Formulating Business Strategy

8/9/2019 Formulating Business Strategy

1/11

Key Ethical Issues 1

KEY ETHICAL ISSUES IN STRATEGY

Key Ethical Issues in Business Strategy

Karl R. Knapp

Anderson University


2/11


Abstract

Strategy has existed for several thousand years in the form of military strategy. The

adaptation of strategy to the business realm did not occur until the mid-1960s. Since that time

several schools of thought have evolved and a general process for strategic management has been

developed. A historical ethical issue for strategic management is the environmental review

process. A more specific, current ethical issue in strategic management is competitive

intelligence (CI).


3/11


Key Ethical Issues in Business Strategy

This paper evaluates the purpose and process of strategic management in order to identify

a historical ethical issue at the core of the discipline and trace this historical issue forward into its

current context.

Strategic Management Overview

Strategy has been around for millennia. One of the earliest written works on strategy was

developed by Sun Tzu during the fourth century BC. In The Art of War, Sun Tzu wrote that

what is of supreme importance in war is to attack the enemys strategy; next best is to disrupt

his alliances; the next best is to attack his army (1963). Military strategy has existed for thousands of years. It was not until the mid-1960s that military strategy was applied to business.

One of the earliest authors on business strategy was Alfred Chandler. Chandler defined strategy

as the determination of the long-term goals and objectives of an enterprise, and the adoption of

courses of action and the allocation of resources necessary for carrying out these goals (1962).

Following Chandlers work business thinkers began to consider the discipline of strategic

management. Foundational elements were added by Peter Drucker, Bruce Henderson, H. Igor

Ansoff, Henry Mintzberg, Michael Porter, Ohmae, Gary Hamel, C.K. Prahalad, Andrew

Campbell, Michael Goold and Marcus Alexander.

The Strategic Management Process

According to Michael Porter, developing a competitive strategy is developing a broad

formula for how a business is going to compete, what its goals should be, and what policies will

be needed to carry out those goals (1980). According to Strickland & Thompson, the five tasks

of strategic management are (1) Forming a strategic vision; (2) Setting objectives; (3) Crafting a

strategy; (4) Implementing and executing the strategy; and (5) Evaluating performance (1999).


4/11


Schools of Thought on Crafting Strategy

Within the process of crafting a strategy Henry Mintzberg has identified three groups

encompassing ten different schools of thought (1998). The prescriptive group includes the design

school, the planning school and the positioning school. The descriptive group includes the

entrepreneurial school, the cognitive school, the learning school, the power school, the culture

school and the environmental school. The integrative group includes the configuration school.

Foundational Principles of Strategic Management

The strategic management process and the ten different schools of thought on crafting

strategy can be combined to identify the foundational principles of strategic management.

Ethical Issues in Strategy

Figure 1: Foundational Principles of Strategic Management

The first foundational principle is that strategy is based on setting specific objectives.

These objectives drive the analysis and strategy making process.

The second foundational principle is that the internal environment must be reviewed

when crafting strategy. This review usually includes at least two questions: 1) How well is the

Set ObjectivesSet Objectives

Craft StrategyReview Internal Review External

Environment EnvironmentSet Appropriate Strategy

(based on school of thought)

Craft StrategyReview Internal Review External

Environment EnvironmentSet Appropriate Strategy

(based on school of thought)

Implement StrategyImplement Strategy

Evaluate & RepeatEvaluate & Repeat


5/11


companys present strategy working? 2) What are the companys resource strengths and

weaknesses? (Strickland & Thompson, 1999).

The third foundational principle is that the external environment must be reviewed when

crafting strategy. The external review can be much more substantial than the internal review. The

external review usually includes industry economic information; competitive forces information

such as Porters Five Forces model (Porter, 1980); industry driving forces (Porter, 1980);

competitive positions of rival firms using a strategic group map (Porter, 1980); strategic moves

expected by rivals; industry key success factors; and industry attractiveness.

The fourth foundational principle is that strategy must be implemented to obtain theobjectives set forth. Organizational behavior and change management disciplines are crucial in

the implementation of strategy.

The fifth foundational principle is that the environment is constantly changing and the

strategy must be evaluated and revised in a never-ending cycle.

Ethical Issues in Strategy

Business ethics concentrates on the moral standards as they apply to business policies,

institutions, and behavior. (Velasquez, 2002). Any attempt to analyze ethical issues in strategic

management requires a specific focus. If the analysis were to extend to all possible strategic

choices and courses of action, it would be without end. In order to obtain focus, this analysis will

only evaluate ethical issues inherent in the strategic management process, not with specific

strategic choices.

Historical Ethical Issue in Strategic Management

The key historical ethical issue in strategy is environmental review. This issue includes

review of the internal and external environments.


