2. Learning Outcomes After studying this chapter, you should be able to:
Characterize business, society, and government and explain their interrelationships
Differentiate the market and nonmarket environments and state how they influence each other
Explain the nonmarket society and government environments and how they affect business
Contrast the political and legal environments, briefly stating what each branch of government does, and summarize their balance of power
Discuss the role of business and its managers, including stakeholders
Define “strategy,” differentiate market and nonmarket strategies, and describe the need to integrate them
Define the key terms in this chapter
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3. Model 1.1 The Business, Society, and Government Interrelationship Stakeholder Environment
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4. Business, Society, and Government Defined
A firm that sells a product for a profit
Product
A physical good or a service or a combination of both
Society
The people, including interest groups, and the communities affected by business
Government
The executive, legislative, and judicial branches at the local, county, state, federal, and international levels
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5. Capitalism, Pluralism, and Special Interest Groups
A market system in which individuals and corporations own the means of production and operate to make a profit with limited social intervention and government restraint.
Pluralism
A political system that attempts to balance power between business, society and government so that no one group dominates.
Special interest group
Any profit, nonprofit, or government organization that is working for its own best interest, sometimes at the expense of others.
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6. Factors Contributing to Special Interest Groups and Social Problems
Entitlement Mentality
Victimization
Social Problems
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7. The Market Environment
Indirect
Direct
Competitors
Suppliers
Customers Consumers
Business Owners Shareholders Employees Managers
External
Internal
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8. Figure 1.1 The Market Environment
Interaction
Stakeholders in the Market Environment
Direct
Suppliers
Business
Customers/Consumers
Distribution-Retailers/
Creditors
Owners/
Stockholders
Employees/
Managers
Purchasers of the products/Users of the products
Indirect
Competitors
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9. Figure 1.2 The Nonmarket Society Environment
Stakeholders in the Nonmarket Society Environment
Societal Interest Groups
Business
Owners/
Shareholders
Employees/
Managers
Communities and News Media
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10. Figure 1.3 The Nonmarket Government Environment
Political Lawmakers
Legislative Branch/
Congress
Business
Owners/
Shareholders
Employees/
Managers
Political Law Enforcement
Executive Branch/President
Cabinet, and
Regulatory Agencies
Law Interpretation and Determination
Judicial Branch/
Courts
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11. The Nonmarket Government Environment
Legislative
At the federal and state levels, Congress makes the laws. The Senate and House of Representatives develop and vote on bills to become law.
Executive
The president and the cabinet and regulatory agencies enforce the laws, and they do have power to make regulations (regulations interpret and implement laws enacted by Congress).
Judicial
The courts interpret the legality of the laws passed by congress, based on the Constitution and other criteria, and they determine the outcomes of court cases.
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12. Balance of Power: Government Pluralism and Checks and Balances
Judicial
Executive
Legislative
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13. The Macroenvironment Technological Environment Natural Environment
Technology provides innovations of new and improved products and the processes for creating them.
Natural Environment
Nature includes the air, water/sea life, land—plants/food, trees, animals, etc., from our communities. Economic growth has put a strain on our natural resources and on the ability of the ecosystems to cleanse and regenerate.
International Environment
Multinational companies conduct business in many countries. Each country has its own system of interactions between business, society and government, with each country having their own way of doing business, culture, and laws that sometime conflict with the U.S.
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14. The Role of Business and Its Responsibility to Stakeholders
Value Creation
The role of business is to create value for its owners/stockholders and its other stakeholders. Stakeholders are affected by the business and can affect firm performance.
Corporate Social Responsibility (CSR)
The conscious effort to operate in a manner that balances stakeholder interests.
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15. The Role of Managers: Integration of Strategies
Market Environment Strategies
Nonmarket Environment Strategies
Stakeholder value
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16. Market and Nonmarket Strategies
Strategy
Guides firm interactions with its stakeholders to achieve the firm’s objectives.
Market Strategies
Are used to compete for customers with the help of suppliers and market intermediaries.
