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1.Characterize business, society, and government and explain their interrelationships 2.Differentiate the market and nonmarket environments and state how they influence each other 3.Explain the nonmarket society and government environments and how they affect business 4.Contrast the political and legal environments, briefly stating what each branch of government does, and summarize their balance of power 5.Discuss the role of business and its managers, including stakeholders 6.Define “strategy,” differentiate market and nonmarket strategies, and describe the need to integrate them 7.Define the key terms in this chapter Learning Outcomes After studying this chapter, you should be able to: © Routledge
Model 1.1 The Business, Society, and Government Interrelationship Stakeholder Environment © Routledge
Business, Society, and Government Defined Business A firm that sells a product for a profit Product A physical good or a service or a combination of both Society The people, including interest groups, and the communities affected by business Government The executive, legislative, and judicial branches at the local, county, state, federal, and international levels © Routledge
Capitalism, Pluralism, and Special Interest Groups Capitalism A market system in which individuals and corporations own the means of production and operate to make a profit with limited social intervention and government restraint. Pluralism A political system that attempts to balance power between business, society and government so that no one group dominates. Special interest group Any profit, nonprofit, or government organization that is working for its own best interest, sometimes at the expense of others. © Routledge
Factors Contributing to Special Interest Groups and Social Problems Entitlement Mentality VictimizationVictimization Social Problems © Routledge
The Market Environment Competitors Suppliers Customers Consumers Business Owners Shareholders Employees Managers IndirectIndirect DirectDirect InternalInternal ExternalExternal © Routledge
Figure 1.1The Market Environment InteractionStakeholders in the Market Environment DirectSuppliersBusinessCustomers/Consumers Distribution- Retailers/ Creditors Owners/ Stockholders Employees/ Managers Purchasers of the products/Users of the products IndirectCompetitors © Routledge
Figure 1.2The Nonmarket Society Environment Stakeholders in the Nonmarket Society Environment Societal Interest GroupsBusiness Owners/ Shareholders Employees/ Managers Communities and News Media © Routledge
Figure 1.3The Nonmarket Government Environment Political Lawmakers Legislative Branch/ Congress Business Owners/ Shareholders Employees/ Managers Political Law Enforcement Executive Branch/President Cabinet, and Regulatory Agencies Law Interpretation and Determination Judicial Branch/ Courts © Routledge
The Nonmarket Government Environment Legislative At the federal and state levels, Congress makes the laws. The Senate and House of Representatives develop and vote on bills to become law. Executive The president and the cabinet and regulatory agencies enforce the laws, and they do have power to make regulations (regulations interpret and implement laws enacted by Congress). Judicial The courts interpret the legality of the laws passed by congress, based on the Constitution and other criteria, and they determine the outcomes of court cases. © Routledge
Balance of Power: Government Pluralism and Checks and Balances Judicial ExecutiveLegislative © Routledge
The Macroenvironment Technological Environment Technology provides innovations of new and improved products and the processes for creating them. Natural Environment Nature includes the air, water/sea life, land— plants/food, trees, animals, etc., from our communities. Economic growth has put a strain on our natural resources and on the ability of the ecosystems to cleanse and regenerate. International Environment Multinational companies conduct business in many countries. Each country has its own system of interactions between business, society and government, with each country having their own way of doing business, culture, and laws that sometime conflict with the U.S. © Routledge
The Role of Business and Its Responsibility to Stakeholders Value Creation The role of business is to create value for its owners/stockholders and its other stakeholders. Stakeholders are affected by the business and can affect firm performance. Corporate Social Responsibility (CSR) The conscious effort to operate in a manner that balances stakeholder interests. © Routledge
The Role of Managers: Integration of Strategies Market Environment Strategies Nonmarket Environment Strategies Stakeholder value © Routledge
Market and Nonmarket Strategies Strategy Guides firm interactions with its stakeholders to achieve the firm’s objectives. Market Strategies Are used to compete for customers with the help of suppliers and market intermediaries.Are used to compete for customers with the help of suppliers and market intermediaries. Generate issues of special interest that are addressed in the nonmarket environment.Generate issues of special interest that are addressed in the nonmarket environment. Nonmarket Strategies Can be more important than market strategies.Can be more important than market strategies. Guide the firm’s interactions with society and government stakeholders.Guide the firm’s interactions with society and government stakeholders. Shape the nonmarket environment structure of a market and the position of the business in that market.Shape the nonmarket environment structure of a market and the position of the business in that market. Address nonmarket opportunities and threats.Address nonmarket opportunities and threats. © Routledge
