Unit 6: Discussion 1 Week 6 MBA695

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Strategic Management

Jeff Dyer

Third Edition

Chapter 14

Strategy and Society

Professor’s Goals for this Lecture

There are many types of problems that can be solved for a company by doing a cost analysis. A cost analysis can be used to solve problems as diverse as marketing (e.g., how much to spend to acquire additional customers) or HR (how much labor costs go down per unit with increases in volume). The principle tools to be learned in this chapter are designed to help the student examine the relationship between a company’s size (measured in volumes produced or market share) and cost per unit. This is primarily reinforced by teaching students how to create a scale/experience curve (both done in the same way with “cost per unit” on the “Y” axis but the scale curve uses volume for a given year on the “X” axis whereas the experience curve uses cumulative volume on the “X” axis. The students will have the opportunity to examine the relationship between scale/experience in the following assignments:

- the homework assignment involving calculating an experience curve in semiconductors

- Fry’s Credit Card Mini-case (in lecture); considers the relationship between total number of subscribers (X axis) and cost per subscriber (Y axis)

- the Southwest Case (after lecture); considers the relationship between total passengers flown (or market share) and performance (profitability) in the industry

Three types of value

Economic Value—increases in income, wealth, or profit

Social Value—Increases in well-being in non-economic areas

Literacy

Health and sickness

Housing

Shared value--when creating economic value also creates social value

I’d spend about 10 minutes here and invite student to think about ways (and examples) in which

Economic value fails to enhance social value (perhaps the crisis over fast food and soda leading to diabetes)

Situations where creating social value destroys economic value (this might be housing projects that depress real estate values, or education programs that fail to produce their own outcomes but also leave students unprepared for jobs).

Situations where shared value might actually exist—this might be Cisco Systems training academies that train low income individuals to become Cisco certified engineers.

Sustainable stakeholder advantages

Social value organizations rely on repeat transactions

Universities and legacies

Community agencies and ongoing partners

The ability to consistently gather resources from key stakeholders such as donors, volunteers, students, etc.

I’m going to spend about 5 minutes here helping students that the ability to create meaningful and ongoing relationships with stakeholders really matters, and that organizations only do that when the create real, lasting value for that stakeholder.

The example here would be university donations. Ask the students to think about a major donation or gift to the university. Did it come from an Alumnus? (probably) Why? (because the university created long term value—through education and socialization—and maintained a long term relationship with the donor)

Value Net

Value Net- A model of value creation that describes how an organization

interacts with others in its environment to create value.

Customers- Individuals or groups that purchase, or receive, the outputs of the organization.

Suppliers- Individuals, groups, or organizations that provide important inputs for the organization.

Competitor- An individual or organization that makes customers value the organization’s output less because it offers its own product or service.

Complementor- An individual or organization that makes customers value the organization’s output more because of its product or service.

The value net consists of four elements: customers, suppliers, competitors, and complementors

Figure 14.1: The value net

Customer

Organization

Competitor

Complementor

Supplier

20 Minutes here

The value of the value net is that it lets us think about stakeholders as playing multiple roles. In a for-profit company, stakeholders tend to play single roles (e.g., people who eat at McDonalds rarely become suppliers, and Wendy’s is a competitor to McDonalds, but rarely would they work together to create joint value).

In the social sector, however, stakeholders tend to play multiple roles. Think about you universities main rival (for BYU students it’s probably the University of Utah). They are fierce competitors, right? But did you know that faculty from these schools also work together to advance research and share resources? Or that their library systems are connected to allow them to lower library costs?

I’m going to spend about 5 minutes on each element, defining it (which the book does very well), but really trying to get students to see that individual stakeholders often play multiple roles.

It helps to ask students where they see stakeholders playing multiple roles, and how organizations need to be careful to maintain positive relationships with stakeholders as they engage the organization in different ways.

Corporate Social Responsibility

Corporate Social Responsibility- Activities of companies designed to further some social objective and that lie beyond the direct economic interests of the organization.

Economic Responsibility- A firm’s obligation to generate economic profits.

Legal Responsibility- A firm’s obligation to obey the written and codified laws of the countries in which it operates.

Ethical Responsibility- A firm’s obligation to abide by the unwritten ethical standards, norms, and values of the communities in which it operates.

Philanthropic Responsibility- A firm’s obligation to contribute to the enhancement of the communities in which it operates.

