Part V: A Strategic Perspective

Chapter 9: Strategy + CSR

 Strategy + CSR
• While stakeholders depend on the value that firms create,
firms depend on their stakeholders for the resources that
enable them to deliver that value:

Given this symbiotic relationship, how the firm is

evaluated by its stakeholders depends not only on
what the firm does, but on how it does it. For the
firm, strategy constitutes the how.

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 What Is Strategy?
• A firm’s vision, mission, strategy, and tactics:

 The vision answers why the organization exists. It identifies the

needs the firm aspires to solve for others.
 The mission states what the organization is going to do to achieve its
vision. It addresses the types of activities the firm seeks to perform.
 The strategy determines how the organization is going to undertake
its mission. It sets forth the ways the organization will negotiate its
competitive environment in order to attain a sustainable advantage.
 The tactics are the day-to-day management decisions made to
implement the firm’s strategy.

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 The Three Parts of Strategy

1. Strategic analysis
2. Strategy formulation
3. Strategy implementation

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 Strategic Analysis--SWOT
• A firm’s strengths, weaknesses, opportunities, and threats:

The goal of a firm’s strategy, therefore, is to recognize

its strengths and align them with the opportunities
that are present in the environment, ensuring that
the strategy and tactics remain consistent with its
vision and mission. Weaknesses are addressed
to the extent that they impair the strategy’s
effectiveness, while threats in the environment are
monitored and evaluated for their disruptive potential.

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 Strategic Analysis--Competencies

 Core resources are the firm’s assets that are unique and
difficult to replicate.
 Core competencies are the processes the firm not only
does very well, but is superior at than its competitors.

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 The Resources (Internal) Perspective
• The resources perspective is an internal view of the firm:

The resources perspective identifies the firm’s unique resources

(e.g., highly skilled employees or monopoly access to valuable raw
materials) and capabilities (e.g., effective research and
development or efficient production processes) as the main
determinant of a competitive advantage.
Those firms that have the most valuable resources or most
innovative capabilities (collectively called competencies), will likely
produce the most valued products and services in the most
efficient manner. As a result, these firms are able to build and
sustain a competitive advantage over the competition.

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 Prahalad and Hamel’s Three Tests
• There are three tests that define a core competency:

 It should “provide potential access to a wide variety of

markets.”
 It “should make a significant contribution to the
perceived customer benefits of the end product.”
 It “should be difficult for competitors to imitate.”

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 VRIO

 Is the resource Valuable?

 Is the resource Rare?
 Is the resource costly to Imitate?
 Is the firm Organized to capture this potential value?

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 VRIO

If the resource is not valuable, then the firm has no competitive

advantage. If the resource is not rare, then the firm is merely
competitive, at best. If the resource is not costly to imitate or the firm
is not organized sufficiently to capitalize on the potential, then the
firm may have a competitive advantage, but it is likely temporary.
It is only when all four conditions apply that the firm has a
competitive advantage that can be sustained over time.

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 Limitations of the Resources Perspective

• There are two main limitations of the resources perspective:

1. By focusing primarily on the internal characteristics

of the firm as the source of competitive advantage,
the resources perspective de-emphasizes the
external context in which the firm operates.
2. The resources perspective provides a description of
the firm that is very deliberate and rational.

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 The Industry (External) Perspective
• The industry perspective is an external view of the firm:

The industry perspective focuses on the firm’s operating

environment (in particular, its industry structure) as the
main determinant of its competitive advantage.
Success in the market, this perspective argues, is less to do
with individual differences among firms and more to do with
the competitive structure of the industry. To the extent that
an industry is structured favorably, the companies operating in
that industry will enjoy greater profit potential than those that
operate in a more constrained industry.

