Management is interested to see how the corporate political activity will be justified in the operational context of strategic management. Therefore, they must establish a correlation between societal activities and performance. There is some evidence that companies that perform in a socially responsible way are as profitable.67 Although top managers have a perceived value of corporate political strategy, there is very little evidence to support the view that corporate political performance improves economic performance. There are some studies that suggested a correlation between corporate political activity and performance.68


I t is evident that the business institutions will face a competitive arena in which a considerable number of nonmarket activities69 (politics, social responsibility) will seriously affect economic performance. Nevertheless, it is possible to incorporate both sides by accepting that stockholder profit maximization is obtained through a broader strategy, which goes beyond competitive strategy to include societal strategy. Although there are strong indicators suggesting that business and societal benefits do not mix well, the business institution has no choice but to expand its scope to include a greater strategic angle that will accommodate both economic and noneconomic objectives.

The strategic landscape for the modern business firm has changed. The arsenal of weapons needed to combat the competitive realities is beyond the scope of functional management. Increasingly, corporate social responsibility (CSR) contributes to shaping the contents of management education.70 The competitive environment has been extended into rather uncharted territories for most firms. For example, Microsoft, a highly entrepreneurial and successful company, encountered a battle that falls out of the technological and competitive boundaries, that is, the societal challenge (legal justification of market aggressiveness). Market dominance had created a different theater of war for Microsoft. Regardless of the opinions surrounding the legal position of Microsoft, it was evident that the political posture of Microsoft failed to foresee the societal implications of market dominance. Nonetheless, corporate managers are not trained to assume such roles. Firms will ultimately rely on hired guns to fight the societal battles of the firm. However, "managers are responsible for both market and nonmarket strategies and nonmarket analysis should be integrated with the analysis of market forces."71 In speculating about the anticipated explosion of the biotech industry, we can only hypothesize the societal ramifications72 and issues arising from biotech products (i.e., wealthy individuals cloning themselves for parts, sex selection, etc.). Consequently, the modern business firm must vigorously consider the societal environment73 and strategize proactively.

This is not an issue only concerning large firms but also the small firm.74 For example, in most suburban areas of a large city, pizza restaurants will often support little league sports. The question then arises whether they can afford not to participate in such social responsibility activities because a competitor may assume such a role. Therefore, whether it is a deliberate strategy for the restaurant owner or a reaction to the surrounding environment, it is clear that this type of strategy is not concerned with profitability, product innovation, or quality of service, but is about creating an image favorable to the stakeholders of the establishment often at a considerable cost.75 Furthermore, the same restaurant owner might want to keep an eye on the political scene of her/his community, where issues like zoning, transportation, etc., may have a critical impact on her/his business. Therefore, even the small businessperson must deliberately explore the wider societal ramifications impacting her/his business.

The modern firm's objectives will need to be supplemented with noneconomic objectives and that the "firm transformed from a purely

Figure 12.2. Socioeconomic and Political Environment

Socioeconomic and Political Environment

economic institution to a socioeconomic institution of society."76 It is evident that the modern business institution is faced with a broader scope of strategic challenges. Such strategic challenges are not new and for years firms have employed instruments to counter such issues (public affairs, government affairs, lobbyists, planned giving, etc.). For the most part, these activities became part of a business only upon discovering, for example, a public issue demanding a response by the respective business (reactive). Therefore, the societal strategic posture of the firm has generally been reactive, as opposed to proactive. The mounting pressure from such nonmarket activities begs the question for a reconfiguration of the strategic approach of the modern firm. Societal strategy77 must become an integral part of the corporate strategy to facilitate the firm's societal role effectively and efficiently. It is also critical to establish the long-term societal implications of the firm's competitive strategy. Competitive strategy employs mechanisms that explore near-future opportunities with near-future performance, although the societal implications of such strategy lie into the far future. According to Peter Drucker, "in the years to come, the most needed and the most effective—indeed perhaps the only truly effective—approach to 'social responsibility' will be the determination of social needs before departing into the creation of financial gains." The interaction between the socio and political environment is illustrated in Figure 12.2.

Therefore, societal strategy is the nonbusiness strategic activities involved with the social responsibility and the legitimacy of the firm. Social responsibility is granted with the task of maintaining an ethical behavior and conduct business in a socially responsible manner. The legitimacy strategy attempts to maintain and/or create rules that are favorable to the firm.78

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