Generate issues of special interest that are addressed in the nonmarket environment.
Nonmarket Strategies
Can be more important than market strategies.
Guide the firm’s interactions with society and government stakeholders.
Shape the nonmarket environment structure of a market and the position of the business in that market.
Address nonmarket opportunities and threats.
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17. Figure 1.4 Nonmarket Strategies for Business
Information Strategies (Chapters 1–2 and Appendix)
Outside sources that conduct research (use facts, figures/numbers to support your side of the issue)
Expert testimony (used with government, and can include outside sources)
Supportive stakeholder strategy (get stakeholders to support your issue)
N—New strategy that you add
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18. Figure 1.4 Nonmarket Strategies for Business (cont’d)
Societal Strategies (Chapters 5–7)
Overall strategy for dealing with societal interest group activists:
Give them donations (philanthropy)
Ignore them (be reactive and wait to see what happens)
Oppose them (be proactive in stopping their strategic action against you)
Negotiate with them (bargain to minimize negative consequences to your business)
Work with them (essentially give in and do what they want you to do)
Build coalitions with advocacy societal interest groups
Establish news media relations and advocacy advertising (paid)
Generate positive community sentiment by being ethical and socially responsible (ongoing long-term strategy)
N—New strategy that you add
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19. Figure 1.4 Nonmarket Strategies for Business (cont’d)
Political Strategies (Chapters 8–10)
Overall strategy for dealing with governments:
Ignore them (be reactive and wait to see what happens)
Oppose them (be proactive and try to stop their strategic action against you)
Negotiate with them (bargain to minimize negative consequences to your business)
Work with them (essentially give in and do what they want you to do)
Lobby politicians and/or regulators (tell government your side of the issue— information strategy)
Grassroots campaigns (get market groups to contact politicians and/or regulators)
Building coalitions with market environment (usually competitors)
Seek business societal interest group support (peak and trade groups to which the business belongs)
Testimony at hearings (overlaps with information strategy 2 and legal strategy 2; use when needed)
Donations/campaign contributions to politicians (strategy used to help get politician elected)
N—New strategy that you add
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20. Figure 1.4 Nonmarket Strategies for Business (cont’d)
Legal Strategies (Chapter 10)
Avoid lawsuits (including settling out of court)
Fight a lawsuit (go to court)
Sue other businesses, individuals, societal interest groups, and the government (to get what you want)
N—New strategy that you add
We recommend that you use this list of strategies when doing case analysis for all chapters. But realize that you can add other strategies to deal with the nonmarket. When you read the chapters that contain details about each strategy, you will be able to provide more details in the development and implementation of these strategies. If you analyze cases using the case table in the Appendix, the strategies are listed in column 5.
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21. Table 1.1 Nonmarket Strategies for Google by Stakeholder
Note: This multifaceted problem requires both market and nonmarket solutions per stakeholder; many of these strategies overlap with other nonmarket stakeholder strategies. Looking at Figure 1.4, you will see that the most often cited nonmarket strategies include operating in a way to gain community sentiment and to establish media and government relations. The CEO clearly needs to gain public support through media management and implement strategies to address the security problems in China.
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22. Our Approach to the Book and Cases: The Top Management Stakeholder Approach
Throughout this book, we will focus on the use of nonmarket strategies by top-level managers to interact with business, government, and society stakeholders to achieve financial success while being socially responsible and ethical.
Stakeholders are affected by the business and can affect firm performance.
Therefore, cases in this text will place you in the position of a top-level business manager.
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23. The Applied Ethics Approach
Using Business Ethics and Ethical Guidelines in Business
Moral standards
Honesty and integrity
Moral, immoral, and amoral management
Values and beliefs
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24. Key Terms amoral managers business business ethics cheating ethics
government
honesty
legal environment
lying
market environment
market strategies
moral management
nonmarket environment
nonmarket society environment
nonmarket strategies
political environment
product
public sentiment
social problems
societal interest groups
society
special interest groups
stakeholders
stealing
strategy
values
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