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LESSON 3. THE ORIENTATION AND VALUES OF THE
FIRM
The future orientation of the firm
It is very important in the Strategic Management process to define the four basic concepts that, from a general perspective, are to act as a guide for a firm's future operations: vision, mission, strategic objectives and values. Although different, these four concepts are closely linked to one another, so they need to be analyzed jointly. Which is the goal of the firm? How does it improve its performance? CLASSICAL ANSWER: SHAREHOLDERS The goal of a firm must be the goal of its owners, the shareholders. Maximizing the value of shareholder funds in the long run is the goal of ANY firm. So… CURRENT ANSWER: STAKEHOLDERS Along with the shareholders, there are different stakeholders related with the firm who have their own goals. The MISSION of a firm is a set of principles and goals which express the desired essence of our business. It is normally presented in a mission statement, which should be an orientation and guide of the actions of a firm.
The mission constitutes a firm's identity and personality, not only at the present time but also as regards the future, understanding this from a general perspective It can also be understood as the answer of this question what is the essence for our business and what do we wanted to be? Accordingly, its formulation should consider the firm's reason for existing and how it firm presents itself to society. It provides the firm and its members with a valid reference terms of its own identity, whereby it must be known by all the organization’s members, as it is way of identifying with the firm's beliefs and marshalling all its stakeholders. One might say that, within the field of business it is what vocation, and a life project are for an individual person. The mission tends to remain stable over time. Nevertheless, it should be understood as dynamic concept that evolves like the rest of the organization’s key features. The mission's definition normally involves the following variables (Hax and Majluf, 1996: 203): Definition of the scope of the firm , that is, of the different businesses in which a firm operates or may operate in the future. In practice, this definition is linked to the products or services provided, the markets served, or the geographic sphere covered. It is becoming increasingly more common to define a mission as the customers' generic needs the firm satisfies through its operations, for example, food, health, hygiene, etc. Identification of the core capabilities a firm has developed or may develop in the future, which highlight way competes on the markets. Based on them, a firm achieves its sustainable competitive advantage. Values, beliefs and attitudes. The mission can contain the sets of values and beliefs da prevailing in the organisation, the approach it adopts to its operations, or the principles that govern its relations with its various stakeholders.
The VALUES are an important part of the shared beliefs of the firm, and therefore of the ORGANISATIONAL CULTURE. They can be explicit or tacit, but just the first ones can be demanded (business ethics) THE CONGRUENCE BETWEEN THE CORPORATE BEHAVIOUR AND THE VALUES OF THE FIRM MAKE THE ORGANIZATION “BELIEVABLE” = LEGITIMACY The VISION is a perception of what the firm should be. It is a projection of how the firm should be in a successful future. It defines the Strategic purpose and basic project of the firm (Hamel y Prahalad, 1990). The vision reflects a mental image of the firm's trajectory in the future; in other words, the current perception of what a firm will or should be in the more distant future, and it lays down the criteria the organisation has to apply to mark out the path to be followed. Basically, the definition of the vision requires answering questions such as: what will we be, what should we be and what do we want to be in the future? It requires defining the firm's strategic purpose, strategic intent or core project (Hamel and Prahalad, 1989). Its definition should be one of a leader's key roles ( Dess et al., 2014: 23). From this perspective, the vision should be a marker for each individual's actions, whereby when faced with the different alternatives that may crop up in their everyday activity they should be able to choose the ones that most closely match the established vision. Consequently, the vision would single out the differences between the present situation and the one targeted, and therefore map out the route the firm should take. A well- designed vision prepares a firm for the future (Thompson et al., 2018: 21) and, by being on a higher level, it shapes the definition of the mission and strategic objectives
that need to be in tune with it. According to Hamel and Prahalad (1989), this future ideal should fulfil three basic requirements: Incorporate a profound sense of success Be stable over time Make the workforce's effort and commitment to its achievement worthwhile Nevertheless, although the vision expresses the targeted situation a firm may achieve in the future, it should not be a pipedream or a fantasy. It is indeed that should be a realistic dream that is worth the collective effort. The definition of the vision should not be addressed in terms of profit or value creation for shareholders. These are necessary and general conditions for all firms, which ensure their very survival over the long term. Most successful firms are imbued with a sense of purpose that goes beyond the pursuit of wealth (Grant, 2016: 51). Some vision statements “To become the world's leading Consumer Company for automotive products and services” “Our strategy pursues a clear objective: By 2018 the Volkswagen Group is to be the world’s most successful and fascinating automobile manufacturer – and the leading light when it comes to sustainability” “We will destroy Yamaha” (1970) “A computer on every desk” (1975) The STRATEGIC GOALS are business challenges set for the firm in order to reach to be what we want to be, (VISION). The major gap between the future a firm pursues, and its present reality means that a considerable effort may be required to achieve it. In order to overcome these shortfalls and proceed in the right direction, the organisation should break the vision down into strategic objectives. These objectives, which are interim and less ambitious, are called business challenges (Hamel and Prahalad, 1989); for example: improving the quality of products, increasing the market share, or internationalization.