Figure 1.4Nonmarket Strategies for Business Information Strategies (Chapters 1–2 and Appendix) 1.Outside sources that conduct research (use facts, figures/numbers to support your side of the issue) 2.Expert testimony (used with government, and can include outside sources) 3.Supportive stakeholder strategy (get stakeholders to support your issue) N—New strategy that you add © Routledge
Figure 1.4Nonmarket Strategies for Business (cont’d) Societal Strategies (Chapters 5–7) 1.Overall strategy for dealing with societal interest group activists: Give them donations (philanthropy) Ignore them (be reactive and wait to see what happens) Oppose them (be proactive in stopping their strategic action against you) Negotiate with them (bargain to minimize negative consequences to your business) Work with them (essentially give in and do what they want you to do) 2.Build coalitions with advocacy societal interest groups 3.Establish news media relations and advocacy advertising (paid) 4.Generate positive community sentiment by being ethical and socially responsible (ongoing long-term strategy) N—New strategy that you add © Routledge
Figure 1.4Nonmarket Strategies for Business (cont’d) Political Strategies (Chapters 8–10) 1.Overall strategy for dealing with governments: Ignore them (be reactive and wait to see what happens) Oppose them (be proactive and try to stop their strategic action against you) Negotiate with them (bargain to minimize negative consequences to your business) Work with them (essentially give in and do what they want you to do) 2.Lobby politicians and/or regulators (tell government your side of the issue— information strategy) 3.Grassroots campaigns (get market groups to contact politicians and/or regulators) 4.Building coalitions with market environment (usually competitors) 5.Seek business societal interest group support (peak and trade groups to which the business belongs) 6.Testimony at hearings (overlaps with information strategy 2 and legal strategy 2; use when needed) 7.Donations/campaign contributions to politicians (strategy used to help get politician elected) N—New strategy that you add © Routledge
Figure 1.4Nonmarket Strategies for Business (cont’d) Legal Strategies (Chapter 10) 1.Avoid lawsuits (including settling out of court) 2.Fight a lawsuit (go to court) 3.Sue other businesses, individuals, societal interest groups, and the government (to get what you want) N—New strategy that you add We recommend that you use this list of strategies when doing case analysis for all chapters. But realize that you can add other strategies to deal with the nonmarket. When you read the chapters that contain details about each strategy, you will be able to provide more details in the development and implementation of these strategies. If you analyze cases using the case table in the Appendix, the strategies are listed in column 5. © Routledge
Table 1.1Nonmarket Strategies for Google by Stakeholder Note: This multifaceted problem requires both market and nonmarket solutions per stakeholder; many of these strategies overlap with other nonmarket stakeholder strategies. Looking at Figure 1.4, you will see that the most often cited nonmarket strategies include operating in a way to gain community sentiment and to establish media and government relations. The CEO clearly needs to gain public support through media management and implement strategies to address the security problems in China. © Routledge
Our Approach to the Book and Cases: The Top Management Stakeholder Approach Throughout this book, we will focus on the use of nonmarket strategies by top-level managers to interact with business, government, and society stakeholders to achieve financial success while being socially responsible and ethical.Throughout this book, we will focus on the use of nonmarket strategies by top-level managers to interact with business, government, and society stakeholders to achieve financial success while being socially responsible and ethical. Stakeholders are affected by the business and can affect firm performance.Stakeholders are affected by the business and can affect firm performance. Therefore, cases in this text will place you in the position of a top-level business manager.Therefore, cases in this text will place you in the position of a top-level business manager. © Routledge
The Applied Ethics Approach Moral standards Values and beliefs Honesty and integrity Moral, immoral, and amoral management Using Business Ethics and Ethical Guidelines in Business © Routledge
Key Terms amoral managers business business ethics cheating ethics government honesty legal environment lying market environment market strategies moral management nonmarket environment nonmarket society environment nonmarket strategies political environment product public sentiment social problems societal interest groups society special interest groups stakeholders stealing strategy values © Routledge
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