6/11


A review of the internal environment faces several challenges, including employee

privacy. The internal review can also be colored by politics and power. An analysis of a

companys weaknesses may not be favorable to parts of the organization and may be difficult to

address objectively.

A review of the external environment also presents challenges. In fact, this issue has

existed in strategy formulation for thousands of years. The prehistory of business strategy,

military strategy, faced this same challenge.

What is called foreknowledge cannot be elicited from spirits, nor from gods, nor by

analogy with past events, nor from calculations. It must be obtained from men who knowthe enemy situation. An army without secret agents is exactly like a man without eyes or

ears. (Tzu, 1963).

The historical ethical issue for competitive strategy, the environmental review, has been a

key ethical issue for as long as strategy has been formulated. This issue continues to be a

challenge to the application of strategic principles in business.

Current Ethical Issue in Strategic Management

The key current ethical issue in strategic management, competitive intelligence, flows

from the historical ethical issue. The review of the external environment, and more specifically,

the gathering of information on specific competitors has created the need for what is termed in

todays business as competitive intelligence or CI.

Competitive Intelligence

Most of the environmental and competitive analysis tools for strategic management rely

on competitive intelligence. Information about the environment and competitors is critical to the


7/11


use of tools such as: The Five Forces Model (Porter, 1980), Driving Forces Analysis (Porter,

1980), Strategic Group Mapping (Porter, 1980) and SWOT Analysis.

According to the Society of Competitive Intelligence Professionals (SCIP), Competitive

intelligence (CI) is the process of monitoring the competitive environment. Effective CI

is a continuous process involving the legal and ethical collection of information, analysis

that doesn't avoid unwelcome conclusions, and controlled dissemination of actionable

intelligence to decision makers. (SCIP, 2001).

Competitive intelligence is a core issue to the strategic management process. In fact, it is

required in order for strategy formulation to be successful. Performing successful and ethicalcompetitive intelligence is a major current ethical issue in strategic management.


8/11


References

Chandler, A. (1962). Strategy and structure, chapters in the history of the industrial enterprise .

Massachusetts: MIT Press.

Mintzberg, H. (1999). Strategy safari . New York: The Free Press.

Porter, M. (1980). Competitive strategy . New York: The Free Press.

Society of Competitive Intelligence Professionals (2001). What is CI? .

Retrieved November 11, 2001, from http://www.scip.org/ci/ .

Strickland, A. J., & Thompson, A. (1999). Strategic management: concepts and cases . New

York: Irwin/McGraw-Hill.

Tzu, S. (1963). The art of war . London: The Oxford University Press.

Velasquez, M. (2002). Business ethics; concepts and cases . New Jersey: Prentice Hal
http://www.scip.org/ci/http://www.scip.org/ci/


9/11


What is strategy?

Definition: strategy is what we want to do, what we want our organization to be & where wewant it to go.

Why do we need a strategy?

- for understanding our position in the market place- to give some sense of direction- focusing on key issues

What does a strategy involve:

- Where are we now & how did we get there? What did we do well or badly to arrive at our current position- What business are we in? Will this remain the same or will we need to change over business? If

so, what?- What factors, internal or external to the organization will or can have a telling impact on whatwe do in the future?

The steps written in "What does a strategy involve" above are a continuous process.

Where does strategy fit:

Strategy Models:

# Growth model

Growing market share by reduction in production cost & increasing sales# Porter's 5 forces model:# Growth by Mergers, Acquisitions & Takeovers[Inorganic growth model]- GE / Mckinsey Model [latest]- BCG [old strategic tool]- Value Chain -Porter - Core Competitiveness - C K Prahlad/ Gary Hamel

- GE / Mckinsey Model

It's also called as Product Portfolio Matrix.

- BCG

- Value Chain

- Core Competitiveness


10/11


- How does activity "X" significantly improve the end product for the customer?

- Does "X" offer access to a range of application & needs?

- What would happen to our competitiveness if we lost our strength in "X"?

- How difficult is it for others to imitate activity "X" & compete with us?

- 7S - Mckinsey

Strategists:Ansoff, Porter, Prahlad, Hamel, Mintzberg, Goldratt, Tom Peters

Guidelines for strategic formulation:- be different- learn from the past

- change continuously- be innovative- involve people [CFT - cross functional team]

Strategic analysis:- external environment - SLEPTW analysis- internal environment - SWOT- competition - 5 forces model

While making a strategy, look for the following perspectives also:- strategic horizon

- alternate strategy- leadership- customers- people- control- integration- processes- results

During the process of strategic formulation:- seriously question

- involve everyone- avoid "paralysis by analysis"- encourage & foster innovation & creativity- go for a balance- embrace conflict- remember that strategy never stops


11/11


4 types of organizations:- short lived- watchers- learning organizations &- movers

Strategic formulation & implementation:

Learning strategy framework

Documents

Formulating Business Strategy