LEGITIMACY: The Roles and Responsibilities

of Business in Society
 Introduction

“It is not enough for a business to do well,

but it must also do good. But to do good,
the firm should do well.”
- Peter Drucker
 Introduction

Adam Smith in 1776

 “invisible hand”
- guides companies as they strive for
profits, and that hand leads them to
decisions that benefit society

– Profit Maximization is the right goal

– Free Enterprise System is best for society
 Introduction

2016
- Firms today are much larger
- Operate globally
- Have thousands of employees
- Owned by millions of stockholders
 Introduction

2016:

Does the “invisible hand” still

provides reliable guidance?
The Role of Business in Society

 Business Benefits Society

– Producing goods and providing services

– Creating jobs for customers, suppliers,
distributors, and workers
– Continually develop new goods and
services and invests in new technology
– Pays taxes
The Role of Business in Society

– Support international standards

– Spreading good practice

– Economic growth and stability

The Social Responsibility of Business

Corporate Social Responsibility

 Voluntary responsibility
 Takes Sustainable Development as its starting point

A cornerstone of CSR is that it is voluntary.

But why is there many stakeholders (the media,
advocacy groups, consumer organizations, etc.) that
are ready to spotlight companies that do not act in
accordance with moral views of the group in
question?
The Social Responsibility of Business

Companies have the scope to choose how they shape

and express their responsibilities.

Advantageous because this provides flexibility and

dynamics for them to base their CSR in corporate and
industry conditions, and to take into account changing
values.

Example:
 Giving relief goods in case of calamity by
• Century Pacific Food, Inc. & Foodsphere, Inc.
• Bench and Penshoppe
The Social Responsibility of Business

According to Ricky Griffin:

Four Categories of Social Responsibility
Social Opposition
Social Obligation
Social Response
Social Contribution
The Social Responsibility of Business

SOCIAL OPPOSITION
- not to take up social actions opposed by the
society (i.e., child labor)

SOCIAL OBLIGATION
- resort to social measures well within the
framework of law only to discharge the social
obligation reluctantly and not performing
wholeheartedly (i.e., special assessments)
The Social Responsibility of Business

SOCIAL RESPONSE
- only limited social action

SOCIAL CONTRIBUTION
- social actions taken up by companies
with deep concern for the society and
discharge the obligation in full with purpose
and commitment
The Social Responsibility of Business

Those four categories indicate as to how

much social responsibility a corporate
enterprise has to assume.

Constraints:
(i) economic performance
(ii) managerial competence, and
(iii) extent of corporate authority
- set the boundary for discharging
social obligations of the business firms.
 Conclusion

2016:

Does the “invisible hand” still

provides reliable guidance?
 Conclusion

Adam Smith Theory (modified version)

 Primary goal is still to maximize the wealth of

its stockholders (maximizing the intrinsic value)
 Free enterprise is still the best economic
system for the country as a whole.
 However, some constraints are needed—firms
should not be allowed to pollute the air and
water, to engage in unfair employment
practices, or to create monopolies that exploit
consumers
 Conclusion

There is more to life than money, but it

often takes money to do good things.
Monitoring and Forecasting the Environment
Jiff B. Lamadrid, BSA-4A
 Introduction

Why is it important to understand the entity’s

external environment?
External Environment

 The General Environment

 The Industry Environment

 The Competitor Environment

External Environmental Analysis

– is necessary to enable the firm’s

managers to interpret information to
identify opportunities and threats
External Environmental Analysis

Opportunities - represent conditions in the

general environment that may help a company
achieve strategic competitiveness by
presenting it with possibilities.

Threats - are conditions that may hinder or

constrain a company’s efforts to achieve
strategic competitiveness.

Example: Provincial-wide blackout

Components of External Environmental Analysis

 Scanning
- study of all segments in the general
environment

 Monitoring
-observance of environmental changes to
identify important emerging trends from among
those spotted by scanning
Components of External Environmental Analysis

 Forecasting
- developing feasible projections of potential
events

 Assessing
- determining the timing and significance of
the effects of environmental changes and trends
on the strategic management of the firm
External Environment

 The General Environment - composed of

dimensions in the broader society that
influence an industry and the firms within it.

 The Industry Environment - set of factors that

directly influence a firm and its competitive actions
and competitive responses.

 The Competitor Environment - details about the

direct and indirect competitors for a firm and the
competitive dynamics that are expected to impact a
firm‘s efforts to generate above-average returns.
General Environment

Six segments of general environment:

 Demographic Segment
 Economic Segment
 Political/Legal Segment
 Sociocultural Segment
 Global Segment
 Technological Segment

The challenge is to scan, monitor, forecast and

assess all segments, and focusing more on those
segments that have the greatest impact on the firm
External Environment

 The General Environment - composed of

dimensions in the broader society that influence
an industry and the firms within it.

 The Industry Environment - set of factors that

directly influence a firm and its competitive
actions and competitive responses.

 The Competitor Environment - details about the

direct and indirect competitors for a firm and the
competitive dynamics that are expected to impact a
firm‘s efforts to generate above-average returns.
Industry Environment

An industry is a group of firms producing products

that are close substitutes for each other.

 Market Share
Industry Environment

The Five Forces Model of Competition

– Threat of New Entrants
– Threat of Substitute Products
– Bargaining Power of Buyers (Customers)
– Bargaining Power of Suppliers
– Rivalry Among Competing Firms in an industry
Industry Environment

Industry Characteristic Attractive

Unattractive

 Threat of New Entry Low High

 Bargaining Power of Suppliers Low High
 Bargaining Power of Buyers Low High
 Threat of Substitute Products Low High
 Intensity of Competitive Rivalry Low High
External Environment

 The General Environment - composed of

dimensions in the broader society that influence
an industry and the firms within it.

 The Industry Environment - set of factors that

directly influence a firm and its competitive
actions and competitive responses.
 The Competitor Environment - details about
the direct and indirect competitors for a firm
and the competitive dynamics that are
expected to impact a firm‘s efforts to
generate above-average returns.
Competitor Environment

An industry analysis provides information

regarding the competition

However, a structured competitor analysis enables

the firm to focus its attention on those firms with
which it will directly compete, and is especially
important when a firm faces a few powerful
competitors
Competitor Environment

The process involves developing answers to a

series of questions about:

– the firm’s and its competitors’ future objectives

– current strategy
– assumptions
– capabilities
 Conclusion

Why is it important to understand the entity’s

external environment?
 Conclusion

 The external environment influences the

firm’s strategic options as well as the
decisions made in light of them.
 The firm’s understanding of the external
environment is especially useful when it is
matched with knowledge about its internal
environment.
 Matching the conditions of the two
environments is the foundation the firm
needs to form its vision, mission, and to take
strategic actions in the pursuit of strategic
competitiveness and above-average returns.