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 Porter’s Five Competitive Forces

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 Porter’s Industry Analysis
• Comparison of two industries:

Aircraft manufacturing

versus

Passenger airlines

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 Limitations of the Industry Perspective

• There are three main limitations of the industry perspective:

1. It presents business as a combative pursuit--a

zero-sum game of survival.
2. It presents a narrow view of the firm’s operating
environment.
3. It fails to give sufficient recognition to differences
in characteristics among companies, which likely
predict a firm’s competitive success.

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 Integrating CSR

• Two steps are apparent in more recent work:

1. Combining the resources and industry perspectives

2. Integrating CSR

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 Strategy Formulation
• A good strategy:

 Although there are several typologies, a comprehensive

strategy suggests the need for a firm to answer these
four questions:
1. Where do we compete?
2. What unique value do we bring?
3. What resources/capabilities do we utilize?
4. How do we sustain our ability to provide that unique value?

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 A Firm’s Business-level Strategies
• There are two archetypal business-level strategies:

 Low cost: A business strategy used by firms to distinguish their

products from the products of other firms on the basis of more
efficient operations. Firms like Walmart and Exxon pursue
business-level strategies of low cost.
 Differentiation: A business strategy used by firms to distinguish
their products from the products of other firms along a
dimension that customers value and for which they are willing to
pay a price premium. Firms like Apple and Whole Foods pursue
business-level strategies of differentiation.

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 The CSR Threshold

• The CSR Threshold applies at multiple levels of analysis:

The point beyond which the need to be responsive to

a broader set of stakeholders becomes essential to
the survival of the firm and/or industry.

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 The Business-Level CSR Threshold

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 The CSR Filter
• A firm’s vision, mission, strategy, and tactics are broadly
constrained in three ways:

1. Resource constraints: Access to resources and capabilities--the

human, social, and financial capital that determine the firm’s
productive parameters.
2. Policy constraints: The firm’s internal policies that shape its
culture by requiring and forbidding specific actions.
3. Environmental constraints: Generated by a complex interaction
of sociocultural, legal, and other external factors, such as the
influence of markets and technology.

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 Strategy Implementation

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 The CSR Filter

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 The CSR Filter--Structure

The structure (the organizational design) exists to

support the strategy. What architects say of a building,
organization designers say of the firm’s structure--
form follows function. Thus, the right structure is
the one that best supports the strategy.

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 The CSR Filter--Competencies
• A clear distinction among capabilities, competencies, core
resources, and core competencies is essential:

 Capabilities are actions that a firm can do, such as pay its bills,
in ways that add value to the production process.
 Competencies are actions a firm can do very well.
 Core resources are the assets of the firm that are unique and
difficult to replicate.
 Core competencies are the processes that the firm not only
does very well, but is so superior at performing that it is difficult
for other firms to match its performance.

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 The CSR Filter--Strategy

Whether businesses compete on cost or differentiation

(or a combination of the two), strategy seeks to
add value to customers in order to build a
sustainable competitive advantage.

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 The CSR Filter--Environment

Customers, competitors, economics, technology,

government, sociocultural factors, and other forces all
shape the firm’s operating environment. Together, this mix
determines what strategies and actions are deemed to be
both effective and socially acceptable.

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 Strategic CSR Debate

• Motion:

McDonald’s has passed through its CSR Threshold.

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 Questions for Discussion and Review
1. What does it mean for a firm to have a sustainable competitive
advantage? What is the best way for a firm to achieve this in
business today?
2. Outline the resource perspective. Identify a firm and its core
competency: How does that competency meet the three tests
proposed by Prahalad and Hamel that define it as a source of
sustainable competitive advantage for the firm?
3. Conduct a five forces analysis of the social media industry. Where do
we, the public who use social media products, fit? Are we
consumers or suppliers (or its workers)?
4. What is the difference between a business-level strategy based on
low cost and a business-level strategy based on differentiation? How
do these different strategies affect a firm’s CSR threshold?
5. If you were CEO of a firm, how would you apply a CSR filter--what
form might it take? Can you think of a company that is successfully
utilizing a CSR filter today?

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