Figure 14.2: CSR: A firm’s social obligations

I’m going to spend about 15 minutes here, just reviewing.

The example I might use would be Coke and Pepsi-

What are their economic responsibilities (to provide good jobs for their employees, timely payments to suppliers, profits for shareholders).

What are their legal responsibilities (to comply with all health and safety regulations, including clean water, waste disposal, and to comply with all labor laws. Recently some cities have passed legislation prohibiting soda sales inside schools, or other venues)

What about their ethical responsibilities (in September of 2014, Coke, Pepsi, and other soda companies set a target to reduce the calories consumed in soda. They said they would do so through education, offering smaller portion sizes, and shifting the mix of their products toward low calorie and water options)

Philanthropic responsibilities. Coca cola has its own foundation, which in 2013 donated almost $100 Million to causes around the world. See http://www.coca-colacompany.com/our-company/the-coca-cola-foundation for a complete description.

I’d ask the students what pressures they see on companies to behave in socially responsible ways. They need to understand that such pressure is rising, not falling, and they will face an increasingly aware public as they enter the workforce. The internet has empowered activist groups, and it has created increased transparency regarding a company’s activities.

Philanthropic Responsibilities

Ethical Responsibilities

Legal Responsibilities

Economic Responsibilities

Social Entrepreneurship

Social Entrepreneurship- The use of innovative organizations and business models to create shared value.

Social entrepreneurs create value in one of three ways: they attempt to build capacity, they sell products or services, or they drive institutional change:

Capacity Building- The transfer of skills and abilities from one organization to another.

Institutional Change- When entrepreneurs strive to change the way people and groups think about problems and they work to create or change social institutions—from government policies to social values and norms.

Skills of Social Entrepreneurs

Social Bricoleur - A social entrepreneur who creates something new through the combination of diverse and different elements.

Social Constructor- A social entrepreneur who builds something that did not exist before.

Social Engineer- A social entrepreneur who designs and creates new social systems to create large-scale change.

Figure 14.3 Types of social entrepreneurship

Focus on SE Activities	Role of social entrepreneur/ leader	Examples
Capacity Building	Social bricoleur: Combines existing resources to focus value creation	Highlander Research and Education Center (USA): adult education for community problem solving in Appalachia BRAC (Bangladesh): organizes and trains poor communities to create economic and social development
Products/ Services	Social constructor: Develops new models, products, or services	Grameen Bank (Bangladesh, Worldwide): developed unique model for delivery/ repayment of micro-credit Unilever (India): Project Shakti uses rural women to sell hygiene products. Improves local health and incomes
Institutional Change	Social engineers: agitate for change, design more effective social systems	Bono (Ireland): becomes a voice for worldwide poverty alleviation Nelson Mandela (South Africa): reconciliation commissions allow wounds from apartheid to heal

I’d spend the last 20 minutes of class discussing social entrepreneurship.

First, define a social entrepreneur as An individual or organization that uses free market principles and create for-profit businesses with the goal of creating value.

The important thing about this discussion is to help students realize that there are different types of social entrepreneurship, and that each type requires a different set of skills. To begin, I’d ask them to list and describe different social ventures they know about (and most of them will know about more than one). Have them sort these into the different categories.

It’s most likely that they’ll list a number of ventures selling products and services, because these are often the most recognizable.

Capacity building organizations tend to operate below the radar; however, there are likely to be several capacity building organizations in your area. Think about private charter schools, or schools targeting kids with Asperger's or Autism. These are really examples of social bricoleurs because they aren’t really bringing anything new to education, they are focusing resources in a new area.

Martin Burt is a social engineer. He’s not only building his own schools (capacity building) and providing micro-credit (through Fundacion Paraguaya), he’s also trying to be an agent for global change. You can have students look him up on the Web to see how many different organizations he’s a part of, how many fellowships he has.

Challenges in Social Entrepreneurship

Base of the Pyramid (BoP)- Describes those living in conditions of extreme poverty around the world, usually defined as less than $2 per day.

Hybrid Organization- An organization pursuing more than a single goal; each goal has equal importance.

social entrepreneurs often work in difficult, unstable, and harsh conditions

social entrepreneurs who want to combine a for-profit model with a social

mission face the difficulty of managing a hybrid organization.

Summary

Strategy matters for social value organizations

Pressure for socially responsible behavior will continue to increase as you enter the workforce

Social entrepreneurship represents a new way to make a difference in the world

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