Strategy and Ethics The purpose of business ethics  To provide the tools for dealing with moral complexity in strategic decisions. Shaping the organization’s ethical climate  Emphasizing the importance of strong ethical values by top management.  Including the values in the organization’s mission statement.

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-13 Thinking Through Ethical Problems A model of ethical decision making FIGURE 2.5

Copyright © 2001 Houghton Mifflin Company. All rights reserved.2-14 Corporate Social Responsibility The sense of obligation to include social criteria in strategic decision making. Pro:  It is the right way for a firm to behave.  Economic actions have social consequences.  Social behavior affects the firm’s market value. Con:  A firm’s primary obligation is to maximize profits for its stakeholders in open competition.