Strategic planning approaches and organizational social responsibility

Social Responsibility

Henry Mintzberg (1994) defined strategic planning as a means to devise and implement the strategies that would enhance corporate competitiveness. Inherent to this was separating strategic thinking from the actions undertaken to execute strategy. Strategic planning, divorced from strategic thinking, placed emphasis on finding ways to implement existing strategies better.

While this divorce of the two concepts of strategic development was necessary to focus managers on the knowledge acquisition and functional task management needed to excel operationally, it eventually lead to the downfall of strategic planning -- managers were no longer devising the best strategies, they were merely executing existing strategy well.

Social responsibility has evolved in the past decade from its roots in Milton Friedman's seminal work (1971) to an all-encompassing view of the firm's responsibilities to all of its stakeholders. In doing so, it has become as broad-based a concept as strategic planning. At the intersection of these two ideas is the way in which the company implements its strategies -- how it acts -- and how those actions affect the different stakeholders. Taking Mintzberg's view of strategic planning as an information gathering role combined with functional organization (with strategic thinking -- or synthesis -- as a step in between) and a post-Friedman stakeholder view, this intersection between the two ideas can be studied. The result of this analysis will be recommendations as to the strategic planning approaches most likely to encourage social responsibility.

Strategic Planning

The idea of strategic planning emerged in the 1960s and its role and definition have shifted over time. Today's vision of strategic planning encompasses both the information gathering function and the business level strategy implementation function. In order for strategic thinkers to formulate strategy, they must have the best information possible. Gathering information is central to strategic planning and for this function a number of different models have been developed to provide a framework for the internal and external environment analysis.

Strategic planning also occurs at the functional level. When the firm has decided where it wants to go, strategic planners also work at finding the best methods to bring the firm to that point. Business-level tactics are formulated, both internal and external and then implemented. The strategic planning process as a whole is intended to take the company from a point where it may not understand its environment and its situation to a point where not only does it understand its environment and situation, but it knows where it wants to go and what steps it needs to take to arrive at that point.

Traditional approaches to strategic planning focus on traditional outcome measures. A firm that is an orthodox believer of Freidman's doctrine views itself as serving only the shareholder, to whom the managers have an agency relationship. Such a firm will focus strictly on shareholder measures such as earnings per share, or share price. Strategy under such a traditional approach will encompass a focus on the different output metrics that management believes are highly correlated with positive outcomes for shareholders, for example same store sales increases in the retail business. Such traditional approaches are characterized not only by the focus on outputs, but also by their tendency to ignore the externalities created by the firm's activities.

More modern views of strategic planning take into consideration both inputs and externalities. The resource-based view of strategy, for example, holds that the firm's resources and competencies are its primary source of competitive advantage (De Toni & Tonchia, 2003). Firms operating under the resource-based view will synthesize the information that they acquire during the strategic planning process differently than managers with a more traditional mindset. In addition, managers utilizing modern models of strategic planning will ask different questions in order to obtain information that traditional strategic planners may ignore.

Beyond the resource-based view, there is also increasing emphasis on externalities. Social norms have shifted in most of the Western world since Friedman set forth his theory of social responsibility. While many firms still ascribe to his theory, others have taken the view that they must expand the notion of responsibility to account for all of the firm's externalities. This implies an obligation to at the very least create no negative externalities but more likely to create a net positive set of externalities (Wettstein, 2010).

Another emerging strategic planning theory -- in addition to the traditional firm and industry views and the resource-based view is the institution-based view. This view holds that institutions, both formal and informal, and how the firm reacts to each, play an important role in a firm's success. Thus, firms benefit from taking an institution-oriented approach to their strategic planning process, especially in international business where the institutions can be very different from those in the home market (Peng, Wang & Yi, 2009). Modern strategic planning may even incorporate elements of all major strategic planning theory -- the industry-based view, institutional view and the resource-based view (Peng et al., 2009).

The post-Friedman view of social responsibility implies that firms must understand the implications of their actions; that they must measure their externalities and address areas of concern. This ethic is derived from the utilitarianism of John Stuart Mill. Friedman's view of social responsibility is also derived from consequentialism, but is focused on the consequences to one group. Friedman's view fits well with the prevailing theories of strategic planning. Traditional strategic planning is also focused on the gathering of relatively narrow sets of information and transforming that information by way of strategy into an even-more-narrow set of outcomes.

It would seem to flow naturally from that realization that a more complex view of the external and internal environments, from multiple perspectives the way modern strategic planning is conducted, would lead to the consideration of a broader range of outputs. It is from not only the willingness to understand the broader range of outputs but the desire to do so that the concept of social responsibility has become expanded in modern management theory.

Hosmer (1994) argues that an expanded view of ethics -- of consideration for a wider range of externalities -- should be an essential component of strategic thinking. In a globalized, knowledge-intensive economy the ability to foster trust is a critical success factor. So, too, is the ability to build strong relationships with all stakeholders. In a world where businesses must compete for customers, for employees, for markets and for political connections in order to gain and maintain sources of competitive advantage, it is necessary then to consider the impacts of the firm's activities on all stakeholders. Consider the responsibility that BP has with respect to the Gulf of Mexico oil spill -- by shirking that responsibility the company may find itself with diminished access to oil supplies held by nations that take a broader view of social responsibility than does BP. Other stakeholders have the power to impact any business, and only by taking a broader approach to strategic planning and incorporating a wider understanding of social responsibility will firms be able to build the type of relationship capital with their full set of stakeholders.

Conclusion

Traditional strategic planning is narrow in its focus -- perhaps only going as broad as the industry -- and as a result is a poor tool by which strategy can be developed that focuses on anything other than shareholder-focused financial metrics. If the firm's view of social responsibility is broader than that which Milton Friedman proposed, then a broader view of strategic planning is required in order to achieve the myriad of different outputs desired.