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The Internal Environment

The Internal Environment. Including Social Responsibility & Business Ethics. Corporate Governance. Defined as the relationship that exists among the board of directors, top management, and shareholders (institutional investors and blockholders) in determining the direction of the organization.

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The Internal Environment

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  1. The Internal Environment Including Social Responsibility & Business Ethics

  2. Corporate Governance • Defined as the relationship that exists among the board of directors, top management, and shareholders (institutional investors and blockholders) in determining the direction of the organization

  3. Boards of Directors & Corporate Governance Setting corp strategy, overall direction, mission and vision of firm Hiring & firing of the CEO Controlling, monitoring, or supervising Sr Mgmt Reviewing and approving the use of resources Caring for the shareholder interests Board of Directors

  4. Boards of Directors & Corporate Governance • Monitor developments inside & outside the firm • Review proposals, advise, offer suggestions, ad alternatives • Delineate the corporation’s mission and specify strategic alternatives

  5. Boards of Directors & Corporate Governance Board Members Inside Directors - “Management Directors - Officers or Executives employed by the firm Outside Directors - “Non-Management Directors” - May be executives of other firms, but not employed by the board’s corporation

  6. Boards of Directors & Corporate Governance OutsideBoard Members “Outsider” is an over simplistic term - some outsiders are not truly objective and could be considered “insiders.” • Affiliated directors • Retired directors • Family directors

  7. Route to a Sustained Competitive Advantage Human Resources Organizational Resources Sustained Competitive Advantage Physical Resources

  8. Human Resources • Boards of Directors 1. Strong board members bring experience and network contacts 2. Is board comprised of internal or external directors? 3. Do board members own significant shares of company stock? 4. Is board membership stable?

  9. Human Resources • Top Management 1. Should assume role of selfless stewards of stakeholder goals 2. Job experience, job tenure, and industry experience 3. Top management turnover 4. What are top mgmt’s strengths & weaknesses

  10. Human Resources • Middle Management, Supervisors & Employees 1. Comprehensive HR planning program 2. Training & development programs 3. Emphasis on performance appraisal 4. Diversity

  11. Organizational Resources • Are strategies consistent w/org’n mission and goals? • Are corporate, business unit and functional strategies intertwined & consistent? • Is the org’s formal structure appropriate for implementing its strategy? • Are the decision making processes effective for implementing the strategies?

  12. Organizational Resources • Is the organization’s culture or climate consistent with its strategy? • How effective are the org’s strategic control processes?

  13. Physical Resources • Does the org’n possess up-to-date technology? • Does the org’n possess adequate capacity? • Is the org’s distribution network efficient in reaching customers? • Are sources of supply reliable and cost effective? • Is firm in optimum geographic location?

  14. Resource Based Approach • Internal Strategic Factors: Critical strengths & weaknesses that are likely to determine if the firm will be able to take advantage of opportunities will avoiding threats.

  15. Resource Based Approach • Resource is defined as an asset, competency, process, skill or knowledge that is controlled by the organization.

  16. Evaluating Key Resources VIRO Framework • Value - does it provide a comp advantage? • Rareness - do other competitors have it? • Imitability - Is it costly for others to imitate? • Organization - is the firm organized to exploit the resource?

  17. Resource Based Approach 5-step approach to internal analysis and strategy development: 1. Identify & classify a firm’s resources 2. Combine & classify strengths into capabilities 3. Appraise the profit potential of resources 4. Select a strategy that best exploits a firm’s resources relative to external opportunities 5. Identify resource gaps

  18. Sustainability of an Advantage • Durability: Rate at which a firm’s underlying resources and capabilities (core competencies) depreciate or become obsolete.

  19. Sustainability of an Advantage • Imitability: Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others

  20. Core Competencies • Transparent • Transferable • Replicable

  21. Core Competencies • Explicit Knowledge: knowledge that can be easily articulated and communicated • Tacit Knowledge: knowledge that is not easily communicated b/c it is deeply rooted in employee experience or in a corporation’s culture

  22. What Do These People Have in Common - Which Name Doesn’t Belong Here? David Glenn Kenneth Lay John Walker Lindh Bernie Ebbers John Rigas Sam Waksal Don Cardy Dennis Kozlowski

  23. The Agency Problem • A situation in which a corporation’s top managers who serve as agents for the firm’s owners . . . fail to act in the best interests of the owners, but instead pursue their own self interests.

  24. Managerial Ethics Refers to the standards of conduct and moral judgement - that is, whether managers’ decisions and behaviors are right or wrong or . . . (Wright, 1998) The rules and principles that define right and wrong decisions and behavior (Coulter, 2002)

  25. Managerial Ethics Go to “the grey zone” located on page 147 and let’s discuss.

  26. Countering the Effects of Unethical Behavior & Agency Problems • Ethical Codes of Conduct • Being consistent in policies & actions • Rewarding ethical conduct • Treating employees fairly • Exercising executive leadership in setting a good example McClenahen (1999)

  27. Countering the Effects of Unethical Behavior & Agency Problems Aligning the interest of both top management and boards of directors with the interests of the individual shareholder by requiring significant stock ownership.

  28. Social Responsibility Refers to the expectation that organization’s should act in the public interest • preserve the environment • be truthful to customers • treat employees equitably • train the hard-core unemployed • contribute to education & the arts • revitalize distressed areas

  29. Social Responsibility • Firms have economic or must do responsibilities • They also have have to do obligations • Thirdly, they are expected to perform ethical or should do tasks • Lastly, are positioned to perform volitional, discretionary or might do activities Carroll (1979)

  30. Social Responsibility When firm’s don’t operate in a socially responsible manner . . . what happens?

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