Corporate Social Responsibility (CSR)
It is the “attitude of the firm in front of the social demands placed by the stakeholders and the society due to its activities, social costs and including social objectives in the goals of the firm” Guerras and Navas (2015) The duality shareholders-executives is broken, recognizing the social role of the firm. The concept of corporate social responsibility (CSR) refers to a firm's approach to the demands of a social nature made by society at large in response to its operations, to the evaluation and compensation of the social costs it generates, and to the extension of the scope of its objectives through the definition of the social role it should play. In some way it involves considering the establishment of objectives not only for shareholders and managers, but also for all the other stakeholders. To the extent that this is achieved, it becomes more sustainable, The notion of sustainability is therefore more closely linked to that of social responsibility. The concept of social responsibility has the following three key aspects (Nieto, 2005): It transforms the classical governance formula based on the bilateral relationship between shareholders and management into another multilateral one involving all stakeholders. It modifies the decision-making process by extending the criteria of economic efficiency to include the consideration of the environmental and social impact of the firm's operations. Social responsibility is of voluntary application There are at least three areas that together constitute the content that tends to be assigned to such responsibility (Certo and Peter, 1993: 240): 1) Economic-functional area: A FIRM GENERATES SOCIALVALUE THROUGH ITS ACTIVITY: Job creation, taxes, training… related to the company's normal operations in terms of the production of the goods and services society requires. The outcome of this is the creation of both direct and indirect employment, the generation of income and wealth, the occupational training of workers, the provision of funds for public policies through the payment of tax, etc. In short, a firm's economic activity contributes to society, which means there is no contradiction between economic and social responsibility, with the former being considered an essential and basic part of the latter (Guerras and López-Hermoso, 2002). 2) Quality of life area: A FIRM GENERATES EXTERNALITIES Relationship with stakeholders, environmental impact, quality of goods…
related to how a firm is raising or lowering the general standard of living in society and what it is doing to mitigate the negative externalities caused by its operations. Producing high quality or socially accepted goods, maintaining proper relations with its employees, customers or suppliers and measuring the effort made to preserve the environment, are possible indicators of its performance in this area. Environmental management and the notion of sustainable business activity are framed within this level. 3 ) Social action or social investment area: A FIRM INVESTS IN SOLVING SOCIAL PROBLEMS Promotion of education, culture, sports… this area refers to the degree to which a firm uses both its financial and human resources to resolve issues in the community. These involve activities such as sponsoring education, culture, sports and art. At this level, a firm transcends its function as the manufacturer of goods or the provider of services to become a partner in resolving the problems of society at large. The CSR actions of a firm are gathered in a document: CSR or Sustainability Reports “Capitalism and the search for profit at any cost does no longer work, and there is a need to move from a model based on profitability and retribution to another focused on inclusive value creation” (Antonio Brufau, 2020) “The question we have to ask ourselves is what are we doing for the society that will make them enter our house and demand our products” (Antonio Brufau, 2020) The CSR actions of a firm are gathered in a document: CSR or Sustainability Reports “Reports which systematically gather the actions of a company related with CSR. We can consider them a communication tool, through which firms try to give value to the actions they carry out, allowing them to be known and evaluated by people who are not receiving the direct impact of these actions” (Gallego-Losada and Montero-Navarro,
Traditionally, the information of these reports has been ordered depending on the stakeholders related to it: workers, customers, local community… GRI (Global Reporting Initiative ) creates guides and instructions to prepare this document, analysing their accomplishment. Both the elaboration of the report and its contents are verified by independent companies using specific standards for non- financial information (ISAE 3000 o AA 1000 AS )
This means that society's ethical criteria tend to be more readily assumed by a company and exert pressure on it to perform in a socially responsible manner. Different studies show that CSR can contribute to improve value creation, even generating a virtuous cycle SOME HOT TOPICS ON CSR
Business ethics
According to RAE, ethics are a “set of moral rules which regulates the behaviour of a person in any aspect of life” Business ethics A critical aspect of life is the management of scarce resources, which gives birth to BUSINESS ETICS, Business ethics aka corporate ethics, analyses the ethic and moral principles which appear in the business environment, including all the aspects included in it, both those related with individual behaviour and the actions of firms themselves Stanford Encyclopaedia of Philosophy Along these lines, and adopting an initial approach, business ethics refer to the moral fundaments that characterise the relationships that firms maintain with social agents or stakeholders. Specifically, the aim is to answer the following question: what is right or wrong, good or bad, damaging or beneficial regarding the decisions and actions Behaviours expressly forbidden for employees, pursuant to legal or contractual Inlbo provisions, The promotion of positive values that a firm may embrace and that express its culture and personality. The procedural guidelines for certain situations involving professional conduct or decisions that are bordering on the fringes of ethical principles. Sanctions , in the event of non-compliance, imposed both in-house (warning, demotion, dismissal, etc.) and by the courts (civil, criminal, administrative, etc). Over and above codes of good governance and firms' efforts in pursuit of sustainability, it is the people working in them, beginning with their managers, who need to embrace these values. This is what a truly sustainable firm will do. Otherwise, the lack of consistency between the values expressed and its true behaviour may, sooner or later,
compromise its relationship with its stakeholders, and therefore its business performance.
